-----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, Dy9fPdIj2YpSpZRPfo+kg+kMQ4ISJ1JcEyH4NC4yGgwQ+4XJPRtnuaKSXIMkrdSJ lR8W15bpr5hk207ZtDLNDA== 0000950124-98-004130.txt : 19980804 0000950124-98-004130.hdr.sgml : 19980804 ACCESSION NUMBER: 0000950124-98-004130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980803 SROS: NASD 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-Q SEC ACT: SEC FILE NUMBER: 000-11336 FILM NUMBER: 98676171 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-Q 1 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 June 30, 1998 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-11336 CIPRICO INC. (Exact name of Registrant as specified in its charter) DELAWARE 41-1749708 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2800 CAMPUS DRIVE PLYMOUTH, MINNESOTA 55441 (Address of principal executive offices) Registrant's telephone number, including area code: (612) 551-4000 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the registrant's Common Stock, $.01 par value, as of July 28, 1998 was 4,926,202 shares. 2 CIPRICO INC. AND SUBSIDIARIES FORM 10-Q INDEX Page PART I Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets at June 30, 1998 and September 30, 1997 3 Consolidated Condensed Statements of Earnings for Three and Nine Months Ended June 30, 1998 and 1997 4 Consolidated Condensed Statements of Cash Flows for Nine Months Ended June 30, 1998 and 1997 5 Notes to Consolidated Condensed Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-9 PART II Other Information Item 4. Quantitative and Qualitative Disclosures about Market Risk 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 2 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIPRICO INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands) June 30, September 30, 1998 1997 ------- ------------ ASSETS Current assets: Cash and cash equivalents $ 4,825 $ 4,512 Marketable securities 23,327 24,807 Accounts receivable, less allowance 3,547 5,152 Inventories 4,723 4,354 Deferred income taxes 788 788 Other current assets 1,129 809 ------- ------- Total current assets 38,339 40,422 Property and equipment, net 3,877 3,948 Marketable securities 7,503 7,483 Other assets 284 252 ------- ------- Total assets $50,003 $52,105 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,885 $ 2,285 Accrued expenses 1,060 1,242 Deferred revenue 662 520 ------- ------- Total current liabilities 4,607 4,047 Shareholders' equity: Capital stock 49 51 Additional paid-in capital 35,801 39,316 Retained earnings 9,546 8,691 ------- ------- Total shareholders' equity 45,396 48,058 ------- ------- Total liabilities and shareholders' equity $50,003 $52,105 ======= =======
See accompanying notes to consolidated condensed financial statements. 3 4 CIPRICO INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF EARNINGS (Unaudited)
(Dollars in thousands except Three Months Ended Nine Months Ended per share amounts) June 30, June 30, ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- NET SALES $ 4,895 $ 10,123 $ 22,719 $ 27,722 Cost of sales 2,480 5,247 11,482 14,621 -------- -------- -------- -------- GROSS PROFIT 2,415 4,876 11,237 13,101 Research and development expense 1,205 826 3,113 2,369 Sales and marketing expenses 2,198 1,965 6,158 5,028 General and administrative expenses 715 738 2,195 2,030 -------- -------- -------- -------- EARNINGS (LOSS) FROM OPERATIONS (1,703) 1,347 (229) 3,674 Other income, primarily interest 513 430 1,523 1,456 -------- -------- -------- -------- EARNINGS (LOSS) BEFORE INCOME TAXES (1,190) 1,777 1,294 5,130 Income tax expense (benefit) (405) 605 439 1,756 -------- -------- -------- -------- NET EARNINGS (LOSS) $ (785) $ 1,172 $ 855 $ 3,374 ======== ======== ======== ======== NET EARNINGS (LOSS) PER SHARE - BASIC $ (.16) $ .23 $ .17 $ .67 ======== ======== ======== ======== NET EARNINGS (LOSS) PER SHARE - DILUTED $ (.16) $ .22 $ .16 $ .63 ======== ======== ======== ======== Shares used to calculate net earnings (loss) per share: Basic 4,901 5,061 5,058 5,040 Diluted 4,901 5,383 5,276 5,378
See accompanying notes to consolidated condensed financial statements. 4 5 CIPRICO INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) Nine Months Ended June 30, ------------------------------- 1998 1997 ---------- --------- NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 3,697 $ (3,969) Cash flows from investing activities: Equipment purchases (1,327) (1,931) Purchases of marketable securities (37,384) (32,501) Proceeds from sale or maturity of marketable securities 38,844 28,000 --------- --------- NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 133 (6,432) --------- --------- Net cash flows from financing activities: Repurchase of common stock (3,985) -- Proceeds from issuance of common stock 468 373 --------- --------- NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,517) 373 --------- --------- Net increase (decrease) in cash and cash equivalents 313 (10,028) Cash and cash equivalents at beginning of period 4,512 13,398 --------- --------- Cash and cash equivalents at end of period $ 4,825 $ 3,370 ========= =========
See accompanying notes to consolidated condensed financial statements. 5 6 CIPRICO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 1998 (Unaudited) NOTE A - BASIS OF PRESENTATION The principal business activity of Ciprico Inc. and subsidiaries (the Company) is the design, manufacture, marketing and service of disk array solutions for use in high performance computer systems for the visual computing markets. The Company markets its products worldwide through a direct sales force and various distribution channels. The accompanying unaudited consolidated condensed financial statements have been prepared by the Company in accordance with Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the unaudited consolidated condensed financial statements contain all necessary adjustments, consisting only of a recurring nature, and disclosures to present fairly the financial position as of June 30, 1998 and the results of operations and cash flows for the three-month and nine-month periods ended June 30, 1998 and 1997. The results of operations for the nine months ended June 30, 1998 are not necessarily indicative of the results for the full year. These consolidated condensed 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 1997. In preparation of the Company's consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management. NOTE B - MARKETABLE SECURITIES The Company has invested its excess cash in commercial paper and government agencies. These investments are classified as held-to-maturity given the Company's intent and ability to hold the securities to maturity and are carried at amortized cost. Investments that have maturities of less than one year have been classified as current marketable securities. At June 30, 1998 and September 30, 1997, amortized cost approximates fair value of held-to-maturity investments which consist of the following:
(In thousands) June 30, September 30, 1998 1997 -------- ------------- Current marketable securities: Commercial Paper $ 15,832 $ 14,814 U.S. Government Agencies 7,495 9,993 --------- --------- 23,327 24,807 Non-current marketable securities: U.S. Government Agencies 7,503 7,483 --------- --------- $ 30,830 $ 32,290 ========= =========
6 7 NOTE C - INVENTORIES Inventories are stated at the lower of cost or replacement market. Cost is determined using the first-in, first-out method. Inventories consist of the following:
(In thousands) June 30, September 30, 1998 1997 -------- ------------- Finished Goods $ 2,966 $ 1,566 Work-in-Process 546 1,162 Raw Materials 1,211 1,626 --------- --------- $ 4,723 $ 4,354 ========= =========
NOTE D - SHAREHOLDERS' EQUITY On January 5, 1998, the Company announced a stock buyback program of up to $3.0 million. The program was completed in March, 1998, resulting in 229,200 shares of common stock repurchased and retired. On April 22, 1998, the Company announced a second stock buyback program of up to $3.0 million. As of the date of this filing, 90,000 shares of common stock have been repurchased for approximately $1.0 million. Under the programs, the Company can repurchase shares in the open market and in privately negotiated transactions based on prevailing market conditions. NOTE E - NET EARNINGS (LOSS) PER SHARE On December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 - "Earnings per Share." As required by Statement No. 128, all current and prior year net earnings per share data have been restated to conform to the provisions of Statement No. 128. The Company's basic net earnings (loss) per share amounts have been computed by dividing net earnings (loss) by the weighted average number of outstanding common shares. The Company's diluted net earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. For the three months ended June 30, 1998, the Company reported net losses and as such, no common share equivalents were included in the computation of diluted net loss per share. Options to purchase 482,200 and 130,000 shares of common stock with a weighted average exercise price of $14.33 and $15.78 were outstanding at June 30, 1998 and 1997, but were excluded from the computation of common share equivalents for the three-month period because they were antidilutive. For the nine months ended June 30, 1998 and 1997, 233,726 and 338,566 shares of common stock equivalents were included in the computation of diluted net earnings per share. Options to purchase 456,600 and 97,000 shares of common stock with a weighted average exercise price of $14.42 and $16.35 were outstanding at June 30, 1998 and 1997, but were excluded from the computation of common share equivalents for the nine-month period because they were antidilutive. NOTE F - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement No. 130 - - "Reporting Comprehensive Income," and Statement No. 131 - "Disclosures about Segments of an Enterprise and Related Information" which are effective for fiscal year 1999. Statement No. 130 will require the Company to display an amount representing comprehensive income, as defined by the statement, as part of the Company's basic financial statements. Comprehensive income will include items such as unrealized gains or losses on certain investment securities and foreign currency items. Statement No. 131 will require the Company to disclose financial and other information about its business segments, their products and services, geographic areas, major customers, revenues, profits, assets and other information. The adoption of these statements is not expected to have a material effect on the consolidated financial statements of the Company. 7 8 CIPRICO INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Three and Nine Months Ended June 30, 1998 Compared to Three and Nine Months Ended June 30, 1997 Net sales for the three-month and nine-month periods ended June 30, 1998 decreased by 52% and 18% to $4.9 million and $22.7 million, respectively, when compared to net sales of $10.1 million and $27.7 million for the same periods last fiscal year. This decrease can be attributed to a continued decline in the entertainment market, which represented 28% of net sales for the current nine-month period compared to 43% for the same period last year. Sales were also affected by complexities involved with the implementation of the Company's recently expanded distribution network with Silicon Graphics Inc. (SGI) whereby SGI sells and supports the Company's disk array storage products with SGI computing platforms. The satellite/telemetry and oil/gas exploration markets continue to be strong markets representing 33% and 27% of net sales for the nine-month period ending June 30, 1998. Sales to one customer, SGI, accounted for 47% and 38% of net sales for the current three-month and nine-month periods. For the three-month and nine-month periods ended June 30, 1997, a different customer accounted for 31% and 11% of net sales. International sales were lower at $4.4 million or 19% of net sales for the current nine-month period compared to $6.0 million or 22% of net sales for the same period last fiscal year due to weakness in the European markets. Management has lowered its estimate for fourth quarter sales to a range of $8.0 to $10.0 million and anticipates that net sales for the fiscal year will be lower than the previous fiscal year. Gross profit, as a percentage of net sales, for the three-month and nine-month periods ended June 30, 1998 was 49% compared to 48% and 47% for the same periods last fiscal year. Favorable disk drive pricing during the transition from 9 gigabyte to 18 gigabyte drives was a significant factor in maintaining the level of gross profit. Management anticipates increased sales through distribution channels that tend to carry a lower gross profit percentage. As a result, management anticipates gross profit, as a percentage of sales, to decline in the remainder of fiscal 1998, but remain in the mid-forty percent range. Research and development expenses increased $379,000, or 46%, for the current quarter as compared to the same quarter of last fiscal year and $744,000, or 31%, for the nine months ended June 30, 1998 as compared to the same period last fiscal year. The increase can primarily be attributed to additional engineering staff and outside consulting costs related to new product development. Sales and marketing expenses increased $233,000, or 12%, for the current quarter as compared to the same quarter of last fiscal year and $1.1 million, or 22%, for the nine months ended June 30, 1998 as compared to the same period last fiscal year. The increase can be attributed to additional sales and marketing staff and new product promotions as the Company positions itself for sales growth. General and administrative expenses decreased $23,000, or 3%, for the current quarter as compared to the same quarter of last fiscal year and increased $165,000, or 8%, for the nine months ended June 30, 1998 as compared to the same period last fiscal year. The increase can primarily be attributed to consulting costs incurred in connection with the Company's information technology transformation project. On December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 - "Earnings per Share." As required by Statement No. 128, all current and prior year earnings per share data have been restated to conform to the provisions of Statement No. 128. LIQUIDITY AND CAPITAL RESOURCES The Ciprico Annual Report on Form 10-KSB for the year ended September 30, 1997 contains a detailed discussion of Ciprico's liquidity and capital resources. In conjunction with this Quarterly Report on Form 10-Q, investors should read the 1997 Form 10-KSB. 8 9 Liquidity is very strong with cash and cash equivalents and short-term marketable securities totaling $35.7 million at June 30, 1998. Cash flows from operating activities during the current nine-month period were $3.7 million. This result was primarily attributable to sources of cash from net earnings of $855,000, non-cash expenses for depreciation of $1.4 million and a $1.3 million net change in operating assets and liabilities. Investing activities provided $133,000 primarily as a result of net proceeds from the maturity of marketable securities offset by $1.3 million of capital expenditures for office equipment, product development and test equipment and facility expansion. Financing activities used $3.5 million primarily as a result of two stock buyback programs in which the Company reacquired 319,200 shares of common stock for $4.0 million. Funding of future working capital needs and equipment purchases, combined with purchases of the Company's stock, could cause a reduction in the cash balance in fiscal 1998. Management believes that current funds and the funds from operations are adequate to support the current on-going operating needs of the Company. IMPACT OF YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using a two-digit field rather than four to define the applicable year. Computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar business activities. The Company is assessing the impact of the Year 2000 Issue on its operations. The assessment includes communication with all major suppliers and customers. The Company is reviewing its systems to determine whether they are century compliant and does not expect the Year 2000 computer issue to significantly affect its operations. FORWARD-LOOKING INFORMATION The statements in this 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 five visual computing vertical markets which include entertainment (film/video and broadcast), oil/gas exploration, digital prepress, medical imaging, and satellite/telemetry. Continued growth in sales in these markets is essential to Company growth. Gross profit on product sales is highly dependent on the cost of disk drives. There is no assurance the Company can sustain the current gross profit 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 typically 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 orders may be received in the last month or weeks of a quarter and quarterly sales may be affected by the Company's ability or inability to ship such orders by quarter end. 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, failure 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. 9 10 CIPRICO INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 4. Quantitative and Qualitative Disclosures about Market Risk (a) The Company will include the required disclosures in its 1998 annual report on Form 10-K. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 - Financial Data Schedule (filed in electronic format only) (b) No report on Form 8-K was filed during the quarter ended June 30, 1998. 10 11 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: July 28, 1998 /s/ Robert H. Kill ---------------------------------- Robert H. Kill, President (Principal Executive Officer and Acting Principal Financial Officer) 11 12 CIPRICO INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Description -------------- ----------- 27 Financial Data Schedule (filed in electronic format only) 12 EX-27 2 EXHIBIT 27
5 1,000 3-MOS SEP-30-1998 APR-01-1998 JUN-30-1998 4,825 30,830 3,839 292 4,723 38,339 9,994 6,117 50,003 4,607 0 0 0 35,850 9,546 50,003 4,895 4,895 2,480 6,598 0 33 2 (1,190) (405) (785) 0 0 0 (785) (.16) (.16)
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