-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jkd8JI2NYU/Ckvrfg38w6Iso3wvDPZ77YZbFa+bPoWhQmQjodCQ2drAOXEk4Wyod G7bYcjamOV6+l53BOpMLVw== 0000950124-99-006528.txt : 19991220 0000950124-99-006528.hdr.sgml : 19991220 ACCESSION NUMBER: 0000950124-99-006528 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPRICO INC CENTRAL INDEX KEY: 0000720145 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 411749708 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11336 FILM NUMBER: 99776649 BUSINESS ADDRESS: STREET 1: 2800 CAMPUS DRIVE CITY: PLYMOUTH STATE: MN ZIP: 55441 BUSINESS PHONE: 6125514000 MAIL ADDRESS: STREET 1: 2800 CAMPUS DRIVE CITY: PLYMOUTH STATE: MN ZIP: 55441 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File No. 0-11336 September 30, 1999
------------------------ CIPRICO INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 41-1749708 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
2800 CAMPUS DRIVE PLYMOUTH, MINNESOTA 55441 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (612) 551-4000 ------------------------ 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 ------------------------ 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 [ ] ------------------------ 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 ------------------------ 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. ================================================================================ 2 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." -1- 3 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. -2- 4 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 -3- 5 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. -4- 6 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 -5- 7 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 -6- 8 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 -7- 9 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 -8- 10 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 -9- 11 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 -10- 12 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:
Name Age Position(s) ---- --- ----------- 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
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. -11- 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- 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- 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- 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.
Signature Title Date - --------- ----- ---- /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
-15- 17 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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 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 -
A - Deductions represent accounts receivable written-off during the year. B - Deductions represent warranty work performed during the year. -16- 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- 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. - --------------------------------------------------------------------------------
Exhibit Description 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.*
* 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. 20 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*
* 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. 21 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)
* 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. EX-13 2 PORTION OF SEPT. 30, 1999 ANNUAL REPORT 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)
Market 1999 % of Total 1998 % of Total 1997 % of Total - ----------------------------------------------------------------------------------------------- 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% -----------------------------------------------------------------------------
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 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. 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. 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. 5 CONSOLIDATED INCOME STATEMENTS Ciprico Inc. and Subsidiaries
Years ended September 30 1999 1998 1997 - ------------------------------------------------------------------------------------------ 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 --------------------------------------------
The accompanying notes are an integral part of these financial statements. 6 CONSOLIDATED BALANCE SHEETS Ciprico Inc. and Subsidiaries
September 30 1999 1998 - ---------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: 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 -----------------------------
The accompanying notes are an integral part of these financial statements. 7 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Ciprico Inc. and Subsidiaries
Common Deferred stock and Compensation additional Retained from Restricted Years ended September 30, 1999, 1998 and 1997 Shares paid-in-capital earnings Stock Total - -------------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 8 CONSOLIDATED STATEMENTS OF CASH FLOWS Ciprico Inc. and Subsidiaries
Years ended September 30 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- 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 -------------------------------------------------
The accompanying notes are an integral part of these financial statements. 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:
As of September 30 1999 1998 - --------------------------------------------------------- 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 ==========================
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:
1999 1998 - ----------------------------------------------------------- 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 ============================
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 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:
Years ended September 30 1999 1998 1997 - -------------------------------------------------------------------------- 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 ==========================================
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:
As of September 30 1999 1998 - --------------------------------------------------------------------- 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 ========================
The following is a reconciliation of the federal statutory income tax rate to the consolidated effective tax rate:
Years ended September 30 1999 1998 1997 - -------------------------------------------------------------------------------- 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% ========================================
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:
Number of Weighted Average Shares Exercise Price - ------------------------------------------------------------------------------------------------ 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 -----------------------------------------
The following table summarizes information concerning currently outstanding and exercisable stock options:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------------------------------------ Range of Number Weighted Average Weighted Average Number Weighted Average Exercise Prices Outstanding Remaining Life Exercise Price Outstanding Exercise Price - ------------------------------------------------------------------------------------------------------ $ 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 -------------------------------------------------------------------------------
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 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:
Net Sales 1999 1998 1997 - ------------------------------------------------------------------ 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 -------------------------------------------
The Company has no material long-lived assets outside of the United States. Sales to significant customers as follows:
Years ended September 30 1999 1998 1997 - ------------------------------------------------------------------------- Customer A 27% 37% 4% Customer B 13 8 10 ------------------------------------- Total 40% 45% 14% -------------------------------------
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. 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. 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 15 QUARTERLY FINANCIAL DATA (unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter Total - ------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA Ciprico Inc. and Subsidiaries
Years ended September 30 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- 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 ----------------------------------------------------------------------------------
SELECTED CONSOLIDATED BALANCE SHEET DATA
September 30 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------
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:
Quarter 1999 High 1999 Low 1998 High 1998 Low - ------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------
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. EX-23.1 3 CONSENT OF GRANT THORNTON LLP 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 EX-27 4 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1999 OCT-01-1998 SEP-30-1999 3,539,205 32,366,083 7,507,086 545,000 4,603,040 40,076,875 11,748,315 8,005,693 53,237,997 5,947,694 0 0 0 35,978,579 11,311,724 53,237,997 34,058,987 34,058,987 16,687,584 32,747,456 0 333,000 0 3,114,804 1,059,000 2,055,804 0 0 0 2,055,804 .42 .41
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