UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-11336
CIPRICO INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1749708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2800 Campus Drive
Plymouth, Minnesota 55441
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 551-4000
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of July 28, 2000 was 5,017,643 shares.
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2000 and September 30, 1999 3
Condensed Consolidated Statements of Earnings for Three and
Nine Months Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for
Nine Months Ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) June 30, September 30,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,951 $ 3,539
Marketable securities 21,869 23,363
Accounts receivable, less allowance 7,532 6,962
Inventories 4,681 4,603
Deferred income taxes 1,155 1,155
Other current assets 536 455
---------- ----------
Total current assets 38,724 40,077
Property and equipment, net 3,218 3,743
Marketable securities 10,079 9,003
Other assets 410 415
---------- ----------
Total assets $ 52,431 $ 53,238
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,603 $ 2,641
Accrued expenses 1,634 2,063
Deferred revenue 520 1,244
---------- ----------
Total current liabilities 4,757 5,948
Shareholders' equity:
Capital stock 50 49
Additional paid-in capital 36,083 35,929
Retained earnings 11,621 11,409
Deferred compensation from restricted stock (80) (97)
---------- ----------
Total shareholders' equity 47,674 47,290
---------- ----------
Total liabilities and shareholders' equity $ 52,431 $ 53,238
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands except Three Months Ended Nine Months Ended
per share amounts) June 30, June 30,
-------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 9,742 $ 9,108 $ 24,780 $ 25,497
Cost of sales 5,390 4,455 13,482 12,506
-------- -------- -------- --------
GROSS PROFIT 4,352 4,653 11,298 12,991
OPERATING EXPENSES:
Research and development expenses 1,202 942 3,115 3,143
Sales and marketing expenses 2,775 2,401 7,791 6,717
General and administrative expenses 429 765 1,447 2,208
-------- -------- -------- --------
Total operating expenses 4,406 4,108 12,353 12,068
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (54) 545 (1,055) 923
Other income, primarily interest 451 458 1,377 1,302
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 397 1,003 322 2,225
Income tax expense 135 339 109 757
-------- -------- -------- --------
NET INCOME $ 262 $ 664 $ 213 $ 1,468
======== ======== ======== ========
Shares used to calculate net earnings per share:
Basic 4,990 4,918 4,977 4,905
Diluted 5,057 5,002 5,074 5,000
NET EARNINGS PER SHARE - BASIC $ .05 $ .14 $ .04 $ .30
======== ======== ======== ========
NET EARNINGS PER SHARE - DILUTED $ .05 $ .13 $ .04 $ .29
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Nine Months Ended
June 30,
--------
2000 1999
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 213 $ 1,468
Depreciation and amortization 1,910 1,949
Changes in operating assets and liabilities (1,920) 1,313
---------- ----------
NET CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES 203 4,730
---------- ----------
Cash flows from investing activities:
Equipment purchases (1,351) (1,403)
Purchases of marketable securities (35,069) (47,473)
Proceeds from sale or maturity of marketable
securities 35,487 39,053
---------- ----------
NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES (933) (9,823)
---------- ----------
Cash flows from financing activities:
Repurchase of common stock (263) (1,041)
Proceeds from issuance of common stock 405 486
---------- ----------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 142 (555)
---------- ----------
Net increase (decrease) in cash and cash equivalents (588) (5,648)
Cash and cash equivalents at beginning of period 3,539 9,030
---------- ----------
Cash and cash equivalents at end of period 2,951 3,382
Marketable securities, current 21,869 23,373
Marketable securities, long-term 10,079 9,008
---------- ----------
Total cash and marketable securities $ 34,899 $ 35,763
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE A - BASIS OF PRESENTATION
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. The Company markets its
products worldwide through a direct sales force and various distribution
channels.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all necessary adjustments, consisting only of a
recurring nature, and disclosures to present fairly the financial position as of
June 30, 2000 and the results of operations and cash flows for the three-month
and nine-month periods ended June 30, 2000 and 1999. The results of operations
for the nine months ended June 30, 2000 are not necessarily indicative of the
results for the full year. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report to Shareholders for fiscal
1999.
In preparation of the Company's consolidated financial statements, management is
required to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
NOTE B - MARKETABLE SECURITIES
The Company has invested its excess cash in commercial paper and government
agencies. These investments are classified as held-to-maturity given the
Company's intent and ability to hold the securities to maturity and are carried
at amortized cost. Investments that have maturities of less than one year have
been classified as current marketable securities. At June 30, 2000 and September
30, 1999, amortized cost approximates fair value of held-to-maturity
investments, which consist of the following:
(In thousands) June 30, September 30,
2000 1999
---------- ------------
Current marketable securities:
Commercial Paper $ 12,869 $ 14,854
U.S. Government Agencies 9,000 8,509
---------- -----------
21,869 23,363
Non-current marketable securities:
Commercial Paper 6,076 -0-
U.S. Government Agencies 4,003 9,003
---------- -----------
10,079 9,003
$ 31,948 $ 32,366
========== ===========
NOTE C - SHAREHOLDERS' EQUITY
During 1998, the Company initiated a stock buyback program of up to $6.0
million. As of June 30, 2000, 517,900 shares of common stock have been
repurchased for $5.6 million.
6
<PAGE>
NOTE D - NET EARNINGS PER SHARE
The Company's basic net earnings per share amounts have been computed by
dividing net earnings by the weighted average number of outstanding common
shares. The Company's diluted net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares and common
share equivalents relating to stock options, when dilutive. For the three months
ended June 30, 2000 and 1999, 66,997 and 84,291 shares of common stock
equivalents were included in the computation of diluted net earnings per share.
Options to purchase 563,500 and 592,452 shares of common stock with a weighted
average exercise price of $13.32 were outstanding at June 30, 2000 and 1999, but
were excluded from the computation of common share equivalents for the
three-month periods because they were antidilutive. For the nine months ended
June 30, 2000 and 1999, 96,948 and 95,045 shares of common stock equivalents
were included in the computation of diluted net earnings per share. Options to
purchase 494,500 and 696,952 shares of common stock with a weighted average
exercise price of $13.67 and $12.56 were outstanding at June 30, 2000 and 1999,
but were excluded from the computation of common share equivalents for the
nine-month period because they were antidilutive.
NOTE E - SEGMENT INFORMATION
The Company operates in a single reportable segment. The following presents net
sales for the nine months ended June 30, 2000 and 1999 by geographic area. The
Company has no material long-lived assets outside of the United States.
(In thousands)
2000 1999
--------- ---------
Geographic Area
North America $ 18,535 $ 19,162
Europe 2,528 3,483
Japan 1,914 1,605
Other foreign 1,803 1,247
--------- ---------
$ 24,780 $ 25,497
========= =========
Sales to one customer accounted for 29% and 31% of the total sales for the nine
months ended June 30, 2000 and 1999 respectively.
7
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three and Nine Months Ended June 30, 2000 Compared to Three and Nine Months
Ended June 30, 1999
Net sales for the three-month period ended June 30, 2000 increased 7% to $9.7
million compared to $9.1 million for the same period last year. For the
nine-month period ended June 30, 2000, net sales decreased 3% to $24.8 million
compared to $25.5 million for the same prior year period. The decrease is
primarily attributable to a decrease in sales in the Geospatial Imaging Market
where the timing of large orders impacts quarterly results. Sales in the
Company's key markets for the nine-month period ending June 30, 2000 are shown
in the chart below (in millions).
Market 2000 % of Total 1999 % of Total
------ ---- ---------- ---- ----------
Entertainment $11.3 46% $10.4 41%
Geospatial Imaging 8.9 36 10.4 41
Other 4.6 18 4.7 18
----- --- ----- ---
$24.8 100% $25.5 100%
===== ==== ===== ====
Revenues in the Entertainment market increased 9% in the nine months ended June
30, 2000 compared to the nine months ended June 30, 1999. This increase relates
to the Company's continued focus on digital broadcast applications.
International sales represented 26% and 25% of total sales for the nine months
ended June 30, 2000 and 1999. Sales through Silicon Graphics Inc. (SGI) totaled
$7.1 million or 29% of total sales for the nine-month period ended June 30,
2000, compared to $7.9 million or 31% for the same period last year.
The Company's revenue growth in fiscal 2000 is dependent on market acceptance of
new products, expansion of products into new applications within its targeted
market segments, and success of programs which specify Ciprico products.
Gross profit, as a percentage of net sales, was 45% and 46% for the three-month
and nine-month periods ended June 30, 2000 compared to 51% for the same periods
last year. This decrease in the margin percentage results from lower margins on
our new products and an unfavorable channel and market mix. The faster
transition to increasing sizes of disk drives this year has also impacted our
ability to reduce the cost of disk drives this year. The Company expects to
experience continued pressure on gross profit margins until the cost of new
products is reduced.
Research and development expenses increased $260,000 for the three months ended
June 30, 2000 as compared to the same quarter of last year, primarily the result
of increased compensation and prototype expense. Research and development
expense for the nine months ended June 30, 2000 approximates the expense for the
nine month period ended June 30, 1999. The Company expects that research and
development expenses in fiscal 2000 will increase from the current levels as
headcount is added and increased prototype expenses are incurred.
Sales and marketing expenses increased $374,000, or 16%, for the current quarter
as compared to the same quarter of last year and $1,074,000, or 16%, for the
nine months ended June 30, 2000 as compared to the same period last fiscal year
primarily due to the addition of headcount. The Company expects that sales and
marketing expenses in Fiscal 2000 will continue to increase with additional
headcount.
8
<PAGE>
General and administrative expenses decreased $336,000 and $761,000 for the
three months and nine months ended June 30, 2000 as compared to the same periods
last fiscal year. These decreases reflect collection of previously reserved
accounts as well as reduced compensation expense.
Other Income of $451,000 for the three-month period ended June 30, 2000
decreased $7,000 from the same period of last year due to lower average cash
balances. Other Income of $1,377,000 for the nine-month period ended June 30,
2000 increased 6% compared to the same period last year due to higher interest
rates this year compared to last year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash, cash equivalents and marketable
securities totaling $34.9 million compared to $35.9 million at the end of fiscal
1999.
Cash flows from operating activities were $.2 million for the nine months ended
June 30, 2000 compared to $4.7 million for the same period last year. The
Company made capital expenditures totaling $1.4 million during the nine months
ended June 30, 2000 and 1999. The Company anticipates that capital expenditures
for fiscal 2000 will approximate $2 million. During fiscal 1998, the Company
initiated a stock buyback program of up to $6.0 million. During the nine months
ended June 30, 2000, 25,000 shares of common stock were purchased for $262,500.
The remaining authorization as of June 30, 2000 is for $.5 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.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q are forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995. Such statements relate
to levels of future sales and expenditures and imply continued financial
improvement. Because of numerous risks and uncertainties in the Company's
business activity, actual results could differ materially from those implied.
Investors should consider: the impact on revenues and earnings of the timing of
product enhancements and new product releases; market acceptance of new
products; sales and distribution issues; competition; dependence on suppliers;
dependence on the cost of disk drives; limited backlog; and the historic and
recurring pattern of a disproportionate percentage of total quarterly sales
occurring in the last month and weeks of a quarter. For a more complete
description, see "Forward-looking Information" under Management's Discussion and
Analysis included in the Annual Report for the year ended September 30, 1999.
9
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its excess cash in commercial paper and highly rated U.S.
government agencies. All investments are held-to-maturity. The market risk on
such investments is minimal. Receivables from sales to foreign customers are
denominated in U.S. Dollars. If the currencies of these countries were to fall
significantly against the U.S. Dollar, there can be no assurance that such
companies would be able to repay the receivables in full. Transactions at the
Company's foreign subsidiaries, Ciprico International Limited and Ciprico
Asia-Pacific Inc., are denoted in pound sterling and yen, respectively. The
Company has historically had minimal exposure to changes in foreign currency
exchange rates and, as such, has not used derivative financial instruments to
manage foreign currency fluctuation risk.
10
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (filed in electronic format only)
(b) No report on Form 8-K was filed during the quarter ended
June 30, 2000.
11
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIPRICO INC.
Dated: August 4, 2000 /s/ Robert H. Kill
Robert H. Kill, President
(Principal Executive Officer)
Dated: August 4, 2000 /s/ Joan K. Berg
Joan K. Berg, Vice President of
Finance/Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(filed in electronic format only)
13
