10-Q 1 c59936e10-q.txt FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended December 31, 2000 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-11336 CIPRICO INC. (Exact name of Registrant as specified in its charter) DELAWARE 41-1749708 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2800 CAMPUS DRIVE PLYMOUTH, MINNESOTA 55441 (Address of principal executive offices) Registrant's telephone number, including area code: (763) 551-4000 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the registrant's Common Stock, $.01 par value, as of February 9, 2001 was 5,040,923 shares. 2 CIPRICO INC. AND SUBSIDIARIES FORM 10-Q INDEX

Page PART I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets at December 31, 2000 and September 30, 2000 3 Condensed Consolidated Statements of Operations for Three Months Ended December 31, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for Three Months Ended December 31, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 10 PART II Other Information Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12

2 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands) December 31, September 30, 2000 2000 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 1,677 $ 3,496 Marketable securities 21,876 21,867 Accounts receivable, less allowance 5,193 5,532 Inventories 6,271 5,760 Deferred income taxes 984 898 Other current assets 679 584 ------------ ------------ Total current assets 36,680 38,137 Property and equipment, net 3,052 3,011 Marketable securities 10,080 10,070 Other assets 555 563 ------------ ------------ $ 50,367 $ 51,781 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,585 $ 2,785 Accrued expenses 1,135 1,322 Deferred revenue 436 387 ------------ ------------ Total current liabilities 3,156 4,494 Shareholders' equity: Capital stock 51 50 Additional paid-in capital 36,194 36,197 Retained earnings 11,014 11,100 Deferred compensation from restricted stock (48) (60) ------------ ------------ Total shareholders' equity 47,211 47,287 ------------ ------------ $ 50,367 $ 51,781 ============ ============

See accompanying notes to condensed consolidated financial statements. 3 4 CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except Three Months Ended per share amounts) December 31, -------------------------- 2000 1999 ---------- ---------- NET SALES $ 9,066 $ 6,847 Cost of sales 5,210 3,737 ---------- ---------- GROSS PROFIT 3,856 3,110 OPERATING EXPENSES: Research and development 1,234 888 Sales and marketing 2,705 2,314 General and administrative 614 545 ---------- ---------- Total operating expenses 4,553 3,747 ---------- ---------- LOSS FROM OPERATIONS (697) (637) Other income, primarily interest 567 472 ---------- ---------- LOSS BEFORE INCOME TAXES (130) (165) Income tax benefit (44) (56) ---------- ---------- NET LOSS $ (86) $ (109) ========== ========== Shares used to calculate net loss per share: Basic 5,041 4,958 Diluted 5,041 4,958 NET LOSS PER SHARE - BASIC $ (.02) $ (.02) ========== ========== NET LOSS PER SHARE - DILUTED $ (.02) $ (.02) ========== ==========

See accompanying notes to condensed consolidated financial statements. 4 5 CIPRICO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands) Three Months Ended December 31, -------------------------- 2000 1999 ---------- ---------- Cash flows for operating activities: Net income (loss) $ (86) $ (109) Depreciation and amortization 542 672 Changes in operating assets and liabilities (1,760) (878) ---------- ---------- NET CASH FLOWS USED IN OPERATING ACTIVITIES (1,304) (315) ---------- ---------- Cash flows for investing activities: Equipment purchases (583) (383) Purchases of marketable securities (11,337) (8,903) Proceeds from sale or maturity of marketable securities 11,318 8,864 ---------- ---------- NET CASH FLOWS USED IN INVESTING ACTIVITIES (602) (422) ---------- ---------- Cash flows from financing activities: Repurchase of common stock -- -- Proceeds from issuance of common stock 87 114 ---------- ---------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 87 114 ---------- ---------- Net decrease in cash and cash equivalents (1,819) (623) Cash and cash equivalents at beginning of period 3,496 3,539 ---------- ---------- Cash and cash equivalents at end of period 1,677 2,916 Marketable securities, current 21,876 24,902 Marketable securities, long-term 10,080 7,503 ---------- ---------- Total cash and marketable securities $ 33,633 $ 35,321 ========== ==========

See accompanying notes to condensed consolidated financial statements. 5 6 CIPRICO INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 (Unaudited) NOTE A - BASIS OF PRESENTATION The principal business activity of Ciprico Inc. and subsidiaries (the Company) is the design, manufacture, and marketing of high performance, direct attached and networked storage solutions, including intelligent disk array hardware, software and services for visual computing applications. The Company markets its products worldwide through a direct sales force and various distribution channels. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all necessary adjustments, consisting only of a recurring nature, and disclosures to present fairly the financial position as of December 31, 2000 and the results of operations and cash flows for the three-month periods ended December 31, 2000 and 1999. The results of operations for the three months ended December 31, 2000 are not necessarily indicative of the results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report to Shareholders for fiscal 2000. In preparation of the Company's consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management. NOTE B - MARKETABLE SECURITIES The Company has invested its excess cash in commercial paper and government agencies. These investments are classified as held-to-maturity given the Company's intent and ability to hold the securities to maturity and are carried at amortized cost. Investments that have maturities of less than one year have been classified as current marketable securities. At December 31, 2000 and September 30, 2000, amortized cost approximates fair value of held-to-maturity investments, which consist of the following:

(In thousands) December 31, September 30, 2000 2000 ------------ ------------- Current marketable securities: Commercial Paper $ 14,375 $ 12,866 U.S. Government Agencies 7,501 9,001 ------------ ------------ 21,876 21,867 Non-current marketable securities: Commercial Paper 4,580 6,065 U.S. Government Agencies 5,500 4,005 ------------ ------------ 10,080 10,070 $ 31,956 $ 31,937 ============ ============

NOTE C - SHAREHOLDERS' EQUITY During 1998, the Company initiated a stock buyback program of up to $6.0 million. As of December 31, 2000, 517,900 shares of common stock have been repurchased for approximately $5.5 million. There were no shares repurchased during the quarter. 6 7 NOTE D - NET EARNINGS PER SHARE The Company's basic net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares. The Company's diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. For the three month periods ended December 31, 2000 and 1999, common stock equivalents of 14,392 and 122,198, respectively, were excluded in the computation of the net loss per share since they were antidilutive. Options to purchase 848,238 and 953,037 shares of common stock with a weighted average exercise price of $11.88 and $10.98 were outstanding at December 31, 2000 and 1999, but were also antidilutive. NOTE E - SEGMENT INFORMATION The Company operates in a single reportable segment. The following presents net sales for the three months ended December 31, 2000 and 1999 by geographic area. The Company has no material long-lived assets outside of the United States.

(In thousands) 2000 1999 ---------- ---------- Geographic Area --------------- North America $ 7,554 $ 5,121 Europe 731 364 Japan 533 753 Other foreign 248 609 ---------- ---------- $ 9,066 $ 6,847 ========== ==========

The Company had two customers that accounted for approximately 14% and 13% of sales for the three months ended December 31, 2000. For the three months ended December 31, 1999 the Company had a different customer that accounted for 24% of sales. NOTE F - SUBSEQUENT EVENT On February 7, 2001 the Company completed the acquisition of the SANStar technology from ECCS, Inc. Under the terms of the agreement, the Company acquired all of the assets, rights, and intellectual property related to SANStar, a clustered, high reliability, network-connected storage management software system, for approximately $600,000 cash. In addition to the technology acquisition, the Company has also hired the New Jersey based software development team. The majority of the purchase price will be expensed, as the technology acquired will be used in current research and development activities. 7 8 CIPRICO INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Three Months Ended December 31, 2000 Compared to Three Months Ended December 31, 1999 Comparative information on sales by market for the period ended December 31, are shown in the chart below (in millions).

2000 1999 ------------------------- ------------------------- Market Sales % of Total Sales % of Total ------ ---------- ---------- ---------- ---------- Entertainment $ 4.4 48% $ 2.9 42% Government 3.7 41 2.2 32 Other 1.0 11 1.8 26 ---------- ---------- ---------- ---------- Total $ 9.1 100% $ 6.9 100% ========== ========== ========== ==========

2000 1999 ------------------------- ------------------------- Geographic Location Sales % of Total Sales % of Total ------------------- ---------- ---------- ---------- ---------- Domestic $ 7.6 84% $ 5.1 74% International 1.5 16 1.8 26 ---------- ---------- ---------- ---------- Total $ 9.1 100% $ 6.9 100% ========== ========== ========== ==========

Net sales for the three-month period ended December 31, 2000 increased 32% to $9.1 million compared to $6.9 million for the same period last year. Sales from customers in the United States increased 49% while sales from international customers decreased 17% for the period. Sales of the recently released NETarray product attributed to approximately $2 million of sales for the period. The growth in the Entertainment market reflects our continued focus on opportunities in digital broadcast applications. The increased sales in the Government market is primarily due to higher demand from a number of system integrators for certain defense related projects. The decline in sales in the other market segment primarily reflects reduced demand from a medical imaging integrator and lower sales through Silicon Graphics, Inc. (SGI). Our revenue growth in fiscal 2001 is dependent on market acceptance of new products, such as the NETarray, expansion of products into new applications within its targeted market segments, and success of programs which specify Ciprico products. Gross profit, as a percentage of net sales, was 42.5% for the three months ended December 31, 2000, compared to 45.4% for the same prior year period. This decline primarily reflects new sales of NETarray, which carries lower margins. Research and development expenses increased $346,000 or 39% to $1.2 million, compared to the same quarter of last year, which primarily reflects increase in engineering salaries and prototype expenses associated with new product enhancements in addition to our new strategic product initiatives. We expect that research and development expenses will increase throughout the remainder of the year as we accelerate our spending on our strategic initiatives, including the software development activities resulting from the SANStar acquisition. Sales and marketing expenses were 29.8% of sales for the three months ended December 31, 2000 as compared to 33.8% for the same prior year period, (more) 8 9 an increase in absolute dollars of $391,000. This increase reflects higher sales compensation resulting from higher sales along with the addition of new sales and product marketing personnel. General and administrative expenses increased $69,000 or 13% to $614,000 for the three months ended December 31, 2000, as compared to the same quarter of last year. The increase primarily reflects lower expense in the prior year period due to adjustments in bad debt provisions in addition to costs associated with the implementation of new information systems. Other income increased approximately $95,000 due primarily to overall higher investment yields between years. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2000, we had cash, cash equivalents and marketable securities totaling $33.6 million compared to $35.4 million at the end of fiscal 2000. Cash flows used in operating activities was $1.3 million for the three months ended December 31, 2000 compared to $315,000 for the same period last year. This primarily reflects higher working capital due to timing of accounts payable payments at the end of the quarter. Capital expenditures of approximately $600,000 for the three months ended December 31, 2000 primarily reflect spending related to our new information systems and product development efforts. We anticipate that capital expenditures for fiscal 2001 will approximate $3 million. During fiscal 1998, the Company initiated a stock buyback program of up to $6.0 million. The remaining authorization as of December 31, 2000 is for $500,000. As discussed in Note F, in February 2001, we acquired the SANStar technology for approximately $600,000 cash. 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 2001. FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q are forward-looking and should be read in conjunction with cautionary statements in Ciprico's SEC filings, reports to shareholders and other news releases. Such forward-looking statements, which reflect our current view of future events and financial performance, involve known and unknown risks that could cause actual results and facts to differ materially from those expressed in the forward-looking statements for a variety of reasons. Some of these reasons include the integration of the recently acquired technology and personnel; impact on revenues and earnings of the timing of product enhancements and new product releases; market acceptance of new products; sales and distribution issues; competition; dependence on suppliers; dependence on the cost of disk drives; limited backlog and the historic and recurring pattern of a disproportionate percentage of total quarterly sales occurring the last month and weeks of a quarter. Investors should take such risks into account when making investment decisions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Ciprico undertakes no obligation to update publicly or revise any forward-looking statements. For a more complete description, see "Forward-Looking Information" under Management's Discussion and Analysis included in the Annual Report for the year ended September 30, 2000. 9 10 CIPRICO INC. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company invests its excess cash in commercial paper and highly rated U.S. government agencies. All investments are held-to-maturity. The market risk on such investments is minimal. Receivables from sales to foreign customers are denominated in U.S. Dollars. If the currencies of these countries were to fall significantly against the U.S. Dollar, there can be no assurance that such companies would be able to repay the receivables in full. Transactions at the Company's foreign subsidiaries, Ciprico International Limited and Ciprico Asia-Pacific Inc., are denoted in pound sterling and yen, respectively. The Company has historically had minimal exposure to changes in foreign currency exchange rates and, as such, has not used derivative financial instruments to manage foreign currency fluctuation risk. 10 11 CIPRICO INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) A report on Form 8-K was filed on February 13, 2001 on the acquisition by Ciprico of the SANStar technology from ECCS, Inc. 11 12 CIPRICO INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIPRICO INC. Dated: February 14, 2001 /s/ Robert H. Kill -------------------------------------------- Robert H. Kill, President (Principal Executive Officer) Dated: February 14, 2001 /s/ Thomas S. Wargolet -------------------------------------------- Thomas S. Wargolet, Vice President of Finance/Chief Financial Officer (Principal Financial and Accounting Officer) 12