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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
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For the fiscal year ended Commission File No. 0-11336
September 30, 1999
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CIPRICO INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 41-1749708
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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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 [ ]
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 9, 1999 was approximately $53,322,989 (based upon the
last sale price of the Registrant's Common Stock on such date).
Shares of Common Stock outstanding at December 9, 1999: 4,960,278 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended September 30, 1999 are incorporated by reference in Part II and portions
of the Registrant's Proxy Statement for the 2000 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 and market high-performance, direct-attached and networked storage
solutions, including intelligent disk array hardware, software and services.
Ciprico storage solutions are designed for visual computing applications ranging
from high speed image data capture, through processing and analysis, to
real-time playback at sustained performance levels. 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). 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, geospatial 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 small
segment of sales from controllers. Both product lines provide the highest levels
of performance while maintaining connectivity consistent with 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 $14,000 to $65,000
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.
6900 Series. Introduced in 1996, Ciprico's 6900 Series disk arrays use the
SCSI peripheral interface standard 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 144 gigabytes (GB) to 288
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 67 to 300 GB. The 6500 Series can be striped or
daisy-chained together for additional capacity.
7000 Fibre Channel Series. In fiscal 1997, Ciprico began shipping its 7000
Series disk array, the industry's first disk array to offer a host interface
compatible with full speed Fibre Channel. Fibre Channel is the fastest interface
currently available. The 7000 Series offers a peak transfer rate of 100 MB per
second and a sustained transfer rate in excess of 90 MB per second.
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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. 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 400 GB. A total rack system storage capacity can grow
to over 2 terabytes with only seven arrays. The 7000 Series has hot swap disk
drives, power supplies and fans.
FibreSTORE Products. Ciprico announced its new family of RAID disk arrays
in 1998. The initial member of the family, the FibreSTORE JBOD (just a bunch of
drives) began shipping in December 1998. It features full Fibre Channel
connectivity between the disk drives as well as to the host computer, full dual
loop Fibre Channel connections and redundant power supplies and fans.
Configurations of up to seven FibreSTORE enclosures containing up to 63 Fibre
Channel disk drives have been fully tested and supported. Fibre STORE offers the
performance features of Fibre Channel for applications that do not require RAID
protection.
The second member of the family, FibreSTORE RAID was introduced in October
1999. FibreSTORE RAID adds data redundancy features to FibreSTORE insuring
uninterrupted data availability at full performance levels and service without
disruption. The new FibreSTORE RAID system can be configured with single or dual
RAID controllers and up to 2.8 terabytes of Fibre Channel disk storage in a
single rack. Each controller is a fully independent, caching controller designed
to give optimum performance in data streaming applications such as digital video
and multiple stream video playback. It is designed to deliver continuous,
sustainable data rates at close to 200 MB per second with the dual controller
option.
Software Utilities. Ciprico qualifies all of its disk array products with
popular host adapters for standard platforms to optimize compatibility with its
customer's systems. For each of the popular host computers and operating
systems, Ciprico develops and tests interface adapter and utility software
packages to enable the disk arrays to be conveniently connected by the customer.
The current packages include:
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.
RaidiaNT Series. RaidiaNT 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
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user interface (GUI) utility package. The 7000 product has been certified as
Windows NT compatible by Microsoft Corporation.
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.
Storage Area Networks. Crossing all of Ciprico's vertical markets is the
emerging market for Storage Area Networks (SANS). This is a Fibre Channel based,
networking infrastructure that provides storage advantages over the traditional
networking architecture. Ciprico is involved in the emerging market for
heterogeneous file sharing through SAN architectures which will leverage the
capabilities of the Company's disk array products with Fibre Channel components
from other vendors to deliver the benefits of sharing visual data in
cross-platform environments.
SERVICES.
Ciprico provides its customers with ongoing technical assistance and
flexible spare parts options to assure failures are identified and repairs are
made quickly. The Advantage Support Program allows the customer to choose which
spares it will rent for its disk array support. 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. A new spares purchase/ hot spares program allows the customer
to select and purchase on site spare components to support their production
environment and purchase a hot spares service option that provides the customer
with delivery of replacement parts from an authorized Ciprico parts depot. All
service options provide training for the customer's technicians and access to
the Company's telephone support services. Telephone support specialists are
available 24 hours per day, 7 days per week through the Company's toll-free help
line.
The Company also provides a return-to-factory parts and labor warranty
against defects in materials and workmanship covering a period of three years
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, geospatial 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.
Geospatial Imaging. The geospatial imaging market segment consists of
commercial companies and military and government agencies that capture, archive
and review imagery data collected from airborne or space-based satellite
sensors. This market has three primary applications where Ciprico disk arrays
are best suited: data capture, image processing and archiving, and mission
planning and rehearsal. Data capture is the process of collecting the imagery
data, either by use of an imaging satellite or an aircraft equipped with imaging
capabilities. A single image frame ranges from a few megabytes up to 14
gigabytes in size, with the data capture phase requiring the collection of
hundreds of frames per day. In the case of satellite based imagery sensors,
Ciprico disk arrays are used at the supporting ground stations. As the satellite
passes overhead of the groundstation, the data is downlinked at very high data
rates. For airborne applications, Ciprico arrays are on-board the aircraft and
the imagery data is also captured at a very high rate. In the image processing
and archiving applications, the imagery data created from the capture phase must
be processed before it is usable for end-users. Once processed, the imagery data
is stored into digital asset management databases for fast query and retrieval.
These databases often reach multiple terabytes in size and require the high
bandwidth performance Ciprico disk arrays provide. In the mission planning and
rehearsal application, imagery data is fused with other battlefield information
to enable military commanders to view 3D maps of the areas of interest, and
assist them in their mission planning efforts. Mission rehearsal allows preview
and rehearsal of a mission using high resolution 3D imagery data sets of the
area of interest prior to the actual execution of a mission.
Ciprico's disk arrays deliver high performance transfer rates, typically
real-time, that are required by users in the geospatial 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
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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 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 applications.
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, system integrators, and value-added dealers (VADs). Ciprico's direct
sales organization is primarily responsible for "demand creation" activities and
customer development. 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, and large end-users (including government departments and
agencies). The initial sales process is complex, requiring interaction with
several layers of the
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customer's organization and extensive technical exchanges as well as product
demonstrations. As a result, the Company's typical sales cycle can span up to
nine months.
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 1999 and 1998, sales through SGI totaled $9.1
million and $11 million, respectively.
(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 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
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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 strategic partners with which it
works closely to fill these needs. The principal suppliers are Arrow
Electronics, Inc., Bell Microproducts, 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 1999
and 1998, sales through Silicon Graphics, Inc. totaled $9.1 million and $11.0
million, respectively. A customer in the geospatial imaging market, a department
of the U.S. Navy, made up 13%, 8% and 10% of net sales in 1999, 1998 and 1997,
respectively.
(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
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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(R), and Spectra
6000(R) and has registrations pending for trademarks for HALO(TM),
FibreSTORE(TM), and SANity(TM).
(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, 1999, the Company had $247 thousand in
backlog which is scheduled to ship in fiscal 2000. 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 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 family of Fibre Channel
products, the FibreSTORE family of digital storage systems, was introduced
during fiscal 1999. The system offers flexibility in architecture, performance,
fault-tolerance and capacity. With its modular design, FibreSTORE products can
be configured with
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zero, single or dual RAID controllers, power fail cache memory, hot-spare drives
and with multiple disk enclosures for multiple terabytes of storage.
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/Solaris platforms are being upgraded to enhance the
new FibreSTORE product family. RaidiaNT, a software package for the Windows NT
operating system was completed and introduced in 1998. All of the Company's
products are SAN-ready and in fiscal 2000, the Company expects to further
explore the market for Storage Area Network (SAN) solutions.
The Company invested $4,056,000, $4,527,000 and $3,172,000 in research
and development expenses in fiscal 1999, 1998 and 1997, respectively. All of the
Company's research and development expenditures are expensed as incurred. At
November 30, 1999, the Company had 28 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, 1999, the Company had 112 full-time employees, of which
20 were engaged in manufacturing, 28 in engineering and research and
development, 53 in sales, sales support and marketing and 11 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
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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.
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:
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Name Age Position(s)
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Robert H. Kill 52 Chairman of the Board, President
and Chief Executive Officer
Stephen R. Hansen 47 Vice President - Product Development
and Operations
Joan K. Berg 47 Vice President of Finance,
Chief Financial Officer and Secretary
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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.
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<PAGE> 13
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.
-12-
<PAGE> 14
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, 1999.
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, 1999.
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, 1999.
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, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-13-
<PAGE> 15
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 2000 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 2000 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 2000 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 financial
statement schedules.
(b) Financial Statement Schedules. See Schedule II on page
following signatures.
(c) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the fourth
quarter of fiscal 1999.
-14-
<PAGE> 16
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 17, 1999 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 17, 1999
- ---------------------------------- (Principal executive officer)
Robert H. Kill
/s/ Joan K. Berg Vice President of Finance and Chief December 17, 1999
- ---------------------------------- Financial Officer (Principal
Joan K. Berg financial and accounting officer)
/s/ William N. Wray Director December 17, 1999
- ----------------------------------
William N. Wray
/s/ Donald H. Soukup Director December 17, 1999
- ----------------------------------
Donald H. Soukup
/s/ Gary L. Deaner Director December 17, 1999
- ----------------------------------
Gary L. Deaner
/s/ Bruce J. Bergman Director December 17, 1999
- ----------------------------------
Bruce J. Bergman
/s/ Thomas F. Burniece
- ---------------------------------- Director December 17, 1999
Thomas F. Burniece
</TABLE>
-15-
<PAGE> 17
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
---------
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Charged to Charged to
Beginning Costs and Other Balance at End
of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Accounts receivable allowance
September 30, 1999 $277,000 $ 333,000 $ - $(65,000) A $ 545,000
September 30, 1998 391,000 204,000 (318,000) A 277,000
-
September 30, 1997 335,000 99,000 (43,000) A 391,000
-
Warranty reserve
September 30, 1999 $135,000 $ 106,000 $ - $(166,000) B $ 75,000
September 30, 1998 345,000 232,000 (442,000) B 135,000
-
September 30, 1997 295,000 548,000 (498,000) B 345,000
-
</TABLE>
A - Deductions represent accounts receivable written-off during the year.
B - Deductions represent warranty work performed during the year.
-16-
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Ciprico Inc.
In connection with our audit of the consolidated financial
statements of Ciprico Inc. and subsidiaries referred to in our report dated
November 1, 1999, which is included in the Ciprico Inc. 1999 Annual Report to
Shareholders and incorporated by reference in Part III of this form, we have
also audited Schedule II for each of the three years in the period ended
September 30, 1999. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
November 1, 1999
-17-
<PAGE> 19
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, 1999
- --------------------------------------------------------------------------------
CIPRICO INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
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 Driv
Plymouth, Minnesota and corporate office space located at 2955 Xenium Lane, Plymouth Minnesota--inco
by reference to Exhibit 10.1 of the Registrant's Form 10-K for the fiscal year ended September 30, 1
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> 20
<TABLE>
<S> <C>
10.4** 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*
10.5** 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*
10.6** 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*
10.7** 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*
10.8** 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*
10.9** 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*
10.10** Registrant's 1996 Restricted Stock Plan, as amended--incorporated by reference to Exhibit 10.4 of
the Registrant's Form 10-Q for the fiscal quarter ended December 31, 1998*
10.11** 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*
10.12** Registrant's 1999 Amended and Restated Stock Option Plan - - incorporated by reference to Exhibit 10.1
of the Registrant's Form 10-Q for the fiscal quarter ended December 31, 1998*
10.13** Specimen of Incentive Stock Option Agreement under 1999 Amended and Restated Stock Option
Plan--incorporated by reference to Exhibit 10.2 of the Registrant's Form 10-Q for the fiscal
quarter ended December 31, 1998*
</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> 21
<TABLE>
<S> <C>
10.14** Specimen of Nonqualified Stock Option Agreement under 1999 Amended and Restated Stock Option
Plan--incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q for the fiscal
quarter ended December 31, 1998*
10.15 Agreement dated January 29, 1998 between Silicon Graphics, Inc. and Registrant- - incorporated by
reference to Exhibit 10.14 of the Registrant's Form 10-K for the fiscal year ended September 30,
1998*
13 Portions of September 30, 1999 Annual Report to Shareholders incorporated by reference in this
Form 10-K
22 Subsidiaries of the Registrant
Jurisdiction
Name of Incorporation
------ ----------------
Ciprico FSC, Inc. Virgin Islands
Ciprico (Europe) Limited England
Ciprico Asia-Pacific, Inc. Delaware
23.1 Consent of Grant Thornton 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> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Ciprico Inc. and Subsidiaries
OVERVIEW:
Ciprico designs, manufactures and markets high-performance direct-attached and
networked storage solutions, including intelligent disk array hardware, software
and services. Ciprico storage solutions are designed for visual computing
applications ranging from high speed image data capture, through processing and
analysis, to real-time playback at sustained performance levels. The Company's
primary markets are Entertainment and Geospatial Imaging (formerly referred to
as Defense Imaging). In addition, the Company seeks opportunities in other
markets with high-performance storage requirements such as Geosciences, Digital
Prepress and Medical Imaging.
NET SALES:
Sales for 1999 were approximately $34 million, an increase of 13% over 1998
sales, although 1998 sales were down 17% from 1997 levels. The Company
attributes the changes in sales volume to changes in conditions in its principal
markets. Sales in the Company's key markets are shown in the chart below:
(in millions)
<TABLE>
<CAPTION>
Market 1999 % of Total 1998 % of Total 1997 % of Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Entertainment $13.7 40.2% $ 8.4 27.9% $15.7 43.1%
Geospatial 13.7 40.2 10.2 33.9 12.4 34.1
Geosciences 1.7 5.0 7.4 24.6 1.1 3.0
Other 5.0 14.6 4.1 13.6 7.2 19.8
-----------------------------------------------------------------------------
Total $34.1 100.0% $30.1 100.0% $36.4 100.0%
-----------------------------------------------------------------------------
</TABLE>
The Entertainment market in 1999 included sales in the post-production film and
video segments, as well as sales from new opportunities in the broadcast
segment. In 1998 and 1997, the Company's sales in the Entertainment market were
primarily in the post-production film and video segment. The decrease in sales
in 1998 from the record 1997 level of sales in the Entertainment market resulted
from the decline of new movie development and special effects in that year. The
level of revenues in the Geospatial Imaging market fluctuates with the timing of
large contracts. In 1999, approximately 30% of the revenues in this market
resulted from a contract for ruggedized versions of our products. In 1998, the
Company had a significant increase in sales in the Geosciences market, partially
attributable to the success of the Company's partnership with Silicon Graphics,
Inc. (SGI). Ciprico believes that Geoscience market revenues in 1999 were
reduced due to depressed crude oil prices and industry consolidation which
impacted capital spending.
Export sales represented 23% of total sales in 1999, 25% of sales in 1998, and
21% of sales in 1997. In 1999 and 1998, sales through SGI totaled $9.1 million
and $11.0 million. A customer in the Geospatial Imaging market, a department of
the U.S. Navy, made up 13%, 8% and 10% of net sales in 1999, 1998 and 1997,
respectively.
The Company's revenue growth in the future is dependent on its ability to
provide new products and expand the applications of its products into targeted
market segments. The Company released the first
<PAGE> 2
product in the FibreSTORE Family of Storage Systems in December 1998. Sales from
this product totaled $2.1 million for the year ended September 30, 1999. In
October 1999, the Company released the next member of the FibreSTORE Family, the
FibreSTORE RAID. The Company believes that the modular design of this product
line will enable it to provide more storage solutions for its customers in its
principal markets and contribute to growth in sales in fiscal 2000.
COST OF SALES AND GROSS PROFIT:
Gross profit of $17.4 million represented a 51% gross profit margin for 1999.
The gross profit margin in 1998 was 50%, continuing the upward trend from 48% in
1997. The increase in margin percentage in 1999 is primarily due to the higher
percentage of product sold through direct channels compared to 1998. The
increase in the margin percentage in 1998 compared to 1997 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 both 1999 and 1998 while managing
changes in disk drive prices and a transition in drive sizes.
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 fiscal 2000 gross profit, as a percentage of net sales, to gradually
decline to the upper forty percent range as lower margin products and services
represent a larger percentage of the total sales mix.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses in 1999 decreased approximately $500,000 from
1998, primarily due to a decrease in consulting costs, partially offset by
increased compensation and prototype material costs. Research and development
expenses of $4.5 million in 1998 increased 43% from 1997 due to additional
staff, outside professional services and depreciation expenses for test
equipment. The Company expects that research and development expenses in fiscal
2000 will approximate the level of spending in 1998.
SALES AND MARKETING EXPENSES:
Sales and marketing expense was 27.1% of total revenue in 1999 compared to 28.5%
in 1998, an increase of approximately $700,000. The Company expects that sales
and marketing expense will continue to decline as a percentage of revenue in
fiscal 2000, although increasing in cash expenditures. 1998 sales and marketing
expenses of $8.6 million increased 23% from 1997, reflecting the costs
associated with increasing the sales staff and product promotion expenses in
alignment with the Company's vertical markets.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses of $2.8 million were at approximately the
same level in both 1999 and 1998. In 1998, general and administrative expenses
increased $200,000 over 1997, principally related to consulting relative to the
Company's business systems. The Company expects a modest increase in general and
administrative expense spending in fiscal 2000.
<PAGE> 3
OTHER INCOME:
Other income of $1.8 million in 1999, and $2.0 million in 1998 and 1997 is
primarily attributable to interest income on the Company's cash and marketable
securities. The decrease in 1999 is due to lower interest rates on lower average
cash and investment balances.
INCOME TAX EXPENSE:
Income tax expense represented 34% of income before tax for 1999, 1998 and 1997.
The Company expects that the income tax rate in fiscal 2000 will increase.
NET INCOME:
As a result of the factors described above, net income increased $1.4 million in
1999 and decreased $3.6 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES:
As of September 30, 1999, the Company had a total of cash, cash equivalents and
marketable securities of $35.9 million compared to $33.0 million at the end of
1998 and $36.8 million at the end of 1997.
Cash flows from operating activities were $5.0 million, $2.6 million, and $2.1
million in 1999, 1998 and 1997, respectively. The Company made capital
expenditures totaling $1.8 million, $2.7 million and $3.0 million in 1999, 1998
and 1997, respectively. The Company anticipates that capital expenditures for
2000 will approximate $3.0 million. During 1998, the Company initiated a stock
buyback program of up to $6.0 million. As of September 30, 1999, 492,900 shares
of common stock have been repurchased for $5.3 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 fiscal 2000.
YEAR 2000 ISSUE:
The Company initiated a Year 2000 readiness program in June 1998. The Company
has reviewed all currently manufactured Ciprico products and critical
information systems. As a result of this process, the Company upgraded software
and hardware to achieve Year 2000 readiness, and believes its product and
information systems will continue to function through the transition to the new
millennium. The Company has also contacted critical suppliers to ensure their
ability to provide uninterrupted service into the year 2000. The Company intends
to continue to monitor disclosures from its critical suppliers for new
information about Year 2000 readiness.
The cost associated with the assessment and any modifications was 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, service providers, utilities,
governmental agencies and other entities with which the Company does business.
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.
<PAGE> 4
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) and Geospatial
Imaging, and emerging markets such as Geosciences, 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.
The computer storage industry has experienced significant consolidation during
1999. The ability of larger competitors to focus greater resources on product
and sales development may reduce the Company's ability to compete effectively.
A significant portion of the Company's revenues in the last two years has been
through distribution. If the Company's distributor is unable to generate the
same level of revenues, the Company's ability to reach customers through direct
channels may be limited.
<PAGE> 5
CONSOLIDATED INCOME STATEMENTS
Ciprico Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended September 30 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $34,058,987 $30,088,527 $36,389,678
Cost of sales 16,687,584 15,005,121 19,099,716
--------------------------------------------
Gross Profit 17,371,403 15,083,406 17,289,962
--------------------------------------------
Operating Expenses:
Research and development expense 4,056,215 4,527,337 3,171,918
Sales and marketing expense 9,230,245 8,576,153 6,976,680
General and administrative expense 2,773,412 2,925,930 2,699,992
--------------------------------------------
Total operating expenses 16,059,872 16,029,420 12,848,590
--------------------------------------------
Income (loss) from operations 1,311,531 (946,014) 4,441,372
Other income, primarily interest 1,803,273 1,950,622 1,998,000
-------------------------------------------
Income before income taxes 3,114,804 1,004,608 6,439,372
Income tax expense 1,059,000 342,000 2,190,000
--------------------------------------------
Net Income $ 2,055,804 $ 662,608 $ 4,249,372
--------------------------------------------
Shares used to calculate earnings per share:
Basic 4,913,904 5,023,374 5,056,451
Diluted 5,014,677 5,221,244 5,395,687
Earnings Per Share:
Basic $ .42 $ .13 $ .84
--------------------------------------------
Diluted $ .41 $ .13 $ .79
--------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
Ciprico Inc. and Subsidiaries
<TABLE>
<CAPTION>
September 30 1999 1998
- ----------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,539,205 $ 9,029,907
Marketable securities 23,362,986 18,944,967
Accounts receivable, less allowance of $545,000
and $277,000 in 1999 and 1998 6,962,086 5,666,718
Income taxes receivable 21,000 1,208,929
Inventory 4,603,040 3,755,191
Deferred income taxes 1,155,000 738,000
Other current assets 433,558 377,572
-----------------------------
Total current assets 40,076,875 39,721,284
-----------------------------
Property and equipment, at cost:
Furniture and fixtures 751,782 754,579
Equipment 10,584,865 9,800,812
Leasehold improvements 411,668 359,912
-----------------------------
11,748,315 10,915,303
Accumulated depreciation and amortization (8,005,693) (6,404,601)
------------------------------
Net property and equipment 3,742,622 4,510,702
-----------------------------
Marketable securities 9,003,097 5,015,602
Deferred income taxes 290,000 81,000
Other assets 125,403 144,573
-----------------------------
Total assets $53,237,997 $49,473,161
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,640,367 $ 2,437,647
Accrued compensation 827,685 435,778
Warranty accrual 75,000 135,000
Income taxes payable 985,551 80,677
Other accrued expenses 174,895 257,493
Deferred revenue 1,244,196 817,814
-----------------------------
Total current liabilities 5,947,694 4,164,409
-----------------------------
COMMITMENTS -- --
SHAREHOLDERS' EQUITY:
Common stock, 4,954,779 shares and 4,916,297
shares issued and outstanding in 1999 and 1998 49,547 49,162
Additional paid-in capital 35,929,032 35,982,710
Retained earnings 11,408,995 9,353,191
Deferred compensation from restricted stock (97,271) (76,311)
-----------------------------
Total shareholders' equity 47,290,303 45,308,752
-----------------------------
Total liabilities and shareholders' equity $53,237,997 $49,473,161
-----------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Ciprico Inc. and Subsidiaries
<TABLE>
<CAPTION>
Common Deferred
stock and Compensation
additional Retained from Restricted
Years ended September 30, 1999, 1998 and 1997 Shares paid-in-capital earnings Stock Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 income - - 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 income - - 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
Exercise of employee stock options 142,251 525,200 - - 525,200
Tax benefit related to options - 252,000 - - 252,000
Employee plan stock purchases 18,131 122,929 - - 122,929
Restricted stock issued 11,600 87,613 - (87,613) -
Amortization of restricted stock - - - 66,653 66,653
Net income - - 2,055,804 - 2,055,804
Repurchase of common stock (133,500) (1,041,035) - - (1,041,035)
------------------------------------------------------------------------------
Balance, September 30, 1999 4,954,779 $35,978,579 $11,408,995 $ (97,271) $47,290,303
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ciprico Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended September 30 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,055,804 $ 662,608 $ 4,249,372
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,632,279 2,111,469 1,486,216
Deferred income taxes (626,000) 87,000 (414,000)
Other (46,663) 44,080 135,910
Compensation related to stock transactions 66,653 28,679 53,646
Changes in operating assets and liabilities:
Accounts receivable (1,295,368) (514,807) (682,669)
Income taxes receivable 1,187,929 (883,882) (325,047)
Inventory (847,849) 598,743 (1,564,620)
Other current assets (55,986) 106,830 (92,735)
Accounts payable 202,720 152,312 (758,225)
Accrued expenses 168,632 (336,044) (44,049)
Income taxes payable 1,173,312 291,928 61,480
Deferred revenue 426,382 297,477 2,645
-------------------------------------------------
Net cash flows provided by operating activities 5,041,845 2,646,393 2,107,924
-------------------------------------------------
Cash Flows from Investing Activities:
Equipment purchases, net of disposals (1,817,536) (2,718,156) (2,993,853)
Other assets, net 19,170 (10,914) (120,368)
Purchase of marketable securities (61,788,722) (44,262,387) (46,315,602)
Proceeds from sale or maturity of marketable securities 53,463,885 52,591,641 37,884,635
-------------------------------------------------
Net cash flows provided by (used in)
investing activities (10,123,203) 5,600,184 (11,545,188)
-------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 631,691 521,870 551,513
Repurchase of common stock (1,041,035) (4,250,951) -
-------------------------------------------------
Net cash flows provided by (used in)
financing activities (409,344) (3,729,081) 551,513
-------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (5,490,702) 4,517,496 (8,885,751)
Cash and Cash Equivalents at Beginning of Year 9,029,907 4,512,411 13,398,162
-------------------------------------------------
Cash and Cash Equivalents at End of Year 3,539,205 9,029,907 4,512,411
Marketable Securities - Current 23,362,986 18,944,967 24,806,985
Marketable Securities - Long-term 9,003,097 5,015,602 7,482,838
-------------------------------------------------
Total Cash and Investments at End of Year $ 35,905,288 $ 32,990,476 $ 36,802,234
-------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ciprico Inc. and Subsidiaries - September 30, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: The principal business activity of Ciprico Inc. and subsidiaries (the
Company) is the design, manufacture and marketing of high-performance,
direct-attached and networked storage solutions, including intelligent disk
array hardware, software and services for visual computing applications.
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 significant 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.
INVENTORY: Inventory is 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. Inventory consists of the following:
<TABLE>
<CAPTION>
As of September 30 1999 1998
- ---------------------------------------------------------
<S> <C> <C>
Finished Goods $1,873,359 $1,979,927
Work-In-Process 609,238 389,040
Raw Materials 2,120,443 1,386,224
--------------------------
Total $4,603,040 $3,755,191
==========================
</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, 1999, the Company's cash and cash equivalents were
invested in a money market fund. Of the total cash and cash equivalents at
September 30, 1998, $5,443,694 was invested in commercial paper and the balance
was 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, 1999 and 1998, amortized cost approximates fair value of
held-to-maturity investments which consist of the following:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------
<S> <C> <C>
Current
Commercial Paper $ 14,853,775 $ 8,944,872
U.S. Government Agencies 8,509,211 10,000,095
----------------------------
23,362,986 18,944,967
Non-current
U.S. Government Agencies 9,003,097 5,015,602
----------------------------
$ 32,366,083 $ 23,960,569
============================
</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.
EARNINGS PER SHARE: The Company's basic earnings per share amounts are computed
by dividing net income by the weighted average number of outstanding common
shares. Diluted earnings per share is computed by dividing net income by the
weighted average number of outstanding common shares and common share
equivalents attributable to the assumed exercise of dilutive stock options.
For the fiscal years ended September 30, 1999, 1998 and 1997, 100,773, 197,870
and 339,236 shares of common stock equivalents were included in the computation
of diluted net earnings per share. Options to purchase 708,850, 551,050 and
72,250 shares of common stock with a weighted average exercise price of $12.11,
$13.92 and $17.04 were outstanding at
<PAGE> 10
September 30, 1999, 1998 and 1997, 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.
2. INCOME TAXES
The provisions for income tax expense consist of:
<TABLE>
<CAPTION>
Years ended September 30 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,499,000 $ 230,000 $2,354,000
State 160,000 3,000 226,000
Foreign 26,000 22,000 24,000
------------------------------------------
Total current 1,685,000 255,000 2,604,000
Deferred (626,000) 87,000 (414,000)
------------------------------------------
Total $1,059,000 $ 342,000 $2,190,000
==========================================
</TABLE>
During 1999, the Company received net cash refunds of $690,000 for income taxes.
During 1998 and 1997, the Company made cash payments of $826,000 and $2.8
million for income taxes.
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 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Inventory $ 365,000 $ 398,000
Allowance for doubtful accounts 200,000 102,000
Warranty accrual 37,000 50,000
Compensation accrual 122,000 94,000
Other 431,000 94,000
------------------------
Current deferred tax asset 1,155,000 738,000
Long-term deferred tax assets:
Depreciation 234,000 39,000
Deferred compensation 56,000 42,000
------------------------
Long-term deferred tax asset 290,000 81,000
------------------------
Total $1,445,000 $ 819,000
========================
</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 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal
income tax benefit 3.4 2.3 2.3
Tax credits (3.2) - -
Other, net (.2) (2.3) (2.3)
----------------------------------------
34.0% 34.0% 34.0%
========================================
</TABLE>
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ciprico Inc. and Subsidiaries - September 30, 1999, 1998 and 1997
3. SHAREHOLDERS' EQUITY
Authorized Shares
The Company is authorized to issue 1,000,000 shares of Preferred Stock at $.01
par value and 9,000,000 shares of Common Stock at $.01 par value. The Company
has not issued any shares of Preferred Stock.
Stock Repurchase
During 1998, the Company initiated a stock buyback program of up to $6.0
million. As of September 30, 1999, 492,900 shares of common stock have been
repurchased for $5,291,986.
Stock Option Plans
The Company has a stock option plan under which officers, directors, employees
and consultants 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 30,1999, the Company had 325,719
shares reserved for future issuance under the plan.
Option transactions under the Company's stock option plans during the three
years ended September 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted 260,250 9.10
Exercised (148,651) 3.84
Canceled (106,262) 11.98
-----------------------------------------
Outstanding at September 30, 1999 959,811 $ 11.00
-----------------------------------------
Options exercisable at September 30:
1997 378,136 $ 6.72
1998 462,148 9.30
1999 446,629 11.51
-----------------------------------------
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------
Range of Number Weighted Average Weighted Average Number Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price Outstanding Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.90 - 4.33 80,211 .6 years $ 4.15 80,211 $ 4.15
6.31 - 8.56 169,750 4.0 years 7.87 28,438 7.90
9.00 - 13.13 432,600 3.7 years 11.02 180,913 12.39
13.50 - 17.88 271,000 2.8 years 14.70 152,192 14.69
21.50 - 22.00 6,250 1.7 years 21.96 4,875 21.96
-------------------------------------------------------------------------------
959,811 446,629
-------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted in 1999, 1998 and 1997 was
$3.85, $4.94 and $7.36 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 1999, 1998 and
1997: no dividend yield; risk-free rate of return of 5.9%, 5.4% and 6.0%;
volatility of 54.5%, 66.2% and 72.3%; and an average term of
<PAGE> 12
3.2 years, 3.1 years and 2.9 years. The Company's 1999, 1998 and 1997 proforma
net earnings (loss) and net earnings (loss) per share would have been $752,801,
$(475,650) and $3,426,121 or $.16, $(.09) and $.64 per share had the fair value
method been used for valuing options granted during 1999, 1998 and 1997. 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 44,084 shares have been issued. At September
30, 1999, the Company had 105,916 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 30,720 shares have been issued.
At September 30, 1999, the Company had 119,280 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. Contributions in addition
to the minimum may also be made by the Company based on the Company's financial
performance. The Company's contributions to this plan in 1999, 1998 and 1997
were $132,810, $126,552 and $105,400.
5. SEGMENT INFORMATION
The Company adopted Financial Accounting Standards Board Statement No. 131
"Disclosures about Segments of an Enterprise and Related Information" during
fiscal year 1999. The Company operates in a single reportable segment.
The Company's net sales summarized by geographic area are as follows:
<TABLE>
<CAPTION>
Net Sales 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
North America $27,009,027 $23,454,635 $28,814,469
Europe 4,010,411 3,739,773 3,173,165
Japan 2,133,606 1,822,443 2,581,348
Other foreign 905,943 1,071,676 1,820,696
-------------------------------------------
Total $34,058,987 $30,088,527 $36,389,678
-------------------------------------------
</TABLE>
The Company has no material long-lived assets outside of the United States.
Sales to significant customers as follows:
<TABLE>
<CAPTION>
Years ended September 30 1999 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A 27% 37% 4%
Customer B 13 8 10
-------------------------------------
Total 40% 45% 14%
-------------------------------------
</TABLE>
At September 30, 1999, 1998 and 1997, the Company had a receivable from Customer
A totaling $1.7 million, $2.4 million and $291,000 and a receivable from
customer B totaling $1.8 million, $146,000 and $390,000.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ciprico Inc. and Subsidiaries - September 30, 1999, 1998 and 1997
6. COMMITMENTS
The Company has operating leases for office and manufacturing space which expire
through October 2002. Future minimum payments under these leases are $498,998,
$413,797, $365,600 and $29,639 for fiscal 2000, 2001, 2002 and beyond. For the
years ended September 30, 1999, 1998 and 1997, operating lease expenses were
$571,727, $506,444 and $324,837.
7. RISKS AND UNCERTAINTIES
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company and its business partners will not be fully
determinable until the year 2000 and thereafter. If Year 2000 modifications are
not properly completed either by the Company or entities with whom the Company
conducts business, the Company's revenues and financial condition could be
adversely impacted.
8. COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standard Board Statement No. 130
"Reporting Comprehensive Income" during fiscal 1999. Statement No. 130 requires
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 includes items such as unrealized gains or losses on
certain investment securities and foreign currency items. Because the Company
historically has not experienced material transactions that would be included in
comprehensive income, the adoption of this standard did not have a material
effect on the consolidated financial statements.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standard Board Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" is effective for fiscal years beginning
after June 15, 1999. SFAS 133 requires entities to recognize all derivatives in
their financial statements as either assets or liabilities measured at fair
value. The Statement also specifies new methods of accounting for derivatives
used in risk management strategies (hedging activities), prescribes the items
and transactions that may be hedged, and specifies detailed criteria required to
qualify for hedge accounting. The adoption of this standard is not expected to
have a material effect on the consolidated financial statements of the Company.
<PAGE> 14
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, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ciprico Inc. and
subsidiaries as of September 30, 1999 and 1998, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended September 30, 1999, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Minneapolis, Minnesota
November 1, 1999
<PAGE> 15
QUARTERLY FINANCIAL DATA
(unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Net sales $7,774,301 $ 8,614,477 $ 9,108,610 $8,561,599 $34,058,987
Net income 282,466 521,278 665,127 586,943 2,055,804
Net earnings per share -
diluted .06 .10 .13 .12 .41
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
Net earnings (loss) per share -
diluted .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
Net earnings per share -
diluted .21 .20 .22 .16 .79
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Ciprico Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended September 30 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 34,058,987 $ 30,088,527 $ 36,389,678 $ 27,408,126 $ 15,966,203
Gross profit 17,371,403 15,083,406 17,289,962 13,024,667 7,467,829
51.0% 50.1% 47.5% 47.5% 46.8%
Operating expenses 16,059,872 16,029,420 12,848,590 10,061,622 7,361,413
47.1% 53.3% 35.3% 36.7% 46.1%
Income (loss)
from operations 1,311,531 (946,014) 4,441,372 2,963,045 106,416
3.8% (3.1%) 12.2% 10.8% .7%
Other income, net 1,803,273 1,950,622 1,998,000 976,657 317,661
Income tax expense 1,059,000 342,000 2,190,000 496,000 28,000
Net income $ 2,055,804 $ 662,608 $ 4,249,372 $ 3,443,702 $ 396,077
----------------------------------------------------------------------------------
Shares used to calculate
net earnings per share
Basic 4,913,904 5,023,374 5,056,451 3,943,352 3,234,168
Diluted 5,014,677 5,221,244 5,395,687 4,325,672 3,394,079
Net earnings
per share - Basic $ .42 $ .13 $ .84 $ .87 $ .12
----------------------------------------------------------------------------------
Net earnings
per share - Diluted $ .41 $ .13 $ .79 $ .80 $ .12
----------------------------------------------------------------------------------
</TABLE>
SELECTED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
September 30 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $34,129,181 $35,556,875 $36,374,954 $29,849,513 $ 6,572,688
Total assets 53,237,997 49,473,161 52,105,282 47,988,900 10,920,067
Shareholders' equity 47,290,303 45,308,752 48,057,546 42,427,015 7,696,264
- -------------------------------------------------------------------------------------------------------------
</TABLE>
STOCK TRADING
Ciprico common stock is traded on the Nasdaq National Market under the symbol
CPCI. As of November 30, 1999, there were approximately 3,600 shareholder
accounts of record. Closing stock sale price ranges for the years ended
September 30, 1999 and 1998, were:
<TABLE>
<CAPTION>
Quarter 1999 High 1999 Low 1998 High 1998 Low
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $ 7.94 $ 6.31 $15.13 $11.13
Second 10.25 6.82 14.75 11.50
Third 10.00 7.63 14.13 9.94
Fourth 14.50 9.25 8.56 6.50
- ------------------------------------------------------------------------
</TABLE>
The Company has never paid cash dividends on any of its securities. The Company
currently intends to retain earnings for use in its operations for the
foreseeable future.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated November 1, 1999, accompanying the
consolidated financial statements and schedule of Ciprico Inc. and subsidiaries
which are incorporated by reference or included in their Annual Report on Form
10-K for the year ended September 30, 1999. 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 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 3,539,205
<SECURITIES> 32,366,083
<RECEIVABLES> 7,507,086
<ALLOWANCES> 545,000
<INVENTORY> 4,603,040
<CURRENT-ASSETS> 40,076,875
<PP&E> 11,748,315
<DEPRECIATION> 8,005,693
<TOTAL-ASSETS> 53,237,997
<CURRENT-LIABILITIES> 5,947,694
<BONDS> 0
0
0
<COMMON> 35,978,579
<OTHER-SE> 11,311,724
<TOTAL-LIABILITY-AND-EQUITY> 53,237,997
<SALES> 34,058,987
<TOTAL-REVENUES> 34,058,987
<CGS> 16,687,584
<TOTAL-COSTS> 32,747,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 333,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,114,804
<INCOME-TAX> 1,059,000
<INCOME-CONTINUING> 2,055,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,055,804
<EPS-BASIC> .42
<EPS-DILUTED> .41
</TABLE>
