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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended April 30, 2005

OR

For the transition period from                      to                     

Commission file number 0-21103

ADVANCED DIGITAL INFORMATION CORPORATION

11431 Willows Road N.E.

P.O. Box 97057

Redmond, Washington 98073-9757

(425) 881-8004

Indicate by check mark 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 ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

Yes x     No ¨

The total shares of common stock without par value outstanding at the end of the quarter reported is 63,020,788.

PART I—FINANCIAL INFORMATION

Advanced Digital Information Corporation

Condensed Consolidated Balance Sheets

(In thousands, except for share data)

(Unaudited)

See the accompanying notes to these condensed consolidated financial statements.

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Advanced Digital Information Corporation

Condensed Consolidated Statements of Operations

(In thousands, except for per share data)

(Unaudited)

See the accompanying notes to these condensed consolidated financial statements.

2

Advanced Digital Information Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See the accompanying notes to these condensed consolidated financial statements.

3

Advanced Digital Information Corporation

Condensed Consolidated Statements of Changes in Shareholders’ Equity

Six months ended April 30, 2005

(In thousands)

(Unaudited)

See the accompanying notes to these condensed consolidated financial statements.

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Advanced Digital Information Corporation

Notes to Interim Condensed Consolidated Financial Statements

April 30, 2005

(Unaudited)

Note 1. Financial statement presentation

Basis of presentation

The accompanying condensed consolidated financial statements are unaudited and include the accounts of the Company and its subsidiaries. All significant intercompany transactions, balances and profits have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2004. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In our opinion all normal recurring adjustments which are necessary for the fair presentation of the results for the interim periods are reflected herein. Operating results for the three and six month periods ended April 30, 2005 are not necessarily indicative of results to be expected for a full year.

Restatement of previously issued financial statements

Our financial statements for the three and six months ended April 30, 2004 have been restated to correct our accounting for our investment in a private technology venture limited partnership. During the fourth quarter of fiscal 2004, we determined that our investment in Frazier Technology Venture Fund I (FTVI), a limited partnership, had been improperly accounted for since fiscal 2000. We initially accounted for our investment under the cost method since our ownership interest in FTVI is less than 20% and we do not have significant influence over the partnership’s operating and financial policies. Subsequently it was determined that the equity method is appropriate under EITF Topic D-46, “Accounting for Limited Partnership Investments,” because our limited partnership ownership interest is greater than 5%. The following table summarizes the impact of this restatement on our financial statements as reported in the Form 10-Q for the three and six months ended April 30, 2004 (in thousands, except for per share data):

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Reclassifications

During the three months ended January 31, 2005, we concluded it was appropriate to classify our auction rate marketable securities as current investments. Previously, we classified these securities as cash equivalents because of an interest rate reset feature that provides short-term liquidity. Accordingly, we have revised the classification to report these securities as current investments in the line item short-term marketable securities in the Condensed Consolidated Balance Sheet as of October 31, 2004. Further, we have also made corresponding adjustments to our Condensed Consolidated Statement of Cash Flows for the period ended April 30, 2004 to reflect the gross purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. This change in classification does not affect cash flows from operations or from financing activities in our previously reported Condensed Consolidated Statements of Cash Flows or our previously reported Condensed Consolidated Statements of Income for any period.

As of April 30, 2005 and October 31, 2004, $187.7 million and $132.2 million of these current investments are classified as short-term marketable securities on our Condensed Consolidated Balance Sheet. For the six months ended April 30, 2005 and 2004, net cash used in investing activities related to these current investments is $53.5 million and $33.7 million, respectively, in our Condensed Consolidated Statements of Cash Flows.

During the three months ended January 31, 2005, we began presenting revenue and cost of revenue separately for products and services because in fiscal 2005 our annual service revenue is expected to exceed 10% of our total revenue for the first time. We have made a corresponding adjustment to the Condensed Consolidated Income Statement for the three and six months ended April 30, 2004. Our accounting policy for product and service revenue and cost of revenue is described in Note 2 below.

No other prior year information has been reclassified to conform to the current year presentation.

Note 2. Summary of significant accounting policies

The significant accounting policies used in the preparation of our consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended October 31, 2004. New significant accounting policies for fiscal 2005 are disclosed below.

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Product and service revenue and cost of revenue

We have presented revenue and cost of revenue separately for products and services beginning in the first quarter of fiscal 2005. Product revenue includes sales of hardware and software data storage solutions, as well as installation and professional services related to these products. Service revenue is derived from contracts for field support provided to our branded customers and not otherwise included in the base price of the product. Service does not include revenue or costs associated with basic warranty support on new branded or OEM products. We classify expenses as costs of service revenue by estimating the portion of our total cost of revenue that relates to providing field support to our customers under contract. These estimates are based upon a variety of factors, including the nature of the support activity, the cost of stocking and shipping service parts for maintenance and the level of infrastructure required to support the activities that comprise service revenue. In the event our service business changes, our estimates of cost of service revenue may be impacted.

Auction rate securities

At April 30, 2005 and October 31, 2004, we held $187.7 million and $132.2 million, respectively, of investments in auction rate marketable securities. Our investments in these securities are recorded at fair value, which approximates cost due to the variable interest rates of these securities, which typically reset every 7 to 49 days. As a result, we have no unrealized or realized investment gains or losses from these auction rate securities. Additionally, despite the long-term nature of their stated contractual maturities, we have the ability to quickly liquidate these securities within the current operating cycle and therefore have classified them as short-term marketable securities in the Condensed Consolidated Balance Sheet. All income generated from these auction rate securities is recorded as interest income.

Note 3. Stock-based compensation plans

Stock-based compensation plans are accounted for using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and by FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation – an Interpretation of APB Opinion No. 25.” No stock-based compensation cost is reflected in net income (loss), as all stock options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” our net income (loss) and basic and diluted net income (loss) per share would have been changed to the pro forma amounts indicated below (in thousands, except for per share data):

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All of the options granted during the three and six months ended April 30, 2005 and 2004 expire after ten years. 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 and results for options granted during the periods presented:

The fair value of each share purchased under our stock purchase plan is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results for shares granted during the periods presented:

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Note 4. Assets held for sale

In May 2005, we completed a sale-leaseback transaction for our facility in Böehmenkirch, Germany, where we manufacture certain of our largest libraries and perform service operations for several products. Assets held for sale at April 30, 2005 relate to this transaction and are comprised of the land, building and leasehold improvements in Böehmenkirch. We sold the facility for 3.5 million euros, and the total gain on this sale is approximately $3.2 million, $2.5 million of which has been recorded on the date of sale in the third quarter of fiscal 2005. The remaining gain will be deferred and recognized over the term of our lease with the purchaser. Our lease ends in December 2007, though we have the option to extend the lease one year past the original expiration date.

Note 5. Benchmark outsourcing agreement

In November 2003, we expanded an existing outsource manufacturing relationship with Benchmark Electronics, Inc. to include final assembly and test of a significant portion of our entry-level and workgroup tape automation product line. In connection with this expansion, we transferred to Benchmark approximately 150 team members associated with manufacturing, test and supply chain management. Benchmark assumed the lease on our Redmond, Washington manufacturing facility and purchased inventory associated with the product line and property, plant and equipment related to the operation for $15.1 million in cash. There was no gain or loss recorded on this transaction.

Note 6. Earnings per share

For the three months ended April 30, 2004, options to purchase 3,860,000 shares of common stock, which would be equal to 857,000 adjusted weighted average shares, were not included in the computation of diluted net loss per share because they are antidilutive. The following table sets forth the computation of basic and diluted net income (loss) per share for the three and six months ended April 30, 2005 and 2004 (in thousands, except for per share data):

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Note 7. Inventories

Inventories are comprised of the following (in thousands):

Note 8. Investments in short-term marketable securities and other investments

At April 30, 2005, the cost basis of the marketable securities we held was $192,741,000 and the fair value was $192,729,000. The difference between the cost basis and fair value of $12,000, net of taxes of $4,000, is recorded as an unrealized investment loss. At April 30, 2005, marketable securities comprised investment-grade government and commercial debt securities purchased in accordance with our investment policy to generate a higher yield than cash equivalents. Consistent with our investment policy, effective investment maturities do not exceed 24 months at the date of purchase. The objectives of our investment policy are safety and preservation of funds, liquidity sufficient to meet cash flow requirements and attainment of a market rate of return. We did not sell any marketable securities during the three or six month periods ended April 30, 2005 or the three month period ended April 30, 2004. During the six month period ended April 30, 2004, sales of marketable equity securities resulted in a gain of $48,000.

We also hold strategic investments in two private technology venture limited partnerships that are accounted for under the equity method. During the three months ended April 30, 2005 and 2004, we recorded losses of $36,000 and $25,000, respectively, reflecting our pro rata share of the limited partnerships’ net losses. During the six months ended April 30, 2005 and 2004, we recorded losses of $2,000 and $235,000, respectively. These loss amounts are primarily based on the general partners’ estimates of the fair value of non-marketable securities held by the partnerships and, to a lesser extent, realized gains and losses from the partnerships’ disposal of securities.

From time to time, we make other strategic investments that are accounted for under the cost method. We review these non-marketable investments on a regular basis to determine if there has been any impairment of value which is other than temporary by reviewing their financial information, gaining knowledge of any new financing or other business agreements and assessing their operating viability. We have not recorded any impairment write downs during the three or six months ended April 30, 2005 or 2004. During the six months ended April 30, 2004, we recorded additional gains on securities transactions of $823,000 as a result of receiving additional shares of marketable equity securities under earnout and escrow provisions of a November 2002 transaction in which we received $8.4 million of cash and marketable equity securities for one of our strategic investments. There was no such gain during the three months ended April 30, 2004.

Note 9. Indemnifications and warranties

In the normal course of business, we are party to a variety of agreements under which we may be obligated to indemnify the other party for certain matters. These obligations typically arise in contracts where we customarily agree to hold the other party harmless against losses arising from a breach of representations or covenants for certain matters such as title to assets and intellectual property rights

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associated with the sale of products. The duration of these indemnifications varies, and in certain cases, is indefinite. In each of these circumstances, payment by us depends upon the other party making an adverse claim according to the procedures outlined in the particular agreement, which procedures generally allow us to challenge the other party’s claims. In certain instances, we may have recourse against third parties for payments made by us.

Based on historical experience, we do not believe any significant payments will result from these indemnification obligations; accordingly, no amounts have been accrued for these provisions. However, we do accrue losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is both probable and reasonably estimable.

For our products, parts and labor are covered under warranty for periods between three months and three years. A provision for internal labor costs and third party service costs related to warranty expense is recorded when revenue is recognized. We hold service parts for maintenance that are used to service our warranties and extended service contracts. The aggregate cost of these parts is amortized over the estimated useful life of three to seven years. With respect to drives, tapes and disk used in our products but manufactured by a third party, we provide to the customer a warranty on such drives, tapes and disk that is substantially equivalent to the warranty provided by the manufacturer.

Changes in our accrued warranty balance for the six months ended April 30, 2005 are as follows (in thousands):

Note 10. Exit costs

Research and development facility closures

In February 2005, we announced plans to close our research and development facilities in Ithaca, New York and Santa Clara, California. The purpose of these closures is to improve customer service, optimize efficiency and lower our cost structure by streamlining and integrating overhead from several acquisitions. Both closures are expected to be completed during the fourth quarter of fiscal 2005. The charges related to these closures are recorded in research and development expense. The activity for the six months ended April 30, 2005 is as follows (in thousands):

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We expect to record additional charges related to the closures during the third and fourth quarters of fiscal 2005, with up to $300,000 in future years. Further, we expect the majority of the additional charges will be accrued during the fourth quarter upon our exit of both facilities. We currently anticipate total additional charges as follows (in thousands):

The facility-related costs exclude the impact of potential future sublease income, which has yet to be determined.

European shared services reorganization

In February 2005, we began a reorganization of our European operations to create a shared services center in Switzerland. The purpose of this reorganization is to improve our ability to meet our customers’ needs; centralize our administrative support functions and operating and financial controls; streamline our reporting; and improve our operating cost model by streamlining and integrating overhead from several acquisitions. The reorganization will impact administrative team members in our France and Germany offices, some of whom will be relocating elsewhere within the Company’s European operations. The reorganization is expected to be complete by the end of the calendar year. The charges related to the reorganization are recorded in general and administrative expense. The activity for the six months ended April 30, 2005 is as follows (in thousands):

We expect to record additional charges related to the reorganization primarily during the third quarter of fiscal 2005. We currently anticipate total additional charges as follows (in thousands):

Other

During fiscal 2001, we recorded a $2,318,000 liability to reflect anticipated costs to exit a manufacturing and development site in Englewood, Colorado which was replaced by a larger facility in Englewood in fiscal 2002. These accrued costs represent our estimate of the net amount of lease payments related to unused capacity of the old facility. Changes in this accrual for the three and six months ended April 30, 2005 are as follows (in thousands):

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We believe the remaining accrual at April 30, 2005 is adequate to cover the cost of unused capacity in the facility through the end of the lease term in December 2006.

Note 11. Recent accounting pronouncements

In March 2004, the EITF reached a consensus on Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance on other-than-temporary impairment models for marketable debt and equity securities accounted for under SFAS 115 and non-marketable equity securities accounted for under the cost method. The EITF developed a basic three-step model to evaluate whether an investment is other-than-temporarily impaired. In September 2004, the FASB approved the issuance of FASB Staff Position EITF 03-1-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-1 to investments in securities that are impaired. The adoption of this accounting principle is not expected to have a significant impact on our financial position or results of operations.

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, “Inventory Costs – an Amendment of ARB No. 43, Chapter 4.” This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage, requiring these items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and will become effective for ADIC beginning in fiscal 2006. The adoption of this accounting principle is not expected to have a significant impact on our financial position or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment (Revised 2004).” This statement addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for the company’s equity instruments or liabilities that are based on the fair value of the company’s equity securities or may be settled by the issuance of these securities. SFAS 123R eliminates the ability to account for share-based compensation using APB 25 and generally requires that such transactions be accounted for using a fair value method. The provisions of this statement are effective for financial statements issued for fiscal years beginning after June 15, 2005 and will become effective for ADIC beginning in fiscal 2006. We have not yet determined which transition method we will use to adopt SFAS 123R. Assuming the modified prospective method with no restatement is used, we will record stock compensation expense of approximately $5.5 million between the first quarter of fiscal 2006 through fiscal 2009 for stock awards outstanding as of April 30, 2005. Any additional impact that the adoption of this statement will have on our financial position and results of operations will be determined by share-based payments granted in future periods and the assumptions on which the value of those share-based payments is based.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets – an Amendment of APB Opinion No. 29.” This statement amends APB 29 to eliminate an exception to the fair value measurement principle for nonmonetary exchanges of

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similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The provisions of this statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and will become effective for ADIC beginning in the fourth quarter of fiscal 2005. The adoption of this accounting principle is not expected to have a significant impact on our financial position or results of operations.

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This Form 10-Q, including the following discussion and analysis, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by references to future events, circumstances, results or actions. They often contain words such as “expect,” “anticipate,” “believe,” “may,” “will,” “could,” or “should,” or similar expressions and variations of these words. Readers are cautioned to not place undue reliance on these forward-looking statements because all forward-looking statements are inherently uncertain as they relate to future events. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that may subsequently arise.

A number of risks and uncertainties could cause our actual results to differ materially from those contained in the forward-looking statements. Risk factors are detailed in our Annual Report on Form 10-K for the year ended October 31, 2004 and are incorporated herein by reference. They include risks relating to changes in global economic and political conditions; increased competition and pricing pressures; our need to continually develop new products; uncertain results of research and development spending; reliance on tape technology for a substantial portion of our revenue; our strategy to extend products and services beyond the tape library market; our dependence on key suppliers and contract manufacturers; our concentration of manufacturing in one location; our reliance on indirect sales channels and OEM sales; litigation risks; product liability risks; our ability to retain key personnel; ongoing service obligations; the volatility of our stock price; antitakeover provisions that make it difficult for us to be acquired; and international expansion, regulatory compliance and foreign currency fluctuations.

General

ADIC is a leading provider of Intelligent Storage^™ solutions for the open systems marketplace. We design, market, sell and support hardware and software products that help a broad range of business and governmental organizations manage, access and protect their large-scale data more effectively. Currently, we derive substantially all of our revenue from the sale of tape and disk-based storage solutions, storage software, connectivity solutions and related services and support. We distribute our products primarily through OEMs, value-added resellers (VARs) and distributors, and also sell directly to certain end users.

Revenues for the second quarter of fiscal 2005 declined 4% from both the same period a year ago and the first quarter of fiscal 2005. These decreases were primarily due to a drop in sales to OEM customers, resulting from an anticipated decrease in the sale of certain entry-level products. We anticipate that our OEM revenues will resume growth after we begin making significant shipments of new OEM products that we expect to release later this fiscal year. Strong branded sales offset a portion of the decrease in OEM revenues, as service revenue and sales of enterprise-class products, which include tape and disk-based offerings as well software, increased compared to the same quarter last year. Branded sales represented 60% of revenue, the highest level since the third quarter of fiscal 2002. Despite the decrease in revenue, operating income improved $1.5 million compared to both the second quarter of fiscal 2004 and the first quarter of fiscal 2005. Gross profit for the quarter was at its highest level since the end of fiscal 2003 primarily as a result of improved sales channel and product mix consisting of higher branded and enterprise-class product sales and increasing utilization rates for our global services personnel and parts infrastructure, the effects of which were partially offset by lower product sales volumes. During the quarter, sales and marketing expenses decreased compared to the same quarter a year ago primarily due to a decline in sales promotion costs related to the timing of product introductions. Research and development expenses increased during the second quarter of fiscal 2005 compared to 2004 due to a combination of severance, relocation and other exit costs related to the planned fourth quarter

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closures of our Ithaca, New York and Santa Clara, California research and development facilities and higher material costs associated with product development efforts for products expected to be released later this fiscal year. Our general and administrative expenses during the quarter increased modestly compared to the same quarter in fiscal 2004 largely due to higher professional services fees related to our first year of Sarbanes-Oxley Section 404 compliance in fiscal 2005 and to support ongoing tax and business strategy planning.

We expect to continue to make significant investments in research and development and sales and marketing in order to remain competitive and to solidify our market position in intelligent storage solutions. We are in the process of transforming our business from one that has historically been primarily focused on tape libraries to one with a broad portfolio of technologies and channels necessary to support software, disk and tape-based solutions in the rapidly evolving backup and archive storage markets. We believe our ability to serve broader markets with enterprise-level products and software and to continually develop technologically sophisticated, higher-margin products to replace entry-level products that become commoditized and subject to increasing price pressure at the OEM level will be key to our future success. In addition, we view a comprehensive global service and support offering as an integral component of our strategy and our total customer solution. In order to meet customer needs, the offerings of our global services group not only include the standard activities needed to ensure successful selection and on-going support of products, but are also directly coupled with meeting dynamic customer requirements and innovative product design that can help minimize the need for conventional service. Service infrastructure and technology investment have been – and are expected to continue to be – major priorities, as we scale to meet our organizational growth and the needs of our expanding installed base.

We believe continued investment in sales and marketing and research and development is required in order to successfully penetrate new markets, reach new customers and expand our offerings. The competition in our industry is strong and we must constantly work to reduce the cost of our existing products while retaining high quality standards and reliability. We have outsourced the production of our entry-level products and a portion of the repair of these products to third party manufacturers to allow us to take advantage of our suppliers’ economies of scale in component purchasing, manufacturing, test and other areas associated with production of our higher volume, lower margin products.

During the second quarter of fiscal 2005, we announced plans to close our research and development facilities in Ithaca, New York and Santa Clara, California and began a reorganization of our European operations. The purpose of these changes is to improve customer service, centralize administrative support functions in a shared services center, optimize efficiency, streamline reporting and lower our cost structure by streamlining and integrating overhead from several acquisitions. We expect the domestic facilities closures to be completed during the fourth quarter of fiscal 2005 and the European shared services reorganization to be completed by the end of the calendar year. During the second quarter, we recorded approximately $500,000 of expenses related to these restructurings. We expect to incur additional costs of approximately $3 million for these restructurings, the majority of which will be recorded during the remainder of fiscal 2005.

In May 2005, we completed a sale-leaseback transaction for our facility in Böehmenkirch, Germany, where we manufacture certain of our largest libraries and perform service operations for several products. We sold the facility for 3.5 million euros, and the total gain on this sale is approximately $3.2 million, $2.5 million of which has been recorded on the date of sale in the third quarter of fiscal 2005. The remaining gain will be deferred and recognized over the term of our lease with the purchaser. Our lease ends in December 2007, though we have the option to extend the lease one year past the original expiration date.

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During the first quarter of fiscal 2006, we will begin recording the fair value of our share-based compensation in our financial statements in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment (Revised 2004).” We have not yet determined which transition method we will use to adopt SFAS 123R. Assuming the modified prospective method with no restatement is used, we will record stock compensation expense of approximately $5.5 million between the first quarter of fiscal 2006 through fiscal 2009 for stock awards outstanding as of April 30, 2005. A substantial majority of this $5.5 million of future expense relates to stock options with exercise prices above the fair market value of our common stock as of the end of the second quarter. Any additional impact that the adoption of this statement will have on our financial position and results of operations will be determined by share-based payments granted in future periods and the assumptions on which the value of those share-based payments is based.

Our financial statements for the three and six months ended April 30, 2004 have been restated to correct our accounting for our investment in a private technology venture limited partnership. During the fourth quarter of fiscal 2004, we determined that our investment in Frazier Technology Venture Fund I (FTVI), a limited partnership, had been improperly accounted for since fiscal 2000. We initially accounted for our investment under the cost method since our ownership interest in FTVI is less than 20% and we do not have significant influence over the partnership’s operating and financial policies. Subsequently it was determined that the equity method is appropriate under EITF Topic D-46, “Accounting for Limited Partnership Investments,” because our limited partnership ownership interest is greater than 5%. See Note 1 of the Notes to Interim Condensed Consolidated Financial Statements for additional information. The following discussion and analysis gives effect to the restatement.

During the first quarter of fiscal 2005, we began presenting revenue and cost of revenue separately for products and services because in fiscal 2005 our annual service revenue is expected to exceed 10% of our total revenue for the first time. We have made a corresponding adjustment to the Condensed Consolidated Income Statement for the three and six months ended April 30, 2004. See Notes 1 and 2 of the Notes to Interim Condensed Consolidated Financial Statements for additional information. The following discussion and analysis gives effect to the adjustment.

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Results of Operations

The following table presents our results of operations for the second quarter of fiscal 2005 and 2004. Percentage of revenue data is stated as a percentage of total revenue, except for product and service cost of revenue, which is stated as percentage of the applicable revenue type (in thousands, except for percentages):