UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

 

FORM 10-Q

 

ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the Quarter Ended June 30, 2004
OR
o		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)

 

 

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  ý     No  o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).  Yes  o     No  ý

 

The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of August 2, 2004 was 4,738,595 shares.

 

 

CIPRICO INC. AND SUBSIDIARY

 

FORM 10-Q

 

INDEX

 

PART I		Financial Information
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets at June 30, 2004 and September 30, 2003
		Condensed Consolidated Statements of Operations for Three and Nine-Months Ended June 30, 2004 and 2003
		Condensed Consolidated Statements of Cash Flows for Nine-Months Ended June 30, 2004 and 2003
		Notes to Condensed Consolidated Financial Statements
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures about Market Risk
Item 4.		Controls and Procedures
PART II		Other Information
Item 6.		Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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PART I  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

CIPRICO INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In thousands)

 

		June 30, 2004			September 30, 2003
ASSETS
Current assets:
Cash and cash equivalents		$	4,328		$	5,159
Marketable securities		16,515			16,766
Accounts receivable, less allowance		2,568			4,016
Inventories		1,675			3,928
Other current assets		340			453
Total current assets		25,426			30,322
Property and equipment, net		653			1,972
Other assets		42			42
		$	26,121		$	32,336
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,265		$	2,151
Accrued expenses		3,125			1,887
Deferred revenue		336			312
Total current liabilities		4,726			4,350
Shareholders’ equity:
Capital stock		47			47
Additional paid-in capital		35,075			34,840
Accumulated deficit		(13,666		)	(6,881		)
Deferred compensation from restricted stock		(61		)	(20		)
Total shareholders’ equity		21,395			27,986
		$	26,121		$	32,336

 

See accompanying notes to condensed consolidated financial statements

 

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CIPRICO INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

(In thousands, except per share amounts)

 

		Three-months Ended June 30,						Nine-months Ended June 30,
		2004			2003			2004			2003
NET SALES		$	4,588		$	8,431		$	14,816		$	25,114
Cost of sales		3,660			5,607			9,971			16,238
GROSS PROFIT		928			2,824			4,845			8,876
OPERATING EXPENSES:
Research and development		1,238			1,574			4,119			4,606
Sales and marketing		1,140			1,734			3,925			5,110
General and administrative		426			613			1,403			1,891
Restructuring charges		2,500			—			2,500			—
Total operating expenses		5,304			3,921			11,947			11,607
LOSS FROM OPERATIONS		(4,376		)	(1,097		)	(7,102		)	(2,731		)
Other income, primarily interest		101			105			317			381
LOSS BEFORE INCOME TAXES		(4,275		)	(992		)	(6,785		)	(2,350		)
Income taxes		—			—			—			—
NET LOSS		$	(4,275	)	$	(992	)	$	(6,785	)	$	(2,350	)
Shares used to calculate net loss per share:
Basic and diluted		4,726			4,647			4,710			4,676
NET LOSS PER SHARE:
Basic and diluted		$	(0.90	)	$	(0.21	)	$	(1.44	)	$	(0.50	)

 

See accompanying notes to condensed consolidated financial statements.

 

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CIPRICO INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(In thousands)

 

		Nine-months Ended June 30,
		2004			2003
Cash flows for operating activities:
Net loss		$	(6,785	)	$	(2,350	)
Depreciation and amortization		1,051			1,374
Non-cash restructuring items		1,441			—
Changes in operating assets and liabilities		3,129			(2,506		)
NET CASH FLOWS USED IN OPERATING ACTIVITIES		(1,164		)	(3,482		)
Cash flows from investing activities:
Equipment purchases		(153		)	(1,236		)
Equipment disposals		—			—
Purchases of marketable securities		(16,294		)	(17,093		)
Proceeds from sale or maturity of marketable securities		16,545			24,101
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES		98			5,772
Cash flows from financing activities:
Repurchase of common stock		—			(692		)
Proceeds from issuance of common stock		235			23
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		235			(669		)
Net increase (decrease) in cash and cash equivalents		(831		)	1,621
Cash and cash equivalents at beginning of period		5,159			6,413
Cash and cash equivalents at end of period		4,328			8,034
Marketable securities, current		16,515			13,610
Total cash and marketable securities		$	20,843		$	21,644

 

See accompanying notes to condensed consolidated financial statements.

 

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CIPRICO INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004

(Unaudited)

 

NOTE A – BASIS OF PRESENTATION

 

The principal business activity of Ciprico Inc. and subsidiary (the Company) is the design, manufacture, and marketing of storage and system solutions for digital media applications within the broadcast and entertainment, military and government, and medical imaging markets.  The Company’s solutions combine storage, networking and computing technologies to simplify and accelerate digital media workflows. The Company markets its products worldwide through a direct sales force and various distribution channels.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all necessary adjustments, consisting only of a recurring nature, and disclosures to present fairly the financial position as of June 30, 2004 and the results of operations for the three-month and nine-month periods ended June 30, 2004 and 2003, and the cash flows for the nine-months ended June 30, 2004 and 2003. The results of operations for the nine-months ended June 30, 2004 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 Form 10-K filed on December 12, 2003.

 

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, government agencies and other asset-backed short-term investments.  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, 2004 and September 30, 2003, amortized cost approximates fair value of held-to-maturity investments, which consist of the following (in thousands):

 

		June 30, 2004			September 30, 2003
Current marketable securities:
Commercial Paper		$	13,497		$	14,290
U.S. Government Agencies		—			1,502
Asset-backed investments		3,018			974
		$	16,515		$	16,766

 

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NOTE C – INVENTORIES

 

Inventory is stated at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value.  Cost is determined using the first-in, first-out method. Inventory costs include outside assembly charges, allocated manufacturing overhead and direct material costs.

 

As of June 30, 2004 and September 30, 2003 inventory consisted of the following (in thousands):

 

		June 30, 2004			September 30, 2003
Finished Goods		$	403		$	967
Work-in-Process		286			567
Raw Materials		986			2,394
		$	1,675		$	3,928

 

NOTE D – WARRANTY COSTS

 

The Company provides a three-year warranty on its products.  The Company estimates future warranty claims based on historical experience and anticipated costs to be incurred.  Warranty expense is accrued at the time of sale with an additional accrual for specific items after the sale when their existence is known and amounts are determinable.

 

The following represents a reconciliation of changes in the Company’s accrued warranty as of June 30, 2004 (in thousands):

 

Balance at September 30, 2003			Charged to Costs and Expenses			Deductions			Balance at June 30, 2004
$	387		$	116		$	220		$	283

 

NOTE E – RESTRUCTURING

 

On April 26, 2004, the Company announced the implementation of a business reorganization and a 40% workforce reduction.  In connection with these actions, the Company recorded charges totaling $3.4 million or $0.72 per share for the period ended June 30, 2004.  This includes a pre-tax restructuring charge of $2.5 million related to the workforce reduction, abandonment of a portion of its headquarter facility and the write-down of certain fixed assets.  In addition, the Company recorded a non-cash adjustment of $900,000 to cost of sales and inventory to reduce certain legacy product inventory to market value.

 

The following is a summary of the accrued restructuring activity (in thousands):

 

		Employee Termination Costs			Facility closure and related costs			Total
Balance, March 31, 2004		43			—			43
Restructuring Charges		1,020			1,480			2,500
Amounts Utilized		(650		)	(430		)	(1,080		)
Balance, June 30, 2004		$	413		$	1,050		$	1,463

 

 

As of June 30, 2004, employee termination costs of $413,000 related to the restructuring activities are expected to be paid out in the next 12 months.  Restructuring charges of $1.1 million related to the facility closure will be paid out through October 2007.

 

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NOTE F – SHAREHOLDERS’ EQUITY

 

Stock Option Plan

 

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 10 years from the date of grant.  The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans.  No stock-based employee compensation cost is reflected in net income, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of the grant.  The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

 

		Three-months Ended June 30,						Nine-months Ended June 30,
		2004			2003			2004			2003
Net loss, as reported		$	(4,275	)	$	(992	)	$	(6,785	)	$	(2,350	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for awards granted, modified, or settled, net of related tax effects		(90		)	(119		)	(269		)	(333		)
Pro forma net loss		$	(4,365	)	$	(1,111	)	$	(7,054	)	$	(2,683	)
Loss per share
Basic and Diluted – as reported		$	(0.90	)	$	(0.21	)	$	(1.44	)	$	(0.50	)
Basic and Diluted – pro forma		$	(0.92	)	$	(0.24	)	$	(1.50	)	$	(0.57	)

 

Stock Repurchase

 

The Company has a stock buyback program with authorized share repurchases under the plan of $12.0 million.  There were no repurchases of stock for the nine-months ended June 30, 2004.  As of June 30, 2004, 1,037,035 shares of common stock have been repurchased for approximately $7.8 million.

 

NOTE G – NET LOSS PER SHARE

 

The Company’s basic net loss per share amounts have been computed by dividing net loss by the weighted average number of outstanding common shares.  The Company’s diluted net loss per share is computed by dividing net loss by the weighted average number of outstanding common shares and common share equivalents, when dilutive.

 

For the three-month periods ended June 30, 2004 and 2003, common stock equivalents of 55,132 and 82,235 were excluded from the computation of the net loss per share since they were antidilutive, as the Company incurred net losses.  Options to purchase 843,000 and 817,641 shares of common stock with a weighted average exercise price of $6.99 and $7.63 were outstanding at June 30, 2004 and 2003, but were excluded from the computation of common share equivalents for the three-month period because they were antidilutive as the exercise prices were greater than the average market price of the Company’s stock during the period.

 

For the nine-month periods ended June 30, 2004 and 2003, common stock equivalents of 72,705 and 4,673 were excluded in the computation of the net loss per share since they were antidilutive, as the Company incurred net losses.  Options to purchase 569,500 and 784,456 shares of common stock with a weighted average exercise price of $8.04 and $7.95 were outstanding at June 30, 2004 and 2003, but

 

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were excluded from the computation of common share equivalents for the nine-month period because they were antidilutive as the exercise prices were greater than the average market price of the Company’s stock during the period.

 

NOTE H – SIGNIFICANT CUSTOMERS

 

Sales to significant customers as a percentage of sales for the nine-month period ended June 30, are shown in the chart below.

 

		2004		2003
Customer A		35	%	40	%
Customer B		10		9
Customer C		2		11
		47	%	60	%

 

For the nine-month period ended June 30, 2004 and 2003 these customers represented 40% and 67% of accounts receivable, respectively.

 

CIPRICO INC. AND SUBSIDIARY

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Critical Accounting Policies and Estimates

 

Note 1 of the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K includes a summary of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. The following is a brief discussion of the more significant accounting policies and methods used by Ciprico Inc. (“the Company, we and our”):

 

General

 

Management’s discussion and analysis of Ciprico’s financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The most significant estimates and assumptions relate to the recoverability of receivables and inventories. Actual amounts could differ significantly from these estimates.

 

Revenue Recognition

 

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, as amended, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Products sold are generally covered by a warranty for periods up to three years. We accrue a warranty reserve within cost of sales for estimated costs to provide warranty services. We estimate the costs to service our warranty obligations based on historical experience and expectation of future conditions.  Revenue from the sale of extended warranty and maintenance agreements is deferred and recognized on a straight-line basis over the term of the related agreement.

 

Accounts Receivable

 

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a

 

9

 

provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we can not guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our accounts receivable are concentrated in a relatively few number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectibility of our accounts receivable and our future operating results.

 

Inventories

 

We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value of the inventory. We regularly review inventory quantities on hand and record a provision to reduce excess and obsolete inventory to estimated market value based primarily on our estimated forecast of product demand and production requirements for the next twelve months or expected life of the representative product. A significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. If our inventory is determined to be overvalued, we would be required to recognize such costs in our cost of goods sold at the time of such determination.

 

We make every effort to ensure the accuracy of our forecasts of future product demand, however any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results.

 

Warranty

 

Our warranty reserve is established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of each balance sheet date. While we believe that our warranty reserve is adequate and that our estimate is appropriate, such amounts estimated to be due and payable could differ materially from what will actually transpire in the future.  To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, we would increase our warranty accrual resulting in decreased gross profit.  Similarly, if the opposite occurs and we experience better than expected results, we would decrease our warranty accrual.

 

Deferred Taxes

 

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review the deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income or loss, projected future taxable income or loss, and the expected timing of the reversals of existing temporary differences. We record a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized.

 

The following discussion and analysis of the financial condition and results of operations of Ciprico Inc. and its subsidiaries should be read in conjunction with the Condensed Consolidated Financial Statements and the Notes thereto, included elsewhere in this Report.

 

OVERVIEW

 

Ciprico Inc. designs, manufactures and markets storage and system solutions for digital media applications.  Our solutions combine storage, networking and computing technologies to simplify and accelerate digital media workflows. Our primary markets are broadcast and entertainment, which include applications in digital broadcast, film and video production, and military and government which include applications involving the data capture, processing and dissemination of surveillance images.  In addition, we have historically sold in other markets with high-performance storage requirements such as geosciences, digital prepress and medical imaging.

 

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RESULTS OF OPERATIONS

 

Three and Nine-months Ended June 30, 2004 Compared to Three and Nine-months Ended June 30, 2003

 

Comparative information on sales by market for the period ended June 30, are shown in the chart below (in millions).

 

For the Three-months Ended June 30:

 

Market		2004					2003
		Sales			% of Total		Sales			% of Total
Broadcast & Entertainment		$	1.8		39	%	$	5.7		68	%
Military & Government		2.7			59		2.5			30
Other		0.1			2		0.2			2
Total		$	4.6		100	%	$	8.4		100	%

 

For the Nine-months Ended June 30:

 

Market		2004					2003
		Sales			% of Total		Sales			% of Total
Broadcast & Entertainment		$	7.0		47	%	$	17.0		68	%
Military & Government		7.2			49		7.7			31
Other		0.6			4		0.4			1
Total		$	14.8		100	%	$	25.1		100	%

 

Net sales for the three-month period ended June 30, 2004 decreased 45% to $4.6 million compared to $8.4 million for the comparable period in 2003.  Net sales for the nine-month period ended June 30, 2004 decreased 41% to $14.8 million compared to $25.1 million for the same period last year.

 

Sales in the Broadcast segment decreased $3.9 million or 68% and $10.0 million or 59% for the three and nine-month periods ended June 30, 2004, respectively.  The decreased sales in the Broadcast segment between the periods can be attributed to lower demand from our largest OEM customer, which we believe reflects soft conditions in that sector.  Our decreased sales also reflect the effects of increased competition at some of our broadcast OEM customers between years.

 

Sales in the Military segment increased $200,000 or 8% for the three-month period ended June 30, 2004 compared to the prior year period.  Sales for the nine-month period ended June 30, 2004 decreased $500,000 or 6% compared to the prior year period.  Sales in the Military segment have historically fluctuated between periods due to the timing of spending on defense-related programs.  We believe the timing of design-in cycles and funding dependencies of a number of programs has adversely impacted sales activity of our newer fibre channel products such as the FibreSTORE® 2210 in this segment.

 

Our revenue growth going forward will be dependent on market acceptance of new products, expansion of products into new applications within our historical markets and new market opportunities, and success of programs that specify Ciprico products.

 

Gross profit, as a percentage of net sales, was 20.2% and 32.7% for the three and nine-month periods ended June 30, 2004, compared to 33.5% and 35.3% for the same prior year periods. Excluding the non-cash adjustment of $900,000 to cost of sales and inventory to reduce certain legacy product inventory to market value, gross profit as a percentage of net sales would have been 39.8% and 38.8% for the three and nine-month periods ended June 30, 2004.  This pro-forma increase primarily reflects the lower mix of sales in the Broadcast segment, which has historically had lower margins and to a lesser extent impacts from expense reduction efforts and higher sales of our newer products such as DiMeda™ and the FibreSTORE 2210.

 

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Research and development expenses were $1.2 million and $4.1 million for the three and nine-month periods ended June 30, 2004, compared to $1.6 million and $4.6 million for the same prior year periods, a decrease of $400,000 and $500,000, respectively. Sales and marketing expenses were $1.1 million and $3.9 million for the three and nine-month periods ended June 30, 2004, compared to $1.7 million and $5.1 million for the same prior year periods, a decrease of $600,000 and $1.2 million, respectively.  These reductions in operating expenses are primarily the result of reduced headcount between years resulting from our restructuring efforts in the prior and current fiscal year.

 

General and administrative expenses were $426,000 and $1.4 million for the three and nine-month periods ended June 30, 2004, compared to $613,000 and $1.9 million for the same prior year periods, a decrease of $187,000 and $500,000, respectively.  This reduction primarily reflects reduced headcount between years, lower provision for bad debts and decreased legal and professional fees.

 

The restructuring expense of $2.5 million includes $1.1 million of severance and related costs related to the workforce reduction, $1.0 million of charges related to the abandonment of a portion of our headquarter facility and $400,000 for the write-down of certain fixed assets.

 

Other income decreased approximately $4,000 for the three-month period and decreased $64,000 for the nine-month periods ended June 30, 2004, as compared to the same prior year periods. The decrease for the three and nine-month periods is due primarily to overall lower investment yields and lower cash and marketable securities balances between periods.

 

Given the uncertainties with timing of new product sales, it is difficult to predict any future quarterly sales levels.  We expect to incur losses for the next six months as we work new sales opportunities and release our new FibreSTORE 2212A SATA product.  We expect our use of cash during this period will closely track our operating losses and we may use up to $3 million of cash from operations during this period, exclusive of any restructuring costs.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2004, we had cash, cash equivalents and marketable securities totaling $20.8 million compared to $21.9 million at the end of fiscal 2003.

 

Cash flows used in operating activities were $1.6 million for the nine-months ended June 30, 2004 compared to $3.5 million for the same period last year.  The decrease in the use of cash from operations between years primarily reflects the positive impacts from working capital changes including normal accounts receivable collections and accounts payable payments with lower sales between periods and a reduction in inventories of $500,000 during the quarter.  Capital expenditures of approximately $153,000 for the nine-months ended June 30, 2004 primarily reflect spending related to our new product development efforts.  We anticipate that capital expenditures for fiscal 2004 will approximate $200,000 to $300,000.  There was no share repurchase activity for the nine-months ended June 30, 2004.  The remaining authorization as of June 30, 2004 under our stock buyback program is $4.2 million.

 

FORWARD-LOOKING STATEMENTS

 

Certain statements in this Form 10-Q are forward-looking and are subject to various risks and uncertainties, which may cause actual results to differ from the expectations set forth in these forward-looking statements.  Such forward-looking statements, which reflect our current view of future events and financial performance, involve known and unknown risks, which include, but are not limited to, the risk factors set forth in our Form 10-K filed on December 12, 2003.  Some of these reasons include the impact on revenues and earnings of the timing of product enhancements and new product releases; market acceptance of new products; sales and distribution issues; competition; dependence on suppliers; dependence on the cost of disk drives; limited backlog and the historic and recurring pattern of a disproportionate percentage of total quarterly sales occurring 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.

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company invests its excess cash in money market mutual funds, highly rated corporate debt securities and certain asset-backed investments.  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 subsidiary are denoted in pounds sterling.  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.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Ciprico management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.  Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time period covered by this report.  There have been no changes in the Company’s internal controls over financial reporting that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 6.  Exhibits and Reports on Form 8-K

	(a)	Exhibits
		31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		32.1	Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		32.2	Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	(b)	Reports on Form 8-K
		The Company filed a Current Report on Form 8-K with the Commission on July 27, 2004 with respect to the press release dated July 27, 2004 announcing the Company’s results of operations for the three and nine-month periods ended June 30, 2004.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

CIPRICO INC.
Dated:  August 11, 2004	/s/ James W. Hansen
	James W. Hansen, Interim Chief Executive Officer (Interim Chief Executive Officer)
Dated:  August 11, 2004	/s/ Thomas S. Wargolet
	Thomas S. Wargolet, Vice President of Finance/Chief Financial Officer (Principal Financial and Accounting Officer)

 

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