UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended December 31, 1999
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 January 27, 2000 was 4,977,604 shares.
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1999 and September 30, 1999 3
Condensed Consolidated Income Statements for
Three Months Ended December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for
Three Months Ended December 31, 1999 and 1998 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 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIPRICO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) December 31, September 30,
1999 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,916 $ 3,539
Marketable securities 24,902 23,363
Accounts receivable, less allowance 5,692 6,962
Inventories 4,933 4,603
Deferred income taxes 1,155 1,155
Other current assets 514 455
-------- --------
Total current assets 40,112 40,077
Property and equipment, net 3,419 3,743
Marketable securities 7,503 9,003
Other assets 426 415
-------- --------
Total assets $ 51,460 $ 53,238
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,809 $ 2,641
Accrued expenses 1,285 2,063
Deferred revenue 1,106 1,244
-------- --------
Total current liabilities 4,200 5,948
Shareholders' equity:
Capital stock 50 49
Additional paid-in capital 35,988 35,929
Retained earnings 11,300 11,409
Deferred compensation from restricted stock (78) (97)
-------- --------
Total shareholders' equity 47,260 47,290
-------- --------
Total liabilities and shareholders' equity $ 51,460 $ 53,238
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands except Three Months Ended
per share amounts) December 31,
1999 1998
------- -------
<S> <C> <C>
NET SALES $ 6,847 $ 7,774
Cost of sales 3,737 3,866
------- -------
GROSS PROFIT 3,110 3,908
OPERATING EXPENSES:
Research and development expense 888 1,140
Sales and marketing expenses 2,314 2,082
General and administrative expenses 545 676
------- -------
Total operating expenses 3,747 3,898
------- -------
INCOME (LOSS) FROM OPERATIONS (637) 10
Other income, primarily interest 472 423
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (165) 433
Income tax expense (benefit) (56) 151
------- -------
NET INCOME (LOSS) $ (109) $ 282
======= =======
NET EARNINGS (LOSS) PER SHARE - BASIC $ (.02) $ .06
======= =======
NET EARNINGS (LOSS) PER SHARE - DILUTED $ (.02) $ .06
======= =======
Shares used to calculate net earnings (loss) per share:
Basic 4,958 4,899
Diluted 4,958 4,997
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
December 31,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (109) $ 282
Depreciation and amortization 672 652
Changes in operating assets and liabilities (878) 564
-------- --------
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES (315) 1,498
Cash flows from investing activities:
Equipment purchases (383) (535)
Purchases of marketable securities (8,903) (12,781)
Proceeds from sale or maturity of marketable
securities 8,864 11,300
-------- --------
NET CASH FLOWS USED IN INVESTING
ACTIVITIES (422) (2,016)
Cash flows from financing activities:
Repurchase of common stock -- (576)
Proceeds from issuance of common stock 114 94
-------- --------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 114 (482)
-------- --------
Net decrease in cash and cash equivalents (623) (1,000)
Cash and cash equivalents at beginning of period 3,539 9,030
-------- --------
Cash and cash equivalents at end of period 2,916 8,030
Marketable securities, current 24,902 18,928
Marketable securities, non-current 7,503 6,514
-------- --------
Total cash and marketable securities $ 35,321 $ 33,472
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(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
December 31, 1999 and the results of operations and cash flows for the
three-month periods ended December 31, 1999 and 1998. The results of operations
for the three months ended December 31, 1999 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 December 31, 1999 and September 30, 1999, amortized cost approximates fair
value of held-to-maturity investments which consist of the following:
(In thousands) December 31, September 30,
1999 1999
------- -------
Current marketable securities:
Commercial Paper $14,895 $14,854
U.S. Government Agencies 10,007 8,509
------- -------
24,902 23,363
Non-current marketable securities:
U.S. Government Agencies 7,503 9,003
------- -------
$32,405 $32,366
======= =======
NOTE C - SHAREHOLDERS' EQUITY
During 1998, the Company initiated a stock buyback program of up to $6.0
million. As of December 31, 1999, 492,900 shares of common stock have been
repurchased for $5.3 million.
<PAGE>
NOTE D - NET EARNINGS (LOSS) PER SHARE
The Company's basic net earnings (loss) per share amounts have been computed by
dividing net earnings (loss) by the weighted average number of outstanding
common shares. The Company's diluted net earnings (loss) per share is computed
by dividing net earnings (loss) by the weighted average number of outstanding
common shares and common share equivalents relating to stock options, when
dilutive. For the three months ended December 31, 1999, the Company reported a
net loss and as such, no common share equivalents were included in the
computation of diluted net loss per share. For the three months ended December
31, 1998, 97,930 shares of common stock equivalents were included in the
computation of diluted net earnings per share. Options to purchase 953,037 and
689,325 shares of common stock with a weighted average exercise price of $10.98
and $12.75 were outstanding at December 31, 1999 and 1998, but were excluded
from the computation of common share equivalents for the three-month period
because they were antidilutive.
NOTE E - SEGMENT INFORMATION
The Company operates in a single reportable segment. Net sales by geographic
area for the three months ended December 31, 1999 and 1998 (in thousands) are as
follows:
Geographic Area 1999 1998
- --------------- --------- ---------
North America $ 5,121 $ 6,087
Europe 364 969
Japan 753 399
Other foreign 609 319
---------- ----------
$ 6,847 $ 7,774
======== ========
The Company has no material long-lived assets outside of the United States.
The following presents net sales to significant customers for the three months
ended December 31, 1999 and 1998 (in thousands).
Major Customers 1999 % 1998 %
------- --- ------- ---
Customer A $ 2,031 30% $ 2,473 32%
Customer B 58 1 % 813 10%
------- --- ------- ---
Total $ 2,089 31% $ 3,286 42%
======= === ======= ===
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Net sales for the three-month period ended December 31, 1999 decreased 12% to
$6.8 million compared to $7.8 million for the same period last fiscal year due
to delays in customer programs. Revenues for the first quarter of fiscal 1999
included one large order of approximately $800,000; there were no similar large
orders in the first quarter of fiscal 2000. Sales in the Company's key markets
are shown in the chart below (in millions).
Market 1999 % of Total 1998 % of Total
- ------ ---- ---------- ---- ----------
Entertainment $2.9 43 $2.8 36
Geospatial Imaging 2.2 32 3.3 42
Other 1.7 25 1.7 22
---- ---------- ---- ----------
$6.8 100 % $7.8 100 %
==== ========== ==== ==========
Export sales represented 27% of total sales for the three months ended December
31, 1999 and 1998. Sales through Silicon Graphics Inc. (SGI) totaled $2.0
million or 30% of total sales for the three months ended December 31, 1999
compared to $2.5 million or 32% for the same prior year period.
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 the success of programs which specify Ciprico products.
Gross profit of $3.1 million represented a 45% gross profit margin for the three
months ended December 31, 1999, compared to 50% for the same prior year period.
This decrease in the margin percentage is the result of an unfavorable mix of
products, combined with the impact of spreading fixed manufacturing costs over a
lower sales volume. Gross profit margins are highly dependent on the Company's
ability to transition to new generation disk drives and to manage the rapid
decline in disk drive prices. The Company anticipates fiscal 2000 gross profit,
as a percentage of net sales, to continue in the high forty percent range.
Research and development expenses of approximately $.9 million for the three
months ended December 31, 1999 decreased by $252,000 compared to the same period
last year primarily due to reduction in the use of outside consultants and
prototypes between periods. The Company expects that research and development
expenses in fiscal 2000 will increase as headcount is added and prototype
expenses are incurred.
Sales and marketing expenses of $2.3 million for the three months ended December
31, 1999 increased 11% compared to the same period last year reflecting the
costs associated with additional headcount. The Company expects that sales and
marketing expenses in fiscal 2000 will increase with the addition of headcount.
General and administrative expenses of $545,000 for the three months ended
December 31, 1999 decreased $131,000 compared to the same period last year
primarily attributable to collection of a previously reserved account, as well
as reduced compensation expense.
<PAGE>
Other Income of $472,000 for the three months ended December 31, 1999 increased
12% compared to the same period last year due to interest income on higher
average cash and investment balances.
As a result of the factors described above, the Company had a net loss of
$109,000 for the three months ended December 31, 1999 compared to net income of
$282,000 for the three months ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash, cash equivalents and marketable
securities totaling $35.3 million compared to $33.5 million at December 31,
1998.
Cash used in operating activities was $.3 million for the three months ended
December 31, 1999 compared to cash generated of $1.5 million for the same period
last year. The change in cash from operations primarily relates to the timing of
payments on accounts payable and accrued expenses. The Company made capital
expenditures totaling $383,000 during the three months ended December 31, 1999
compared to $535,000 for the prior year period. 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 three months ended December 31, 1998, 80,000 shares of common stock
were purchased for $576,000; there were no share repurchases in the three months
ended December 31, 1999. The remaining authorization as of December 31, 1999 is
for $.7 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.
IMPACT OF YEAR 2000 ISSUE
The Company has not experienced and does not anticipate any impact to its
operations resulting from the Year 2000 computer date issue. However, the
Company will continue to monitor the output of its systems and those of its
business partners for Year 2000 issues.
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 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.
<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.
<PAGE>
CIPRICO INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Registrant's shareholders was held
on Thursday, January 27, 2000.
(b) At the Annual Meeting, the number of directors was set at six
by a vote of 4,320,506 for and 423,423 against.
(c) Gary L. Deaner and Robert H. Kill were elected to serve as
Class II directors for a term of three years and until their
successors have been duly elected and qualified. Mr. Deaner
and Mr. Kill each received at least 4,673,595 shares voted in
his favor. The term of office of Donald H. Soukup and William
N. Wray continues until the 2001 Annual Meeting. The term of
office of Bruce J. Bergman and Thomas F. Burniece continues
until the 2002 Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed in electronic format only)
(b) No report on Form 8-K was filed during the quarter ended
December 31, 1999.
<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: February 7, 2000 /s/ Robert H. Kill
Robert H. Kill, President
(Principal Executive Officer)
Dated: February 7, 2000 /s/ Joan K. Berg
Joan K. Berg, Vice President of
Finance/Chief Financial Officer
(Principal Financial and Accounting Officer)
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
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<CASH> 2,916
<SECURITIES> 32,405
<RECEIVABLES> 6,236
<ALLOWANCES> 544
<INVENTORY> 4,933
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<PP&E> 11,932
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0
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