**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

**ANNUALREPORT PURSUANT TO SECTION 13**

**OFTHE SECURITIES EXCHANGE ACT OF 1934**

| **For the fiscal year ended** | ** ** | ** **                            |
|-------------------------------|------------|---------------------------------------|
| **September 30, 2001**        |       | **Commission File No.  0–11336** |

 

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**CIPRICO INC.**

(Exact Name of Registrant asSpecified in its Charter)

| **Delaware**                                         | ** ** | **41–1749708** |
|------------------------------------------------------|------------|---------------------|
| (State or Other Jurisdiction of                      |       | (I.R.S. Employer    |
| Incorporation or Organization)                       |       | Identification No.) |
|                                                 |       |                |
| **2800 Campus Drive**                                |
| **Plymouth, Minnesota 55441**                        |
| (Address of Principal Executive Offices)  (Zip Code) |
|                                                 |       |                |
| Registrant’s Telephone Number,                  |
| Including Area Code:  **(763) 551-4000**        |

 

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Securities registered pursuant to Section12(b) of the Exchange Act:

None

 

Securities registered pursuant to Section12(g) of the Exchange Act:

Common Stock

 

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Indicate by checkmark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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

 

Indicateby checkmark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K ý

 

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Theaggregate market value of the Common Stock held by nonaffiliates of the Registrantas of November 27, 2001 was approximately $25,083,916 (based upon the last sale price of the Registrant's CommonStock on such date).

 

Shares of Common Stockoutstanding at November 27, 2001: 4,931,503 shares

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Portions of the Registrant’sProxy Statement for the 2002 Annual Meeting of Shareholders are incorporatedherein by reference in Part III, as indicated.

 

 

 

CIPRICO INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED SEPTEMBER 30, 2001

 
| PART 1       |                                                                                        |   |
|--------------|---------------------------------------------------------------------------------------------|--------|
| Item 1       | Description of Business                                                                     |   |
| Item 2       | Properties                                                                                  |   |
| Item 3       | Legal Proceedings                                                                           |   |
| Item 4       | Submission of Matters to a Vote of Security  Holders                                        |   |
| Item 4A      | Executive Officers of the Registrant                                                        |   |
|         |                                                                                        |   |
| PART II      |                                                                                        |   |
| Item 5       | Market for Registrant’s Common Equity and  Related Stockholder Matters                 |   |
| Item 6       | Selected Financial Data                                                                     |   |
| Item 7       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
| Item 7A      | Quantitative and Qualitative Disclosures  about Market Risk                                 |   |
| Item 8       | Financial Statements and Supplementary Data                                                 |   |
| Item 9       | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure       |   |
|         |                                                                                        |   |
| PART III     |                                                                                        |   |
| Item 10      | Directors and Executive Officers of the  Registrant                                         |   |
| Item 11      | Executive Compensation                                                                      |   |
| Item 12      | Security Ownership of Certain Beneficial  Owners and Management                             |   |
| Item 13      | Certain Relationships and Related Transactions                                              |   |
|         |                                                                                        |   |
| Item 14      | Exhibits, Financial Statements and Reports  on Form 8-K                                     |   |
|         |                                                                                        |   |
|         | Signatures                                                                                  |   |
|         | Schedule II – Valuation and Qualifying  Accounts                                       |   |
|         | Exhibit Index to form 10-K                                                                  |   |
|         |                                                                                        |   |
| Exhibit 23.1 | Consent of  Independent Certified Public Accountants                                        |   |
|         |                                                                                        |   |
| Exhibit 99A  | Cautionary  Statements                                                                      |   |

 

 

**NOTEREGARDING FORWARD–LOOKING STATEMENTS**

 

                When used in this Form 10-K, the words“may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”“predict,” “intend,” “potential” or “continue” and similar expressions aregenerally intended to identify forward-looking statements. Theseforward-looking statements involve risks and uncertainties. Actual resultscould differ materially from those expressed or implied by theseforward-looking statements as a result of certain risk factors, including butnot limited to (i) competitive factors, including pricing pressures;(ii) variability in quarterly sales; (iii) economic trends generallyand in various markets; (iv) general economic conditions;(v) unanticipated risks associated with introducing new products andfeatures, (viii) other events and other important factors disclosedpreviously and from time to time in our filings with the U.S. Securities andExchange Commission and in Exhibit 99 to this Form 10-K.

 

                We assume no obligation to update anyforward-looking statements. These statements are only predictions reflectingour current views with respect to current events.  Although we believe that the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future results,levels of activity, performance or achievements.  We do not intend to update or revise any forward-lookingstatements whether as a result of new information, future events or otherwise.

 

**Glossaryof Terms**

 

**Digital Media Workflow**

The process involved with themovement of digital media data within an application workflow, including, butnot limited to, ingesting, capturing, creation, editing, processing, archiving,retrieval, sharing and publishing.

#  

**Disk array**

A collection of standard,independent disks and/or disk sub-systems linked together to produce increasedperformance and high-volume storage capacity, utilizing redundancy techniquesto ensure the integrity of the data.

 

**Failover**

The transfer of operation froma failed component (i.e. controller, disk drive) to a similar, redundantcomponent to ensure uninterrupted data flow and operability.

 

**Fault tolerance**

The ability for a system toremain operational, sometimes in a degraded mode, even though one or moreelements of the system have failed. Fault tolerance is obtained through the use of redundant components ormodules.

 

**Fibre Channel**

An industry-standard peripheraland networking interface used in high-performance systems. The fastestinterconnection standard currently available, this interface is able to movedata at 100 megabytes per second.

 

**iSCSI**

iSCSI provides access to sharedstorage devices utilizing the mapping of SCSI transport protocol over TC/IPallowing SCSI storage controllers to be attached to IP networks.

 

**Infiniband**

Infiniband is a high-bandwidth,low latency, low overhead interconnect technology used to interconnectprocessors, I/O devices and other systems in the form of a system area network.Infiniband is independent of the host-operating system and processor platform.It is highly scalable enabling a high extensible architectural design.

 

**Isochronous**

Performance that supportsnetwork-wide timing requirements.  Atypical application for isochronous transmission is a broadcast environmentwhich needs information to be delivered at a predictable time.

 

**JBOD**

An acronym for *Just a Bunchof Disks*. A disk array technology that does not use hardware RAIDcontrollers. It is a low-cost storage alternative for applications that do notrequire redundancy.

 

**NAS**

An acronym for *NetworkAttached Storage*. NAS devices are storage devices that connect tousers via a networking interface such as Ethernet instead of throughtraditional storage interfaces such as SCSI.

 

**RAID**

An acronym for *RedundantArray of Independent Disks*. RAIDs use multiple techniques formanaging collections of disks in such a way to provide desirable cost,availability and performance.

 

**SAN**

An acronym for *Storage AreaNetwork*. SAN technology allows multiple workstations and/or fileservers to directly access common, shared storage devices. This is in contrastto the traditional client-server storage paradigm in which a storage device isdedicated to a single file server.

 

**SCSI**

An acronym for *Small ComputerSystem Interface*. SCSI interface is used to connect microcomputersto SCSI peripheral devices, such as many hard disks and printers, to othercomputers and LANs.

 

**Stream (streaming)**

From the storage device viewpoint a stream is a series of sequentialread or write requests. Often multiple streams are accessing datasimultaneously, referred to as multiple-streaming. Applications formultiple-streaming include multiple channels of compressed video playback ormultiple users accessing different files through a server.

 

 

**PART I**

 

 

**ITEM1.                  DESCRIPTIONOF BUSINESS**

 

**General Development of Business**

 

                Ciprico Inc. designs, manufactures andmarkets storage and system solutions for digital media applications within thebroadcast and entertainment, military and government, and enterprise markets.Our solutions combine storage, networking and computing technologies tosimplify and accelerate digital media workflows. Our storage solutions aredesigned for visual computing applications ranging from high-speed image datacapture, through processing and analysis, to real-time playback at sustainedperformance levels.

 

                We were incorporated under the name ComputerProducts Corporation in February 1978 and changed our name to Ciprico Inc. inMay 1983.  Until 1990, we developed andmanufactured controller-based products for manufacturers and end users ofcomputer systems.  In late 1990 weintroduced for sale our first RAID (redundant array of independent disks) datastorage product. Today our business is focused on providing storage solutionsthat meet the demanding data transfer rate, storage capacity and dataredundancy needs of visual computing markets. Visual computing refers to the digital representation and complex imageprocessing of film, video, graphics, photographs, animation, special effects,three-dimensional images and other images.

 

                We offer a complete range of open platform,disk-based storage solutions for high performance visual imagingapplications.  This includes RAID 3 forbandwidth, RAID 4 for high bandwidth streaming and RAID 5 for high input/output(I/O) oriented uses.  We also provideStorage Area Networking (SAN) solutions, focused on the networking of demandingvisual workgroup applications.  Likemany other computer applications, the trend in visual computing is towardrandom access, digital data storage and away from traditional analog tapestorage or film methods.  Our primarytarget market segments include broadcast and entertainment, military andgovernment and video streaming.  Webelieve our expertise is our understanding of the applications for digitalmedia workflows within our target markets.

 

 

**Narrative Description of Business**

 

(1)**           Productsand Services.**

 

***                Products*.**

 

                Our product line consists mainly of storagesystems.  We design,develop and manufacture all of our storage products to operate at peakperformance levels while maintaining connectivity consistent within industrystandards. We offer customers a choice of several different series of storagesolutions depending on their needs.  Prices for our storage products generally range from a list priceof $14,000 to $100,000 per system depending on the features selected by thecustomer.  Applications may require oneor several systems.

 

*                6900 Series*.  Introduced in 1996, our 6900 Series diskarrays use the SCSI peripheral interface standard UltraSCSI.  While maintaining compatibility with SCSI-2,the UltraSCSI interface offers a transfer rate of 40 megabytes (MB) per second,twice the speed of Fast Wide SCSI-2. With one 6900 Series UltraSCSI disk array, a user can retrieve 24-bitcolor, uncompressed video images at a real-time speed of 30 frames persecond.  Our 6900 Series offerscustomers eight data drives plus one redundant drive, which together provide astorage capacity of 72 gigabytes (GB) to 587 GB.  The 6900 Series also includes several redundancy features,including hot swap drives and power supplies.

 

*                6500 Series.*The 6500 Series of disk arrays, targeted at entry-level or low-cost applicationenvironments, was introduced in 1996. The 6500 Series utilizes the Ultra SCSI interface, offers 40 MB persecond transfer rate and allows users to swap disk drives without losing dataor performance. Unlike our 6900 and 7000 products, the 6500 product uses ATAdisk drives (also known as IDE disk drives) internally.  ATA disk drives are most commonly found inpersonal computers.  Use of these drivesenables us to offer a low-cost solution to customers while meeting theirperformance, data redundancy and cost requirements. The disk arrays are availablein an 8 + 1 configuration and have storage capacities ranging from 80 to 600GB.  The 6500 Series can be striped ordaisy-chained together for additional capacity.

 

*                7000 Fibre Channel Series*.  Infiscal 1997, we began shipping our 7000 Series disk array, the industry's firststorage device to offer a host interface compatible with full speed FibreChannel.  The 7000 Series offers a peaktransfer rate of 100 MB per second and a sustained transfer rate in excess of90 MB per second.  This storage deviceis capable of transferring uncompressed video images in real-time to preservequality, or simultaneously transferring several dozen streams of compressedvideo images. The 7000 Series is based on SCSI drive technology and consists ofnine Fast/Wide SCSI drives, each connected to a dedicated channel.  The storage capacities supported by the 7000Series storage devices range from 144 GB to 587 GB.  A total rack system storage capacity can grow to over 4 terabytes(TB) with only seven arrays. The 7000 Series has hot swap disk drives, powersupplies and fans.

 

                *FibreSTORE Products.*    The initial member of thisfamily, the FibreSTORE JBOD (just a bunch of disks) began shipping in December1998. It features full Fibre Channel connectivity between the disk drives aswell as to the host computer, full dual loop Fibre Channel connections andredundant power supplies and fans. Configurations of up to seven FibreSTOREenclosures containing up to 63 Fibre Channel disk drives have been fully testedand supported.  FibreSTORE offers theperformance features of Fibre Channel for applications that do not require RAIDprotection.

 

                The second member of the family, FibreSTORERAID was introduced in October 1999. FibreSTORE RAID adds data redundancy features to FibreSTORE insuringuninterrupted data availability at full performance levels and service withoutdisruption.  The FibreSTORE RAID systemcan be configured with single or dual RAID controllers and up to 4.1 terabytesof Fibre Channel disk storage in a single rack.  Each controller is a fully independent, caching controllerdesigned to give optimum performance in data streaming applications such asdigital video and multiple stream video playback.  It is designed to deliver continuous, sustainable data rates atclose to 200 MB per second with the dual controller option.

 

                The next generation of FibreSTORE RAID, the2210 is expected to be released during the second half of calendar 2002.  This product is an extension to the originalFibreSTORE RAID and offers improvements in maximum performance using 2 gigabit(Gb) Fibre Channel technology, increased storage density by utilizing newmechanical packaging, and enhanced application performance in the area ofinsured, uninterrupted data availability at full performance levels withoutdisruption.  These features make theproduct unique in the marketplace, and the best-in-class product for highbandwidth applications.

 

                *NETarray. *  In  late 2000 we began shipping the NETarray1000.  This product features full FibreChannel connectivity between the disk drives and the host computer.  Designed for both high performance and highavailability, the NETarray 1000 has full dual loop Fibre Channel connections,redundant power supplies and redundant fans, with no active components on itsbackplane.  It utilizes standardnetworking industry protocols to manage the storage via Ethernet or Internetconnections, maximizing bandwidth for storage reading and writing operations.  The NETarray 1000 also delivers storagedensity, with 730 GB of storage in a single 3U high enclosure.

 

                The NETarray RAID is a controller system thatprovides RAID 5 data redundancy to NETarray JBODs.  The system utilizes a controller manufactured by MylexCorporation and can be configured with either single or dual controllers andover 7.3 TB of Fibre Channel disk storage in a single rack.  Each controller is a fully independentcaching controller designed to give optimum performance in applicationsrequiring high I/O data flow, such as Web streaming, rendering and transactionprocessing.  We continue to implementenhancements to the NETarray to expand its capabilities to fit broader marketapplications.

 

                *Talon 1000.*  TheTalon 1000 is an extension of the NETarray family and is targeted toward themilitary marketplace, where added levels of ruggedization are required.  The Talon 1000 is expected to be releasedduring the second half of fiscal 2002. The Talon product is designed to meet the demanding environments ofairborne, ground based and shipboard applications.  Additionally, the product includes a unique feature of aremoveable disk pack, where the entire set of disks can be removed and/orreplaced in a single operation.  Thisfeature is key to many surveillance and reconnaissance applications within themilitary.

 

                *Software Utilities. *All Ciprico’s storage and systems solutions havea software element to the product. These software interfaces (Storage Manager, a/k/a STORM & WebManager) enable the user to monitor the performance and health of our storageand systems products in real-time. Users can gain access to our storage and system solutions via thein-band Fibre Channel interface or via an Ethernet port, depending upon theapplication needs.  Our softwareutilities are platform independent to support the wide variety of computerplatforms our products are used with.

 

*                Controllers*.  Sales of controller boards representedapproximately 2% of sales for fiscal 2001. We expect sales of controllers to represent a decreasing percentage ofnet sales in the future.

 

*                Storage Area Networks*.  Crossing all of our verticalmarkets is the need for Storage Area Network (SAN) capabilities.  A SAN is a technology that allows multipleworkstations and/or file servers to directly access common, shared storagedevices.  This is in contrast to thetraditional client-server storage paradigm in which a storage device isdedicated to a single file server.  SANsutilize a Fibre Channel based, networking infrastructure that provides a numberof benefits over traditional simple server-attached storage.  These benefits include providing the samehigh performance storage pool across a number of users, centralized managementof the storage, higher productivity and the ability to seamlessly add increasedstorage.  Our applications includedigital broadcast editing, video and audio streaming, and film post-production.

 

                As an extension of our product offerings, weoffer our customers professional services for SAN solutions.  Our services involve the integration ofdiverse components beyond Ciprico storage devices such as tape storage devices,storage management software, network management products and Fibre Channelproducts.  Through our group of salessystems engineers, we help customers evaluate, analyze, install, manage andgrow data centers and storage networks. We believe this value-added professional service assists customers ininstalling and managing data centers and storage networks better than theycould on their own.

 

                To provide these SAN solutions, we work withother storage industry vendors such as Brocade Communications and IBM byimplementing their products as part of the overall solution to meet the needsof our customers.  We seek to strengthenour relationships with existing strategic partners and develop new partnershipswith leading vendors in the SAN market to offer additional products that arecomplimentary to our solutions.

 

*                Digital Media Appliances*.  We arecurrently developing our next-generation of products based on an underlyingnetworked attached storage (NAS) architecture. This product family is designed to provide high performance, high-availability, IPattached, file and block based storage systems that deliver near-Fibre Channel SAN performance with the ease of use ofan appliance.  The initial phase of thisproduct development is expected to be released later in fiscal 2002.

 

***                Technical Support.***

 

                We provide our customers with ongoingtechnical assistance and a variety of spare parts programs to assure failuresare identified and repairs are made quickly. Our Advantage Support Program allows the customer to choose which sparesthey will use for disk array support. The Safety Net Spares Program provides for critical spare parts locatedat the customer's site, while other spare parts are available upon request withnext-day delivery.  Our Hot SparesProgram allows the customer to select and purchase on site spare components tosupport their production environment and purchase a hot spares service optionthat provides the customer with delivery of replacement parts from anauthorized Ciprico parts depot.  Depotsare currently located in Minneapolis, Los Angeles, Amsterdam andSingapore.  All service options providetraining for the customer’s technicians and access to our telephone supportservices. Technical support specialists are available 24 hours per day, 7 daysper week through our toll-free help line for the U.S., Canada and selectedinternational locations.  Technicalsupport is also available through our web-site, www.ciprico.com.

 

                We also provide a return-to-factory parts andlabor warranty against defects in materials and workmanship covering a periodof three years from the date of shipment to customers.  Extended warranty and maintenance servicesare also offered to customers in addition to the primary warranty.  All repair work for our products ispresently done at our manufacturing facility in Plymouth, Minnesota.

 

(2)**           Marketingand Distribution.**

 

***                Markets.***

 

                Our market focus is visual computingapplications.  Within the visualcomputing market, our primary focus is on applications in broadcast andentertainment, military and government, and video streaming.  In addition, we have historically sold inother markets such as geosciences, medical imaging and digital prepress.  In each of these markets, we focus on useswhere our customers need high bandwidth, high I/O, or combinations of both tomeet their application needs.

 

                Inherent to all the applications within eachof our markets is a “digital media workflow” which is that industry’s versionof a production line.  In the case ofthe broadcast market, the workflow is characterized by ingesting incoming videofeeds from satellites and remote news crews, editing the raw video to preparethe news story, and then a “play-to-air” process where the video is broadcastfrom the network feed.  For militaryapplications the workflow begins with surveillance gathering followed by imageprocessing and concludes with the dissemination of data to military commandersin the field.  We believe ourunderstanding of these application workflows uniquely positions us in ourtarget markets.  Our technologydevelopment is focused on solutions that simplify and accelerate these digitalmedia workflows for the end users.

 

                *Broadcast and Entertainment*.  Thismarket segment includes companies that create, edit, manipulate and broadcastimages, in real-time playback, using digital technology, which provides reducedcost of ownership and increased productivity over linear film and videotape.  An emerging segment of theentertainment market is the digital broadcast market, with the new highdefinition television (HDTV) standards mandated in the United States.  Our solutions meet the requirements ofbroadcast and video services applications, which  require very high bandwidth to supply many simultaneous videostreams to multiple users where interruption of service and dead airtime is notacceptable.  With images stored as data,new applications for storage devices within the television broadcast segmentwill include electronic news gathering, commercial and promotional insertionand TV broadcast.  Digital broadcastmarkets will also include such applications as campus and distance learning,movies on demand and in-flight entertainment systems.

 

                Other industry markets include movie studios,post-production houses and video production facilities.  Applications within this market havetraditionally included applications such as 3D animation, special effects, filmrestoration and editing.  Film and videoproduction requires extremely high image resolution because the final imagewill be enlarged many times when it is displayed on a movie screen.

 

*                Military and Government*.  Our primary focus in thismarket segment includes applications commonly referred to as “Command andControl” or C4I.  There are two primarycategories of C4I: those involving the collection, processing and disseminationof reconnaissance and surveillance data, and infrastructure upgrades.

 

                Mission planning, intelligence gathering andtargeting applications involve data capturing via airborne or space-basedsatellite sensors in reconnaissance and surveillance applications.  A single image frame ranges from a fewmegabytes up to 14 GB in size, with the data capture phase requiring thecollection of hundreds of frames per day. In the case of satellite based imagery sensors, our disk arrays are usedat the supporting ground stations.   Forairborne applications, our arrays are on-board the aircraft and the imagerydata is also captured at a very high transfer rate.    In the image processing and archiving applications, the imagerydata created from the capture phase must be processed before it is usable forend-users.  Once processed, the imagerydata is stored into digital asset management databases for fast query andretrieval.  These databases often reachmultiple terabytes in size and require the high bandwidth performance our diskarrays provide.

 

                Infrastructure upgrades involve a variety ofperipheral applications such as inventory management, duty schedules, personnelrecords, etc. that support military operations.  These applications generally involve large databases that utilizetransaction-based storage solutions.  Insome instances these solutions require unique features to meet the demandingenvironments of airborne, ground based and shipboard applications.

 

                *VideoStreaming*.  This is anevolving market application, which includes the delivery of streams of digitalmedia via Internet Protocol (IP) based networks supporting multiple compressionrates and file formats.  IP based videostreaming allows digital capture of events and information which can be madeavailable live or played back later upon demand.  This application offers potential cost savings to end users as analternative means to traveling and printed manuals or other electronic mediaused in training or communication situations. We believe there are market opportunities within both the corporateenterprise and government markets for video streaming solutions.

 

                We believe our storage, application, and SANexpertise demonstrated in digital broadcast applications will provide manybenefits to our potential customers in the video streaming market. Duringfiscal 2001 we developed a solution that combines third-party streamingsoftware, file servers and our storage products to provide an integrated videostreaming solution.  Our Digital MediaAppliance product family is intended to target applications within this marketniche.  We expect our initial productsin this family to be released during the second half of fiscal 2002.   During fiscal 2002 we intend to focus aportion of our sales and marketing efforts on developing the necessary saleschannels to penetrate to this market.

 

*                Other Markets*.  Our products are also used in applicationsin the geosciences, medical imaging and digital prepress markets.  The geosciences market segment is comprisedmainly of major oil and gas exploration companies.   Seismic information can be displayed through 3D imagesrepresenting underground geological formations by using high performanceworkstations and storage solutions. This method enables the exploration companyto locate oil fields and determine optimal drilling sites. Within the medicalimaging market segment, applications for our storage solutions includediagnostic imaging, picture archival communication systems and 3-D imagingapplications.  Within the digitalprepress market segment, computer-to-plate or direct-to-press manufacturersutilize storage solutions to optimize performance.  Digital technology eliminates the material costs of photographicfilm, increases the quality and accuracy of image reproduction and provides theprinter with tools for quick turnaround.

 

***Distribution.***

 

                We have identified segments of the visualcomputing market and allocated marketing resources to support its principalmarket segments. Market managers with an in-depth understanding of theapplications develop a comprehensive marketing plan tailored to the needs ofeach market segment, including market and promotional strategy.  In addition, we rely on our experiencedsystem engineers to support our marketing and sales efforts.

 

                Our products are sold principally through adirect sales force, although we do have relationships with a limited number ofsystem integrators.  Our direct sales organizationis primarily responsible for "demand creation" activities andcustomer development. We have direct sales representatives in Boston, Dallas,Washington D.C., Minneapolis, Detroit, Northern and Southern California, andthe Southeastern and Pacific Northwest sections of the United States. We alsohave an international sales and service office in Newbury, England.

 

                As part of our marketing and sales strategy,we enter into relationships with companies who could play an important role inthe successful marketing of our products. Our storage solutions are sold toOEMs for inclusion in their own computer systems, systems integrators and largeend-users (including government departments and agencies).  The initial sales process is complex,requiring interaction with several layers of the customer's organization andextensive technical exchanges as well as product demonstrations.  As a result, our typical sales cycle canspan up to nine months.

 

(3)**           Statusof New Products.**

 

                See item (10) below.

 

(4)**           Competition.**

 

                The market for all levels of storagesolutions is highly competitive.  Insome of our markets, we compete with traditional suppliers of proprietarycomputer systems including, but not limited to Sun Microsystems, Hitachi, IBMand Compaq Corporation which market storage systems as well as other computerproducts.  We also compete againstindependent storage suppliers, including but not limited to EMC Corporation,Dot Hill Corporation, MTI Technologies, nStor Technologies and Eurologic.

 

                The markets in which we operate arecharacterized by rapidly changing technology and evolving industry standards,resulting in rapid product obsolescence and frequent product and featureintroductions and improvements. We compete with several companies that have greaterengineering and development resources, marketing resources, financialresources, manufacturing capability, customer support resources and namerecognition. As a result, our competitors may have greater credibility withexisting and potential customers. They also may be able to adopt moreaggressive pricing policies and devote greater resources to the development,promotion and sale of their products than we can to ours, which would allowthem to respond more quickly than we can to new or emerging technologies andchanges in customer requirements. These competitive pressures may materiallyharm our business.

 

                Our ability to compete successfully dependsupon our ability to continue to develop high performance products that obtainmarket acceptance and can be sold at increasingly competitive prices.  Although we believe that our storagesolutions have certain competitive advantages, there can be no assurance thatwe will be able to compete successfully in the future or that other companiesmay not develop products with greater performance and thus reduce the demandfor our products, or that we will not encounter increased price competition forsuch products which could materially and adversely affect our operatingresults.  Also, our OEM customers andother manufacturers could develop their own disk arrays or could integratecompetitive RAID disk arrays into their systems rather than our products, whichcould materially and adversely affect our operating results.

 

(5)           **Manufacturing and Suppliers.**

 

                Our products are manufactured utilizing aconfigure-to-order manufacturing process. In-house manufacturing activities for our storage products primarilyinvolve quality assurance testing of subassemblies and final system assembly,integration and quality assurance testing. Our assembly operations are ISO 9001certified, located in Plymouth, Minnesota and are typical of the electronicsindustry with no unusual methods or equipment required.  The sophisticated nature of our productsdoes, however, require extensive testing by skilled personnel.

 

                We purchase certain raw materials andcomponents based on forecasted order levels. Forecasting orders is difficult as most shipments occur near the end ofeach quarter. Some of our OEM customers provide us with a forecast of expectedorders, but generally customers place orders for immediate delivery, not inadvance of need. Customers may generally cancel or reschedule orders withoutpenalties. Accordingly, we believe that backlog is generally not meaningful forpurposes of predicting our revenue for any fiscal period.

 

                Our storage products are comprised mainly ofa controller, metal cabinet, disk drives, power supply and other miscellaneousparts.  Many of the components areindustry standard parts and readily available from many suppliers atcompetitive prices.  Our controllerboard assemblies are purchased from an ISO 9000, independent board assemblyfirm, which manufactures the assemblies to our specifications.  The completed board assembly is received atour facility where it is subject to test procedures to insure productperformance, reliability and quality. The metal enclosure and power supply are specified to our needs, butalternative sources for the components are available.

 

                We depend heavily on our suppliers to providehigh quality materials on a timely basis and at reasonable prices.  Although many of the components for ourproducts are available from numerous sources at competitive prices, certain keycomponents are purchased from a single source. We purchase a substantial amount of disk drives manufactured by SeagateTechnology Inc. ("Seagate"). We purchase substantially all of our components pursuant to purchaseorders, rather than long-term purchase agreements.  Furthermore, because of increased industry demand for many ofthose components, our suppliers may, from time to time, not be able to makedelivery on orders on a timely basis. In addition, manufacturers of components on which we rely may choose,for numerous reasons, not to continue to make those components or the nextgeneration of those components available to us.

 

                With respect to certain components, such asdisk drives, if we had to seek alternative sources of supply, the incorporationof such components from alternative suppliers and the manufacture and shipmentof the our products could be delayed while modifications to such products andthe accompanying software were made to accommodate the introduction of thealternative suppliers' components. We estimate that replacing certaincomponents, such as disk drives would involve several months of hardware andsoftware modification.

 

                We have no long-term supply contracts.  There can be no assurance that we will beable to obtain, on a timely basis, all of the components we require.  If we cannot obtain essential components asrequired, we could be unable to meet demand for our products, therebymaterially adversely affecting our operating results and allowing competitorsto gain market share.  In addition, scarcityof such components could result in cost increases and adversely affect ouroperating results.  Our principalsuppliers are Arrow Electronics, Inc., Bell Microproducts, Inc., MCMS, Inc. andDu Fresne Manufacturing Co.

 

(6)**           CustomerDependence.**

 

                Our products are sold to a broad base of customers.  As a percentage of sales, a division ofLeitch Technology Corporation represented 16% in 2001 and 3% in 2000.    Acustomer in the military and government market, a department of the U.S. Navy,made up 14%, 8% and 13% of net sales in 2001, 2000 and 1999, respectively.  Silicon Graphics, Inc. (“SGI”) represented6%, 25% and 27% of net sales in 2001, 2000 and 1999, respectively.

 

(7)           **Patents and Trademarks.**

 

                In conjunction with the acquisition of theSANStar technology in January 2001, we acquired the rights to four pendingpatent applications.  These patentapplications disclose aspects of the interprocessor communication technologysuitable for use in high reliability / availability storage server products.  The patent applications are currently beingprosecuted before the U.S. Patent Office; corresponding internationalapplications are also currently being pursued.

 

                We have no other patents, and do not considerownership of patents to be material to our business.  We intend to pursue other patent applications to the extent weidentify technologies or processes that may be patentable.  We believe that the rapidly changingtechnology in the computer industry makes our future success dependent more onthe technical competence and creative skills of our personnel than on anypatents we may be able to obtain. However, protection of our proprietary hardware, firmware and softwareis very important to us.  We also relyupon copyright, trade secret protection, and confidentiality agreements withour employees, customers, suppliers and partners, to preserve our intellectualproperty rights in this material.  Wehave obtained federal registrations for the trademarks Ciprico®, Spectra 6000®,NETarray® and SANity® and have registration applications pending for ourtrademarks StorBridgeäand FibreSTOREä.

 

(8)**           Backlog.**

 

                We historically have operated on low levelsof backlog, and therefore, do not consider the level of backlog to beindicative of future operating results. As of September 30, 2001, we had approximately $370,000 in backlog whichis scheduled to ship in fiscal 2002.

 

(9)           **Government Approvalsand Effect of Government Regulations.**

 

                We are not required to obtain governmentapproval of our products.  We do notbelieve that any existing or proposed governmental regulations will have amaterial effect on our business.

 

(10)**         Researchand New Product Development.**

 

                We operate in an industry subject to rapidtechnological change.  Our goals inresearch and development are to develop leading edge products that adhere toindustry standards.  Our ability toachieve this goal is largely dependent upon our ability to anticipate andrespond to change.  We use engineeringdesign teams that work cross-functionally with marketing managers, systemengineers and customers to develop products and product enhancements.  Computer I/O interface standards aremaintained and an extensive disk drive qualification program is in place tomonitor off-the-shelf disk drives to ensure the quality and performance of thedisk drives integrated into our storage solutions.  As part of our development strategy, we actively seek available,cooperative and co-development activities with industry leaders in thehardware, software and systems businesses.

 

                Historically, substantially all of ourresearch and development efforts were focused on the development of stand-alonestorage devices.  We were the firstmanufacturer to introduce a disk array integrating the Fibre Channel interfacein 1996 and substantially all of our products utilize interfaces. Through 1999our products were focused on high-bandwidth RAID 3 and 4 applications.  With the introduction of our NETarrayproduct in 2000, we broadened our product offering to include transaction-basedRAID 5 capabilities. Our current product development activities includeproducts supporting 2 Gb second data rates.  All Ciprico products are SAN-ready.

 

                During fiscal 2001, we made substantialinvestments in software development. With the acquisition of the SANStar technology in January 2001, we addeda software development team focused on developing a high-availability, networkconnected storage system.  Thesedevelopments are intended to support the optimization of high-performancedigital media applications.   For fiscal2001 approximately 30% of our research and development expenses was related tosoftware development. This amount is expected to increase, in terms of bothabsolute dollars and as a percentage of our total R&D spending duringfiscal 2002.

 

                We will continue to develop storage devicesand expect our software development focus will increase as we emphasize theacceleration of digital media applications. We are working with several outsideparties on the co-development and incorporation of our technologies with anumber of emerging storage and networking protocols and technologies such asInfiniband, SCSI Remote Protocol, Direct Access File System (DAFS), InternetProtocol SCSI (iSCSI) and additional SAN capabilities.   Additional areas offocus include extending our own storage management utilities to added storagedevices and server platforms, advanced file systems and applications combiningclustered server, high performance storage, and networking capabilities.

 

                Our research and development expenses were$8.2 million, $4.4 million and $4.1 million in fiscal 2001, 2000 and 1999,respectively.  All of our research anddevelopment expenditures are expensed as incurred.  At November 30, 2001, we had 50 full-time employees engaged inresearch and development activities.

 

                We do not have significant firm orders forour development stage products.  Thereis no assurance that any of our development programs will be completed or thatthe resulting products, if any, will be marketed successfully.

 

(11)         **Environmental Regulation.**

 

                Compliance by us with present federal, stateand local provisions regulating the discharge of material into the environment,or otherwise relating to the protection of the environment, has not had and isnot expected to have any material effect upon our capital expenditures,earnings or competitive position.

 

(12)         **Employees.**

 

                At November 30, 2001, we had 125 full-timeemployees, of which 18 were engaged in manufacturing, operations and qualityassurance, 50 in engineering and research and development, 45 in sales, customerservice and professional services and 12 in general management, informationsystems and administration.  None of ouremployees are represented by a labor union. We have experienced no work stoppages and believe that our employeerelations are good.

 

                We believe that the future success of ourbusiness will depend in part on our ability to attract and retain qualifiedtechnical, management and marketing personnel. Such experienced personnel are in demand, and we must compete for theirservices with other firms, which may be able to offer more favorable benefits.

 

**ITEM2.                  PROPERT****IES**

 

                Our administrative headquarters,manufacturing and research and development operations are located in onebuilding in Plymouth, Minnesota, totaling approximately 36,400 squarefeet.  The lease for this space expiresin October 2002.  We are currentlyevaluating our alternatives, which may include an extension of this lease ormoving these operations to a new location. We also maintain a research and development facility in Tinton Falls,New Jersey, in approximately 3,000 square feet of leased space which expires inFebruary 2004.  We believe that ourexisting facilities and equipment are well maintained and in good operatingcondition.  We own most of the equipmentused our operations.  Such equipmentconsists primarily of manufacturing and test equipment, tools, fixtures andcomputer hardware and software.

 

**ITEM3.                  LEGALPROCEEDINGS**

 

                We are not a party to nor is any of ourproperty subject to any material pending legal proceedings, nor are anymaterial legal proceedings known to be contemplated by governmental authoritiesor others.

 

**ITEM4.                  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

                No matter was submitted to a vote of securityholders through the solicitation of proxies or otherwise during the fourthquarter of our fiscal year.

 

 

**ITEM 4A.               EXECUTIVE OFFICERS OF THEREGISTRANT**

 

The names, ages and positionsof our execu­tive officers are as follows:

 
| **Name**           |   | **Age** |   | **Position(s)**                                                |   |
|--------------------|--------|---------|--------|----------------------------------------------------------------|--------|
|               |   |    |   |                                                           |   |
| Robert H. Kill     |   | 54      |   | President and Chief Executive  Officer                         |   |
|               |   |    |   |                                                           |   |
| Thomas S. Wargolet |   | 38      |   | Vice President - Finance,Chief Financial Officer and Secretary |   |
|               |   |    |   |                                                           |   |
| Stephen R. Hansen  |   | 49      |   | Vice  President – Strategic Product Development           |   |
|               |   |    |   |                                                           |   |
| Robert G. Brown    |   | 48      |   | Vice President – Sales                                    |   |

 

                Officers are elected annually by and serve atthe discretion of the Board of Directors. There is no family relationship between the executive officers of theCompany.

 

                Robert H. Kill has been Chief ExecutiveOfficer of the Company since January 1996, Chairman of the Board from June 1996to November 2000, President since March 1988 and a director since September1987.  Mr. Kill was Executive VicePresident of the Company from September 1987 to March 1988, Secretary fromSeptember 1987 to July 1998 and from November 1989 to October 1993, and VicePresident and General Manager from August 1986 to September 1987.  Mr. Kill held sev­eral marketing and salespositions at Northern Telecom, Inc. from 1979 to 1986, his last position beingVice President, Terminals Distribution.

 

                Thomas S. Wargolet, prior to joining theCiprico in October 2000, was Vice President – Finance / CFO of TeeMaster.com,an internet provider of golf reservation services since October 1999.  From January 1999 to October 1999 he servedas Vice President – Finance and Operations of Vicom, Incorporated, a providerof telecommunications services.  From1996 to 1998, Mr. Wargolet was Chief Financial Officer and Secretary of ENStarInc., a publicly traded company with various network technologybusinesses.  From 1989 to 1996, Mr.Wargolet served as Corporate Controller of North Star Universal, Inc. apublicly traded holding company and Vice President – Finance and Operations ofAmericable, Inc. (subsidiary of North Star), a distributor of connectivityproducts.  From 1985 to 1989, he waswith Arthur Andersen in Minneapolis. Mr. Wargolet is a CPA.

 

                Stephen R. Hansen was appointed VicePresident – Strategic Product Development in November 2000.  From September 1998 to November 2000, Mr.Hansen served as Vice President – Product Development and Operations.   Mr. Hansen has been with the Company sinceJune 1989.  From 1983 to 1989, he heldengineering and management positions with Zycad Corporation, a developer ofhigh performance supercomputers used for simulation of VLSI technology.  From 1974 to 1983, he held various researchand engineering positions with Control Data Corporation.

 

**               **Robert G. Brown was appointed Vice President  - Sales in May of 1997.   From 1984 through 1997, Mr. Brown heldvarious sales and management positions with several groups and subsidiaries ofArrow Electronics, a leading industrial distributor in the United States.  Prior to joining Ciprico, Mr. Brown served asVice President Central Region.

 

**PART II**

 

**ITEM5.                  MARKET FORREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

STOCK TRADING

 

Ciprico common stock is traded on the NasdaqNational Market under the symbol CPCI. As of November 27, 2001, there wereapproximately 2,200 shareholder accounts of record. Closing stock sale priceranges for the years ended September 30, 2001 and 2000, were:

|        |   | **2001** |   | **2000** |   |
|-------------|--------|----------|--------|----------|--------|
| **Quarter** |   | **High** |   | **Low**  |   | **High** |   | **Low** |   |
| First       |   | $        | 10.56  |     | $      | 6.63 |   | $ | 14.50 |   | $ | 9.98 |   |
| Second      |   | 10.44    |   | 7.25     |   | 13.00 |   | 10.25 |   |
| Third       |   | 8.25     |   | 6.95     |   | 12.00 |   | 8.75 |   |
| Fourth      |   | 7.67     |   | 3.80     |   | 12.38 |   | 9.38 |   |
|        |   |     |   |     |   |   |   |   |   |
|             |        |          |        |          |        |  |  |  |  |  |  |  |  |

 

We do not intend to pay cash dividends on anyof our securities for the foreseeable future.

 

**ITEM6.                  SELECTEDFINANCIAL DATA**

 

Ciprico Inc. and Subsidiaries

Amounts in thousands (except per share data)

 

SELECTED CONSOLIDATED STATEMENTS OFOPERATIONS DATA

 
| **Years ended  September 30**                         |   | **2001** |          | **2000** |          | **1999** |          | **1998** |          | **1997** |          |
|-------------------------------------------------------|--------|----------|---------------|----------|---------------|----------|---------------|----------|---------------|----------|---------------|
| Net sales                                             |   | $        | 32,983        |     | $             | 33,210   |          | $        | 34,059        |     | $             | 30,088 |   | $ | 36,390 |   |
| Gross profit                                          |   | 13,623   |          | 14,822   |          | 17,371   |          | 15,083   |          | 17,290   |          |
| % of sales                                            |   | 41.3     | %             | 44.6     | %             | 51.0     | %             | 50.1     | %             | 47.5     | %             |
| Operating  expenses                                   |   | 22,611   |          | 17,311   |          | 16,059   |          | 16,029   |          | 12,849   |          |
| % of sales                                            |   | 68.6     | %             | 52.1     | %             | 47.1     | %             | 53.3     | %             | 35.3     | %             |
| Income (loss)  from operations                        |   | (8,988   | )             | (2,489   | )             | 1,312    |          | (946     | )             | 4,441    |          |
| % of sales                                            |   | (27.3%   | )             | (7.5%    | )             | 3.8      | %             | (3.1%    | )             | 12.2     | %             |
| Other income,  net                                    |   | 1,866    |          | 1,992    |          | 1,803    |          | 1,951    |          | 1,998    |          |
| Income tax  expense (benefit)                         |   | 440      |          | (188     | )             | 1,059    |          | 342      |          | 2,190    |          |
| Net income  (loss)                                    |   | $        | (7,562        | )        | $             | (309     | )             | $        | 2,056         |     | $             | 663 |   | $ | 4,249 |   |
| Shares used to  calculate net income (loss) per share |   |     |     |     |     |     |     |     |     |     |     |
| Basic                                                 |   | 5,050    |          | 4,990    |          | 4,914    |          | 5,023    |          | 5,056    |          |
| Diluted                                               |   | 5,050    |          | 4,990    |          | 5,015    |          | 5,221    |          | 5,396    |          |
| Net income  (loss) per share—Basic               |   | $        | (1.50         | )        | $             | (.06     | )             | $        | .42           |     | $             | .13 |   | $ | .84 |   |
| Diluted                                               |   | $        | (1.50         | )        | $             | (.06     | )             | $        | .41           |     | $             | .13 |   | $ | .79 |   |

 

SELECTED CONSOLIDATED BALANCE SHEET DATA

 
| **September 30**      |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
| Working  capital      |   | $        | 29,392 |     | $      | 33,643   |   | $        | 34,129 |     | $      | 35,557 |   | $ | 36,375 |   |
| Total assets          |   | 44,679   |   | 51,781   |   | 53,238   |   | 49,473   |   | 52,105   |   |
| Shareholders'  equity |   | 39,530   |   | 47,287   |   | 47,290   |   | 45,309   |   | 48,058   |   |
|                  |   |     |   |     |   |     |   |     |   |     |   |
|                       |        |          |        |          |        |          |        |          |        |          |        |  |  |  |  |  |

 

**ITEM7.                  MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

OVERVIEW:

Ciprico Inc. designs, manufactures and markets storage and systemsolutions for digital media applications. Our solutions combine storage, networking and computing technologies tosimplify and accelerate digital media workflows. Our primary markets arebroadcast and entertainment, which include applications in digital broadcast andfilm and video production and military and government which includeapplications involving the data capture, processing and dissemination ofsurveillance images.  In addition, wehave historically sold in other markets with high-performance storage requirementssuch as geosciences, digital prepress and medical imaging.

 

The following table sets forth certain itemsfrom Ciprico’s consolidated statement of operations, as a percentage of netsales for the years ending September 30,

 
|                           |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Net sales                      |   | 100.0    | %      | 100.0    | %      | 100.0    | %      |
| Cost of sales                  |   | 58.7     |   | 55.4     |   | 49.0     |   |
| Gross profit                   |   | 41.3     |   | 44.6     |   | 51.0     |   |
|                           |   |     |   |     |   |     |   |
| Operating  expenses:           |   |     |   |     |   |     |   |
| Research and  development      |   | 24.8     |   | 13.4     |   | 11.9     |   |
| Sales and  marketing           |   | 34.3     |   | 32.4     |   | 27.1     |   |
| General and  administrative    |   | 7.6      |   | 6.3      |   | 8.1      |   |
| Restructuring  charges         |   | 1.9      |   | --       |   | --       |   |
| Total  operating expenses      |   | 68.6     |   | 52.1     |   | 47.1     |   |
| Income (loss)  from operations |   | (27.3    | )      | (7.5     | )      | 3.9      |   |

 

 

NET SALES:

Comparative information on sales by marketand geographic location are shown in the charts below (in millions).

 
|                           |   | **2001**  |       | **2000**       |       | **1999**  |       |
|--------------------------------|--------|-----------|------------|----------------|------------|-----------|------------|
| **Market**                     |   | **Sales** |       | **% of Total** |       | **Sales** |       | **% of Total** |   | **Sales** |   | **% of Total** |   |
| Broadcast  & Entertainment |   | $         | 15.9       |           | 48.2       | %         | $          | 15.7 |   | 47.3 | % | $ | 13.7 |   | 40.2 | % |
| Military &  Government     |   | 12.8      |       | 38.8           |       | 11.7      |       | 35.2 |   | 13.7 |   | 40.2 |   |
| Other                          |   | 4.3       |       | 13.0           |       | 5.8       |       | 17.5 |   | 6.7 |   | 19.6 |   |
| Total                          |   | $         | 33.0       |           | 100.0      | %         | $          | 33.2 |   | 100.0 | % | $ | 34.1 |   | 100.0 | % |
|                           |   |      | ** ** |           | ** ** |      | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Geographic Location**        |   | **2001**  |       | **2000**       |       | **1999**  | ** ** |
|                           |   | **Sales** |       | **% of Total** |       | **Sales** |       | **% of Total** | ** ** | **Sales** | ** ** | **% of Total** | ** ** |
| Domestic                       |   | $         | 28.2       |           | 85.5       | %         | $          | 24.5 |   | 73.8 | % | $ | 27.0 |   | 79.2 | % |
| International                  |   | 4.8       |       | 14.5           |       | 8.7       |       | 26.2 |   | 7.1 |   | 20.8 |   |
| Total                          |   | $         | 33.0       |           | 100.0      | %         | $          | 33.2 |   | 100.0 | % | $ | 34.1 |   | 100.0 | % |

 

Sales for 2001 were approximately $33.0million, a decrease of .6% from 2000 sales, which decreased 3% from 1999levels. Sales from customers within the United States increased 15% during 2001versus a decrease of 9% in 2000 from 1999 sales. Sales from internationalcustomers decreased 45% in 2001 versus an increase of 22% in 2000 from the previousyear.  During the fourth quarter offiscal 2001 our sales of $5.0 million were significantly decreased fromprevious quarters and the comparable period of fiscal 2000, which is primarilyattributable to the economic downturn and its effect on customer demand.  We believe the effect of the economy ondemand for our products was further impacted by the September 11 attack on theUnited States.  Our international salesthroughout fiscal 2001 were also impacted by economic factors in Europe andAsia-Pacific regions and reduced sales through Silicon Graphics, Inc. (“SGI”).

 

Sales in the broadcast and entertainmentmarket increased 1% during fiscal 2001. This reflects higher sales in our domestic operations resulting from ourincreased focus during the past two years on expanding opportunities withbroadcast OEM customers.  This wasoffset by lower demand experienced from both European and Asia-Pacificcustomers, including SGI.  Sales in themilitary and government market increased $1.1 million or 9% during fiscal 2001,which primarily reflects higher demand in our domestic operationsfrom a number of system integrators for certain defense related projects, aswell as the U.S. Navy, which made up 14%, 8% and 13% of net sales in 2001, 2000and 1999, respectively. Sales in the military and government market havehistorically fluctuated between years due to the timing of spending ondefense-related programs.

 

The decline in sales in the other market segments during the past threeyears primarily reflects reduced demand from a medical imaging integrator andSGI.  Sales to SGI were $2.0 million in2001, $8.2 million in 2000 and $9.1 million in 1999.   This reduction with SGI also reflects our shift in our strategyduring the past three years of developing products and opportunities thatsupport more open system platforms.

 

Our revenue growth in the future is dependenton our ability to provide new products and expand the applications of ourproducts into targeted market segments. The NETarray family of products was releasedin fiscal 2000. Sales from NETarray products were approximately $10.3 millionin 2001 and $1.1 million in 2000.  TheNETarray product provided us expanded market opportunities for RAID 5applications and contributed to the growth in domestic sales in each of theprimary market segments.  We expectsales of NETarray for fiscal 2002 will increase, in absolute dollars and as apercentage of net sales.

 

COST OF SALES AND GROSS PROFIT:

Gross profit, as a percentage of net sales,was 41.3% in 2001, 44.6% in 2000 and 51.0% in 1999. The decrease in the marginsduring 2001 is primarily due to increased sales of the NETarray product, whichhas lower margins than our other products. In addition, during 1999 we benefited from decreased component costs dueto the increased volatility of disk drive pricing.

 

Gross profit on product sales is highlydependent on the cost of disk drives and may fluctuate from quarter to quarter.We believe our strong vendor relations will aid in component availability andcost reductions to meet continued competitive pricing pressures. We expect toexperience continued competitive pressures on gross profit margins throughoutfiscal 2002 and anticipate our margins to decline based on anticipated higherproportion of sales of the NETarray product. We intend to partially offsetthese margin pressures through new product introductions.

 

RESEARCH AND DEVELOPMENT EXPENSES:

Researchand development expenses in 2001 increased approximately $3.7 million, or 84%to $8.2 million.  Of this increaseapproximately $3.2 million can be attributable to significant investments madein software and long-range strategic development activities through theaddition of new personnel.  Thisincludes approximately $620,000 of costs related to the SANStaracquisition, including the addition of the software development team in NewJersey that developed this technology, as discussed in Note 3 to theConsolidated Financial Statements.

 

In addition, approximately $500,000 of theremaining increase in 2001 is primarily due to prototype expense associatedwith development of new products, particularly the FibreSTORE 2210 and Talonproducts, which are anticipated to be released during fiscal 2002.  Research and development costs in 2000increased approximately $400,000 from the 1999 levels, primarily the result ofincreased prototype expense associated with FibreSTORE RAID and NETarrayproducts. We expect that research and development expenses will increasethroughout fiscal 2002 as we continue our focus on software development.

 

SALES AND MARKETING EXPENSES:

Sales and marketing expense was 34.3% of netsales in 2001 compared to 32.4% in 2000 and 27.1% in 1999, an increase inabsolute dollars of approximately $535,000 from 2000 to 2001 and $1.5 millionfrom 1999 to 2000. This increase over this period primarily reflects addedpersonnel in sales, product marketing and sales engineering in addition tohigher promotional expenses associated with our efforts to expand our presencein certain vertical markets.  We expectthese expenses to decrease in absolute dollars during fiscal 2002 as a resultof cost reductions implemented during the second half of fiscal 2001.

 

GENERAL AND ADMINISTRATIVE EXPENSES:

General and administrative expenses increasedapproximately $400,000 or 19% in 2001 as compared to 2000 and decreased$700,000 or 24% in 2000 as compared to 1999. The increase in 2001 is due tolower expense in the prior year due to adjustments in bad debt provisions inaddition to the costs associated with the implementation of new informationsystems. We expect general and administrative expenses to increase in fiscal2002 due to anticipated higher insurance costs.

 

RESTRUCTURING:

During fiscal 2001, we implemented two restructuring efforts.  In May 2001 we implemented a cost reductionprogram including the reduction of our workforce by 12% and the closing of ourSingapore sales office.  DuringSeptember 2001 we made further restructuring changes through the consolidationof certain sales and marketing management positions and the closing of oursales office in Japan.  Theserestructuring efforts are expected to reduce approximately $1 million from ourfiscal 2001 operating expenses levels. As a result of the restructuring, we recorded charges of $620,000 duringfiscal 2001 of which approximately $455,000 is employee termination costs and$165,000 is facility closure and related costs.

 

OTHER INCOME:

Other income of $1.9 million, $2.0 million,and $1.8 million in fiscal 2001, 2000 and 1999, respectively, is primarilyattributable to interest income on cash and marketable securities. The slightdecrease in 2001 reflects overall lower interest rates on lower average cashand investment balances.

 

INCOME TAX EXPENSE:

For 2001 the effective income tax provisionwas 6.2% versus an effective income tax benefit of (37.8%) in 2000 and anincome tax provision of 34% in 1999. See Note 4 to Consolidated FinancialStatements.

 

LIQUIDITY AND CAPITAL RESOURCES:

As of September 30, 2001, we had a total ofcash, cash equivalents and marketable securities of $30.0 million compared to$35.4 million at the end of 2000 and $35.9 million at the end of 1999.

 

Cash flows from (used in) operatingactivities were ($2.1) million, $1.0 million, and $5.0 million in 2001, 2000and 1999, respectively. The change between years primarily reflects theoperating losses offset by overall lower working capital requirements in fiscal2001.  Capital expenditures were $2.9million, $1.8 million and $1.8 million in 2001, 2000 and 1999, respectively. Weanticipate that capital expenditures for 2002 will approximate $3.8 million dueto anticipated spending on product development activities. During 1999, weinitiated a stock buyback program of up to $6.0 million, which was increased by$6.0 million in 2001, bringing the total amount to be expended under the planto $12.0 million.  As of September 30,2001, 618,100 shares of common stock have been repurchased for $6.2 million.

 

Despite the cost reduction effortsimplemented during fiscal 2001, we expect to incur an operating loss in fiscal2002 due to continued investments expected in software and new productdevelopment.  We believe that currentcash balances and cash generated from operations will be adequate to fundrequirements for operating losses, working capital and capital expenditures,share repurchases, as well as any potential acquisitions in fiscal 2002.

 

CAUTIONARY STATEMENTS

Any forward-looking statements included inthis section or elsewhere in this Form 10-K are subject to various risks anduncertainties, which may cause actual results to differ from the expectationsset forth in these forward-looking statements. These risks and uncertaintiesinclude, but are not limited to, the risk factors set forth in Exhibit 99 tothis Form 10-K.

 

**ITEM 7A.               QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

**               **We do not haveany material, near-term, market rate risk.

 

**ITEM8.                  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

CONSOLIDATED BALANCE SHEETS

Ciprico Inc. and Subsidiaries

Dollars in thousands

 
| **September 30**                                                                             |   | **2001** |   | **2000** |   |
|----------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| ASSETS                                                                                       |   |     |   |     |   |
| CURRENT  ASSETS:                                                                             |   |     |   |     |   |
| Cash and cash  equivalents                                                                   |   | $        | 6,377  |     | $      | 3,496 |   |
| Marketable  securities                                                                       |   | 17,499   |   | 21,867   |   |
| Accounts  receivable, less allowance of $409 and $407 in 2001 and 2000                       |   | 3,841    |   | 5,532    |   |
| Inventory                                                                                    |   | 5,254    |   | 5,760    |   |
| Income taxes  receivable                                                                     |   | 869      |   | --       |   |
| Deferred  income taxes                                                                       |   | --       |   | 898      |   |
| Other current  assets                                                                        |   | 701      |   | 584      |   |
| Total current  assets                                                                        |   | 34,541   |   | 38,137   |   |
|                                                                                         |   |     |   |     |   |
| Property and  equipment, at cost:                                                            |   |     |   |     |   |
| Furniture and  fixtures                                                                      |   | 721      |   | 730      |   |
| Equipment                                                                                    |   | 14,082   |   | 11,631   |   |
| Leasehold  improvements                                                                      |   | 429      |   | 412      |   |
|                                                                                         |   | 15,232   |   | 12,773   |   |
| Accumulated  depreciation and amortization                                                   |   | (11,328  | )      | (9,762   | )      |
| Net property  and equipment                                                                  |   | 3,904    |   | 3,011    |   |
|                                                                                         |   |     |   |     |   |
|                                                                                         |   |     |   |     |   |
| Marketable  securities                                                                       |   | 6,139    |   | 10,070   |   |
| Deferred  income taxes                                                                       |   | --       |   | 450      |   |
| Other assets                                                                                 |   | 95       |   | 113      |   |
|                                                                                         |   | $        | 44,679 |     | $      | 51,781 |   |
|                                                                                         |   |     |   |     |   |
|                                                                                         |   |     |   |     |   |
| LIABILITIES  AND SHAREHOLDERS' EQUITY                                                        |   |     |   |     |   |
| CURRENT  LIABILITIES:                                                                        |   |     |   |     |   |
| Accounts  payable                                                                            |   | $        | 2,570  |     | $      | 2,785 |   |
| Accrued  compensation                                                                        |   | 680      |   | 769      |   |
| Warranty  accrual                                                                            |   | 423      |   | 223      |   |
| Accrued  restructuring                                                                       |   | 441      |   | --       |   |
| Other accrued  expenses                                                                      |   | 662      |   | 330      |   |
| Deferred  revenue                                                                            |   | 373      |   | 387      |   |
| Total current  liabilities                                                                   |   | 5,149    |   | 4,494    |   |
|                                                                                         |   |     |   |     |   |
| COMMITMENTS                                                                                  |   | --       |   | --       |   |
|                                                                                         |   |     |   |     |   |
| SHAREHOLDERS`  EQUITY:                                                                       |   |     |   |     |   |
| Common stock,  4,979,703 shares and 5,040,291 shares issued and outstanding in 2001 and 2000 |   | 50       |   | 50       |   |
| Additional  paid-in capital                                                                  |   | 36,013   |   | 36,197   |   |
| Retained  earnings                                                                           |   | 3,538    |   | 11,100   |   |
| Deferred  compensation from restricted stock                                                 |   | (71      | )      | (60      | )      |
| Total  shareholders' equity                                                                  |   | 39,530   |   | 47,287   |   |
|                                                                                         |   | $        | 44,679 |     | $      | 51,781 |   |

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PARTOF THESE FINANCIAL STATEMENTS.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

Ciprico Inc. and Subsidiaries

Amounts in thousands, except per shareamounts

 
| **Years ended  September 30**                      |   | **2001** |   | **2000** |   | **1999** |   |
|----------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Net sales                                          |   | $        | 32,983 |     | $      | 33,210   |   | $ | 34,059 |   |
| Cost of sales                                      |   | 19,360   |   | 18,388   |   | 16,688   |   |
| Gross profit                                       |   | 13,623   |   | 14,822   |   | 17,371   |   |
| Operating  expenses:                               |   |     |   |     |   |     |   |
| Research and  development                          |   | 8,189    |   | 4,445    |   | 4,056    |   |
| Sales and  marketing                               |   | 11,303   |   | 10,768   |   | 9,230    |   |
| General and  administrative                        |   | 2,499    |   | 2,098    |   | 2,773    |   |
| Restructuring  charges                             |   | 620      |   | --       |   | --       |   |
| Total  operating expenses                          |   | 22,611   |   | 17,311   |   | 16,059   |   |
| Income (loss)  from operations                     |   | (8,988   | )      | (2,489   | )      | 1,312    |   |
|                                               |   |     |   |     |   |     |   |
| Other income,  primarily interest                  |   | 1,866    |   | 1,992    |   | 1,803    |   |
| Income (loss)  before income taxes                 |   | (7,122   | )      | (497     | )      | 3,115    |   |
|                                               |   |     |   |     |   |     |   |
| Income tax  expense (benefit)                      |   | 440      |   | (188     | )      | 1,059    |   |
| Net income  (loss)                                 |   | $        | (7,562 | )        | $      | (309     | )      | $ | 2,056 |   |
| Shares used to  calculate income (loss) per share: |   |     |   |     |   |     |   |
| Basic                                              |   | 5,050    |   | 4,990    |   | 4,914    |   |
| Diluted                                            |   | 5,050    |   | 4,990    |   | 5,015    |   |
|                                               |   |     |   |     |   |     |   |
| Income (loss)  per share:                          |   |     |   |     |   |     |   |
| Basic                                              |   | $        | (1.50  | )        | $      | (.06     | )      | $ | .42 |   |
| Diluted                                            |   | $        | (1.50  | )        | $      | (.06     | )      | $ | .41 |   |

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PARTOF THESE FINANCIAL STATEMENTS.

 

CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS` EQUITY

Ciprico Inc. and Subsidiaries

Amounts in thousands, except share data

 
| **Years ended  September 30, 2001, 2000 and 1999** |   | **Shares** |   | **Common  stock and  additional  paid-in-capital** |   | **Retained  earnings** |   | **Deferred  compensation  from  restricted  stock** |   | **Total** |   |
|----------------------------------------------------|--------|------------|--------|----------------------------------------------------|--------|------------------------|--------|-----------------------------------------------------|--------|-----------|--------|
| Balance,  September 30, 1998                       |   | 4,916,297  |   | $                                                  | 36,032 |                   | $      | 9,353                                               |   | $         | (76    | ) | $ | 45,309 |   |
|                                               |   |       |   |                                               |   |                   |   |                                                |   |      |   |
| Exercise of  employee stock options                |   | 142,251    |   | 525                                                |   | --                     |   | --                                                  |   | 525       |   |
| Tax benefit  related to options                    |   | --         |   | 252                                                |   | --                     |   | --                                                  |   | 252       |   |
| Employee plan  stock purchases                     |   | 18,131     |   | 122                                                |   | --                     |   | --                                                  |   | 122       |   |
| Restricted  stock issued                           |   | 11,600     |   | 88                                                 |   | --                     |   | (88                                                 | )      | --        |   |
| Amortization  of restricted stock                  |   | --         |   | --                                                 |   | --                     |   | 67                                                  |   | 67        |   |
| Net income                                         |   | --         |   | --                                                 |   | 2,056                  |   | --                                                  |   | 2,056     |   |
| Repurchase of  common stock                        |   | (133,500   | )      | (1,041                                             | )      | --                     |   | --                                                  |   | (1,041    | )      |
| Balance,  September 30, 1999                       |   | 4,954,779  |   | 35,978                                             |   | 11,409                 |   | (97                                                 | )      | 47,290    |   |
|                                               |   |       |   |                                               |   |                   |   |                                                |   |      |   |
| Exercise of  employee stock options                |   | 89,711     |   | 256                                                |   | --                     |   | --                                                  |   | 256       |   |
| Tax benefit  related to options                    |   | --         |   | 80                                                 |   | --                     |   | --                                                  |   | 80        |   |
| Employee plan  stock purchases                     |   | 17,151     |   | 159                                                |   | --                     |   | --                                                  |   | 159       |   |
| Restricted  stock issued                           |   | 3,650      |   | 37                                                 |   | --                     |   | (37                                                 | )      | --        |   |
| Amortization  of restricted stock                  |   | --         |   | --                                                 |   | --                     |   | 74                                                  |   | 74        |   |
| Net loss                                           |   | --         |   | --                                                 |   | (309                   | )      | --                                                  |   | (309      | )      |
| Repurchase of  common stock                        |   | (25,000    | )      | (263                                               | )      | --                     |   | --                                                  |   | (263      | )      |
| Balance,  September 30, 2000                       |   | 5,040,291  |   | 36,247                                             |   | 11,100                 |   | (60                                                 | )      | 47,287    |   |
|                                               |   |       |   |                                               |   |                   |   |                                                |   |      |   |
| Exercise of  employee stock options                |   | 8,707      |   | 166                                                |   | --                     |   | --                                                  |   | 166       |   |
| Tax benefit  related to options                    |   | --         |   | 2                                                  |   | --                     |   | --                                                  |   | 2         |   |
| Employee plan  stock purchases                     |   | 21,905     |   | 164                                                |   | --                     |   | --                                                  |   | 164       |   |
| Restricted  stock issued                           |   | 9,000      |   | 83                                                 |   | --                     |   | (83                                                 | )      | --        |   |
| Amortization  of restricted stock                  |   | --         |   | --                                                 |   | --                     |   | 72                                                  |   | 72        |   |
| Net loss                                           |   | --         |   | --                                                 |   | (7,562                 | )      | --                                                  |   | (7,562    | )      |
| Repurchase of  common stock                        |   | (100,200   | )      | (599                                               | )      | --                     |   | --                                                  |   | (599      | )      |
| Balance,  September 30, 2001                       |   | 4,979,703  |   | $                                                  | 36,063 |                   | $      | 3,538                                               |   | $         | (71    | ) | $ | 39,530 |   |

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PARTOF THESE FINANCIAL STATEMENTS.

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

Ciprico Inc. and Subsidiaries

Amounts in thousands

 
| **Years ended  September 30**                                                                              |   | **2001** |          | **2000** |          | **1999** |          |
|------------------------------------------------------------------------------------------------------------|--------|----------|---------------|----------|---------------|----------|---------------|
| Cash Flows  from Operating Activities:                                                                     |   |     |          |     |          |     |          |
| Net income  (loss)                                                                                         |   | $        | (7,562        | )        | $             | (309     | )             | $ | 2,056 |   |
| Adjustments to  reconcile net income (loss) to net cash flows provided by (used in) operating  activities: |   |     |     |     |     |     |     |
| Depreciation  and amortization                                                                             |   | 2,145    |          | 2,507    |          | 2,632    |          |
| Deferred  income taxes                                                                                     |   | 1,348    |          | 97       |          | (626     | )             |
| Other                                                                                                      |   | --       |          | --       |          | (47      | )             |
| Compensation  related to stock transactions                                                                |   | 72       |          | 74       |          | 67       |          |
| Changes in  operating assets and liabilities:                                                              |   |     |          |     |          |     |          |
| Accounts  receivable                                                                                       |   | 1,691    |          | 1,430    |          | (1,295   | )             |
| Inventory                                                                                                  |   | 506      |          | (1,157   | )             | (848     | )             |
| Other assets                                                                                               |   | (99      | )             | (139     | )             | 1,132    |          |
| Accounts  payable                                                                                          |   | (215     | )             | 144      |          | 203      |          |
| Accrued  expenses                                                                                          |   | 884      |          | 202      |          | 169      |          |
| Income taxes                                                                                               |   | (869     | )             | (944     | )             | 1,173    |          |
| Deferred  revenue                                                                                          |   | (14      | )             | (857     | )             | 426      |          |
| Net cash flows  provided by (used in) operating activities                                                 |   | (2,113   | )             | 1,048    |          | 5,042    |          |
| Cash Flows  from Investing Activities:                                                                     |   |     |          |     |          |     |          |
| Equipment  purchases                                                                                       |   | (2,922   | )             | (1,800   | )             | (1,818   | )             |
| Other assets,  net                                                                                         |   | (116     | )             | (12      | )             | 19       |          |
| Purchase of  marketable securities                                                                         |   | (45,111  | )             | (46,386  | )             | (61,789  | )             |
| Proceeds from  sale or maturity of marketable securities                                                   |   | 53,410   |          | 46,815   |          | 53,464   |          |
| Net cash flows  provided by (used in) investing activities                                                 |   | 5,261    |          | (1,383   | )             | (10,124  | )             |
| Cash Flows  from Financing Activities:                                                                     |   |     |          |     |          |     |          |
| Proceeds from  issuance of common stock                                                                    |   | 332      |          | 555      |          | 632      |          |
| Repurchase of  common stock                                                                                |   | (599     | )             | (263     | )             | (1,041   | )             |
| Net cash flows provided by (used in)  financing activities                                                 |   | (267     | )             | 292      |          | (409     | )             |
| Net Increase  (Decrease) in Cash and Cash Equivalents                                                      |   | 2,881    |          | (43      | )             | (5,491   | )             |
| Cash and Cash  Equivalents at Beginning of Year                                                            |   | 3,496    |          | 3,539    |          | 9,030    |          |
| Cash and Cash  Equivalents at End of Year                                                                  |   | 6,377    |          | 3,496    |          | 3,539    |          |
| Marketable  Securities—Current                                                                        |   | 17,499   |          | 21,867   |          | 23,363   |          |
| Marketable  Securities—Long-term                                                                      |   | 6,139    |          | 10,070   |          | 9,003    |          |
| Total Cash and  Investments at End of Year                                                                 |   | $        | 30,015        |     | $             | 35,433   |          | $ | 35,905 |   |

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PARTOF THESE FINANCIAL STATEMENTS.

 

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

Ciprico Inc. and Subsidiaries - September 30,2001, 2000 and 1999

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS: The principal business activity ofCiprico Inc. and subsidiaries (the Company) is the design, manufacture andmarketing of high-performance, direct-attached and networked storage solutions,including intelligent disk array hardware, software and services for visualcomputing applications.

 

CONSOLIDATION: The accompanying consolidatedfinancial statements include the accounts of Ciprico Inc. and its wholly ownedsubsidiaries, Ciprico International Limited, Ciprico Asia-Pacific Inc. andCiprico FSC, Inc. (a foreign sales corporation). All significant intercompanybalances and transactions have been eliminated.

 

ACCOUNTING ESTIMATES: In the preparation of theCompany's consolidated financial statements, management is required to makeestimates and assumptions that affect the reported amounts of assets andliabilities, and related revenue and expenses. Actual results could differ fromthose estimates used by management.

 

REVENUE RECOGNITION: Revenue is recognizedupon shipment of products. Revenue from extended warranty and maintenanceagreements is recognized on the straight-line basis over the term of theagreement.

 

PRODUCT WARRANTY COSTS: Estimated futurewarranty costs are provided at the time of revenue recognition.

 

RESEARCH AND DEVELOPMENT COSTS: Research anddevelopment costs are charged to expense as incurred.

 

INVENTORY: Inventory is stated at the lowerof cost or replacement market. Cost is determined using the first-in, first-outmethod. Inventory costs include outside assembly charges, allocatedmanufacturing overhead and direct material costs. At September 30,inventory consists of the following (in thousands):

 

|            |   | **2001** |   | **2000** |   |
|-----------------|--------|----------|--------|----------|--------|
| Finished Goods  |   | $        | 2,078  |     | $      | 1,809 |   |
| Work-In-Process |   | 837      |   | 1,322    |   |
| Raw Materials   |   | 2,339    |   | 2,629    |   |
|            |   | $        | 5,254  |     | $      | 5,760 |   |

 

CASH AND CASH EQUIVALENTS: The Companyconsiders all highly liquid temporary investments with original maturities ofthree months or less to be cash equivalents. At September 30, 2001 and 2000,the Company's cash and cash equivalents were invested in a money market fund.

 

MARKETABLE SECURITIES: The Company hasinvested its excess cash in commercial paper and government agencies. Theseinvestments are classified as held-to-maturity given the Company's intent andability to hold the securities to maturity and are carried at amortized cost.Investments that have maturities of less than one year have been classified ascurrent marketable securities.

 

At September 30, 2001 and 2000, amortizedcost approximates fair value of held-to-maturity investments which consist ofthe following (in thousands):

 

|                      |   | **2001** |   | **2000** |   |
|---------------------------|--------|----------|--------|----------|--------|
| Current                   |   |     |   |     |   |
| Commercial  Paper         |   | $        | 13,497 |     | $      | 12,866 |   |
| U.S.  Government Agencies |   | 4,002    |   | 9,001    |   |
|                      |   | 17,499   |   | 21,867   |   |
| Non-current               |   |     |   |     |   |
| Commercial  Paper         |   | 3,627    |   | 6,065    |   |
| U.S.  Government Agencies |   | 2,512    |   | 4,005    |   |
|                      |   | 6,139    |   | 10,070   |   |
|                      |   | $        | 23,638 |     | $      | 31,937 |   |

 

PROPERTY AND EQUIPMENT: Property andequipment is carried at cost, less accumulated depreciation and amortization.Depreciation is provided using the straight line method over estimated usefullives of eighteen months to seven years or, in the case of leaseholdimprovements, over the period of the related lease, if shorter. Majorreplacements and improvements are capitalized; repairs and maintenance areexpensed as incurred. Accelerated and straight-line methods are used for incometax reporting.

 

EARNINGS PER SHARE: The Company's basicearnings per share amounts are computed by dividing net income by the weightedaverage number of outstanding common shares. Diluted earnings per share iscomputed by dividing net income by the weighted average number of outstandingcommon shares and common share equivalents attributable to the assumed exerciseof dilutive stock options.

 

For the fiscal year ended September 30, 1999,100,773 shares of common stock equivalents were included in the computation ofdiluted net earnings per share. For the fiscal years ended September 30, 2001,and 2000, 11,842, and 89,564 shares of common stock equivalents were excludedin the computation of earnings per share since they were antidilutive due tothe net loss incurred by the Company. Options to purchase 831,750, 569,948, and708,850 shares of common stock with a weighted average exercise price of$11.00, $13.52, and $12.11 were outstanding at September 30, 2001, 2000 and1999, but were excluded from the computation of common share equivalents forthe fiscal year because they were antidilutive as their exercise price exceededthe average trading price for the period.

 

FOREIGN CURRENCY: The financial statements ofCiprico International Limited have been translated into U.S. dollars inaccordance with the provisions of SFAS No. 52 "Foreign CurrencyTranslation." Under SFAS No. 52, assets and liabilities are translatedinto U.S. dollars at the year-end exchange rate, while income and expenses aretranslated at the average exchange rates during the year. The resultingtranslation adjustments are not material.

 

NEW ACCOUNTING PRONOUNCEMENTS: In July 2001,the Financial Accounting Standards Board issued two new pronouncements:Business Combinations and Goodwill and Intangible Assets.  These pronouncements, among other things,eliminate the pooling-of-interest method of accounting for businesscombinations and require that the purchase method be used.  In addition, they eliminate the amortizationof goodwill arising from purchase business combinations  but require annual tests forimpairment.  The implementation of thesestatements in October 2002 should not have a material effect on the Company asit has no goodwill or intangible assets on its balance sheet.

 

2.RESTRUCTURING ACTIVITY

During fiscal 2001, the Company implemented two restructuringefforts.  The first occurred in the thirdquarter through a 12% reduction of the workforce and the closing of theSingapore sales office resulting in a charge of $220,000.  The second occurred at the end of the fourthquarter through the consolidation of certain sales and marketing management positionsand the closing of the sales office in Japan resulting in a charge of $400,000.

Employee termination costs consist primarily of severance payments foremployees. The facility closure and related costs consist of lease terminationcosts for the closing of the two international sales offices and writedown ofcertain fixed assets.

The following is a summary of the accrued restructuring activity duringthe year ended September 30, 2001 (in thousands):

 
|                                |   | **Restructuring  charges** |   | **Amounts  utilized** |   | **Accrued  restructuring  charges at  end of period** |   |
|-------------------------------------|--------|----------------------------|--------|-----------------------|--------|-------------------------------------------------------|--------|
| Employee  termination costs         |   | $                          | 455    |                  | $      | (171                                                  | )      | $ | 284 |   |
| Facility  closure and related costs |   | 165                        |   | (8                    | )      | 157                                                   |   |
| Total                               |   | $                          | 620    |                  | $      | (179                                                  | )      | $ | 441 |   |

 

 

3.ACQUISITION

 

On February 7, 2001 the Company completed the acquisition of theSANStar technology from ECCS, Inc. Under the terms of the agreement, the Company acquired all of theassets, rights, and intellectual property related to SANStar, a clustered, highreliability, network-connected storage management software system, forapproximately $620,000 cash.   Inaddition to the technology acquisition, the Company also hired the New Jerseybased software development team.   Thepurchase price was expensed during the year ended September 30, 2001, as thetechnology acquired was used in current research and development activities.

 

4. INCOME TAXES

The provision (benefit) for income taxesconsists of the following (in thousands):

 
| **Years ended  September 30** |   | **2001** |   | **2000** |   | **1999** |   |
|-------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Current:                      |   |     |   |     |   |     |   |
| Federal                       |   | $        | (975   | )        | $      | (323     | )      | $ | 1,499 |   |
| State                         |   | 24       |   | 6        |   | 160      |   |
| Foreign                       |   | 43       |   | 32       |   | 26       |   |
|                          |   | (908     | )      | (285     | )      | 1,685    |   |
|                          |   |     |   |     |   |     |   |
| Deferred                      |   | 1,348    |   | 97       |   | (626     | )      |
|                          |   | $        | 440    |     | $      | (188     | )      | $ | 1,059 |   |

 

 

Deferred income taxes arise from temporarydifferences between financial and tax reporting. The tax effects of thecumulative temporary differences resulting in the net deferred tax assets areas follows (in thousands):

 

| **As of September 30**           |   | **2001** |   | **2000** |   |
|----------------------------------|--------|----------|--------|----------|--------|
| Current  deferred tax assets:    |   |     |   |     |   |
| Inventory                        |   | $        | 542    |     | $      | 421 |   |
| Allowance for  doubtful accounts |   | 150      |   | 149      |   |
| Warranty  accrual                |   | 155      |   | 81       |   |
| Loss and  credit carryforwards   |   | 1,664    |   | --       |   |
| Compensation  accrual            |   | 222      |   | 117      |   |
| Other                            |   | 2        |   | 130      |   |
| Less –  valuation allowance |   | (2,735   | )      | --       |   |
| Current  deferred tax asset      |   | --       |   | 898      |   |
|                             |   |     |   |     |   |
| Long-term  deferred tax assets:  |   |     |   |     |   |
| Depreciation                     |   | 346      |   | 382      |   |
| Deferred  compensation           |   | --       |   | 68       |   |
| Less –  valuation allowance |   | (346     | )      | --       |   |
| Long-term  deferred tax asset    |   | --       |   | 450      |   |
|                             |   | $        | --     |     | $      | 1,348 |   |

 

During the fourth quarter of 2001the Company recorded an income tax adjustment of $1.4 million to establish avaluation allowance against previously recorded deferred tax assets. Thefollowing is a reconciliation of the federal statutory income tax rate to theconsolidated effective tax rate:

 

| **Years ended  September 30**                   |   | **2001** |   | **2000** |   | **1999** |   |
|-------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Federal  statutory rate                         |   | (34.0    | )%     | (34.0    | )%     | 34.0     | %      |
| State taxes,  net of federal income tax benefit |   | (.2      | )      | .8       |   | 3.4      |   |
| Change in  valuation allowance                  |   | 40.9     |   | --       |   | --       |   |
| Foreign tax  rate differential                  |   | (.1      | )      | (8.6     | )      | 1.2      |   |
| Meals and  entertainment                        |   | .3       |   | 4.6      |   | .4       |   |
| R&D  credits                                |   | --       |   | --       |   | (3.3     | )      |
| Other, net                                      |   | (.7      | )      | (.6      | )      | (1.7     | )      |
|                                            |   | 6.2      | %      | (37.8    | )%     | 34.0     | %      |

 

Cash paid for income taxes wasapproximately $67,000 in 2001, $551,000 in 2000 and $622,000 in 1999. 

 

5. SHAREHOLDERS' EQUITY

 

Authorized Shares

The Company is authorized toissue 1,000,000 shares of Preferred Stock at $.01 par value and 9,000,000shares of Common Stock at $.01 par value. The Company has not issued any sharesof Preferred Stock.

 

Stock Repurchase

During 1998, the Company initiated a stockbuyback program of up to $6.0 million, which was increased by $6.0 million in2001, bringing the total amount allowed to be expended under the plan to $12.0million. As of September 30, 2001, 618,100 shares of common stock have beenrepurchased for $6.2 million.

 

Stock Option Plans

The Company has a stock option plan underwhich officers, directors, employees and consultants have been or may begranted incentive and nonqualified stock options to purchase the Company'scommon stock at fair market value on the date of grant. The options becomeexercisable over varying periods and expire up to ten years from date of grant.At September 30, 2001, the Company had 119,976 shares reserved for futureissuance under the plan.

 

Optiontransactions under the Company's stock option plans during the three years ended September 30, 2001 are summarizedas follows:
|                                  |   | **Number of  Shares** |   | **Weighted  Average  Exercise Price** |   |
|---------------------------------------|--------|-----------------------|--------|---------------------------------------|--------|
| Outstanding at  September 30, 1998    |   | 954,474               |   | $                                     | 10.51  |   |
| Granted                               |   | 260,250               |   | 9.10                                  |   |
| Exercised                             |   | (148,651              | )      | 3.84                                  |   |
| Canceled                              |   | (106,262              | )      | 11.98                                 |   |
| Outstanding at  September 30, 1999    |   | 959,811               |   | 11.00                                 |   |
| Granted                               |   | 269,500               |   | 10.06                                 |   |
| Exercised                             |   | (89,711               | )      | 4.60                                  |   |
| Canceled                              |   | (85,662               | )      | 11.37                                 |   |
| Outstanding at  September 30, 2000    |   | 1,053,938             |   | 11.28                                 |   |
| Granted                               |   | 427,000               |   | 6.81                                  |   |
| Exercised                             |   | (14,250               | )      | 7.08                                  |   |
| Canceled                              |   | (259,813              | )      | 12.16                                 |   |
| Outstanding at  September 30, 2001    |   | 1,206,875             |   | 9.55                                  |   |
| Options  exercisable at September 30: |   |                  |   |                                  |   |
| 1999                                  |   | 446,629               |   | $                                     | 11.51  |   |
| 2000                                  |   | 567,014               |   | 12.37                                 |   |
| 2001                                  |   | 548,212               |   | 11.56                                 |   |
|                                       |        |                       |        |                                       |        |  |  |

 

The following table summarizes informationregarding outstanding and exercisable stock options:

 
| **Options Outstanding**        |              | **Options Exercisable**  |    |
|--------------------------------|-------------------|--------------------------|---------|
|                           |              |                     |    |
| **Range of   Exercise Prices** |              | **Number   Outstanding** |    | **Weighted Average   Remaining Life** |   | **Weighted Average   Exercise Price** |   | **Number   Outstanding** |   | **Weighted Average  Exercise Price** |   |
| $                              | 3.80 – 05.80 |                     | 119,000 |   | 5.0 years |   | $ | 3.98 |   | -- |   | $ | -- |   |
| 6.81 – 10.13              |              | 713,825                  |    | 3.5 years |   | 8.60 |   | 226,074 |   | 8.89 |   |
| 10.25 – 17.88             |              | 374,050                  |    | 1.7 years |   | 13.14 |   | 322,138 |   | 11.56 |   |
|                           |              | 1,206,875                |    |   |   |   |   | 548,212 |   |   |   |
|                                |                   |                          |         |  |  |  |  |  |  |  |  |  |  |  |

 

The weighted average fair value of optionsgranted in 2001, 2000 and 1999 was $2.56, $4.24 and $3.85 per share. The fairvalue of each option grant is estimated on the date of grant using theBlack-Scholes option pricing model with the following weighted averageassumptions used for grants in 2001, 2000 and 1999: no dividend yield;risk-free rate of return of 4.7%, 6.3% and 5.9%; volatility of 49.7%, 55.5% and54.5%; and an average term of 3.0 years, 3.0 years and 3.2 years. The Company's2001, 2000 and 1999 pro forma net income (loss) and net income (loss) per sharewould have been ($8.6 million), ($1.7 million) and $753,000 or ($1.70), ($.34),and $.16 per share had the fair value method been used for valuing optionsgranted during 2001, 2000 and 1999. These effects may not be representative ofthe future effects of applying the fair value method.

 

Employee Stock Purchase Plan

The 1996 Employee Stock Purchase Plan("ESPP") provides for the purchase by eligible employees of Companycommon stock at a price equal to 85% of the market price on either thecommencement or the termination date of each six-month plan phase, whichever islower. Participants may authorize payroll deductions up to 10% of their basesalary during the plan phase to purchase the stock. Since inception of theESPP, a total of 83,140 shares have been issued, including 21,905 shares for$164,827 in 2001, 17,151 shares for $158,647 in 2000 and 18,131 shares for$122,929 in 1999. At September 30, 2001, the Company had 66,860 shares reservedfor future issuance under the ESPP.

 

RestrictedStock Plan

The 1996 Restricted Stock Plan("RSP") provides for common stock awards to officers and certain keyemployees of the Company. Restricted stock vests generally after continuedemployment for a period of up to five years. All restricted stock awardsentitle the participant to full dividend and voting rights. Since inception ofthe RSP, a total of 43,370 shares have been issued. At September 30, 2001, theCompany had 106,630 shares reserved for future issuance under the RSP.

 

6. EMPLOYEE BENEFIT PLAN

The Company participates in a 401(k) savingsplan covering substantially all of its employees. Minimum contributions to theplan by the Company are 50 percent of the first 6 percent of the participants'salaries. Contributions in addition to the minimum may also be made by theCompany based on the Company's financial performance. The Company'scontributions to this plan in 2001, 2000 and 1999 were approximately $256,000,$187,000 and $133,000.

 

7. SEGMENT INFORMATION

The Company operates in a single reportablesegment.

 

The Company's net sales summarized bygeographic area are as follows (in thousands):

 

|          |   | **2001** |   | **2000** |   | **1999** |   |
|---------------|--------|----------|--------|----------|--------|----------|--------|
| North America |   | $        | 28,188 |     | $      | 24,512   |   | $ | 27,009 |   |
| Europe        |   | 2,285    |   | 4,540    |   | 4,010    |   |
| Japan         |   | 1,744    |   | 2,132    |   | 2,134    |   |
| Other foreign |   | 766      |   | 2,026    |   | 906      |   |
|          |   | $        | 32,983 |     | $      | 33,210   |   | $ | 34,059 |   |

 

The Company has no material long-lived assetsoutside of the United States.

 

Sales to significant customers, as apercentage of net sales, are as follows:

 

|       |   | **2001** |   | **2000** |   | **1999** |   |
|------------|--------|----------|--------|----------|--------|----------|--------|
| Customer A |   | 6        | %      | 25       | %      | 27       | %      |
| Customer B |   | 14       |   | 8        |   | 13       |   |
| Customer C |   | 16       |   | 3        |   | --       |   |
|       |   | 36       | %      | 36       | %      | 40       | %      |

 

At September 30, 2001, 2000 and 1999, theCompany had a receivable from customer A totaling $164,000, $524,000 and $1.7million and a receivable from customer B totaling $603,000, $1.1 million and$1.8 million and a receivable from customer C totaling $691,000, $423,000 and$0, respectively.

 

8. COMMITMENTS

The Company has operating leases for officeand manufacturing space that expire at varying dates through February2004.  Future minimum payments underthese leases are $499,000, $97,000 and $28,000 for fiscal 2002, 2003 and 2004,respectively. For the years ended September 30, 2001, 2000, and 1999, operatinglease expenses were $575,000, $547,000, and $572,000.

 

INDEPENDENTAUDITOR REPORT

 

THE BOARD OF DIRECTORS AND SHAREHOLDERS --CIPRICO INC.

 

We have audited the accompanying consolidatedbalance sheets of Ciprico Inc. and subsidiaries as of September 30, 2001 and2000, and the related consolidated statements of operations, shareholders'equity, and cash flows for each of the three years in the period endedSeptember 30, 2001. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our audits in accordance withauditing standards generally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of Ciprico Inc. and subsidiaries as of September 30, 2001and 2000, and the consolidated results of their operations and theirconsolidated cash flows for each of the three years in the period endedSeptember 30, 2001, in conformity with accounting principles generally acceptedin the United States of America.

 

We have also audited Schedule II of CipricoInc. and subsidiaries for each of the three years in the period ended September30, 2001.  In our opinion, this schedulepresents fairly, in all material respects, the information required to be setforth therein.

 

/s/ Grant Thornton LLP

Minneapolis, Minnesota

October 26, 2001

 

QUARTERLY FINANCIAL DATA

(unaudited) in thousands, except per shareamounts

 
|                                      |   | **First  Quarter** |   | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** |   | **Total** |   |
|-------------------------------------------|--------|--------------------|--------|---------------------|--------|--------------------|--------|---------------------|--------|-----------|--------|
| 2001                                      |   |               |   |                |   |               |   |                |   |      |   |
| Net sales                                 |   | $                  | 9,066  |                | $      | 9,412              |   | $                   | 9,467  |      | $      | 5,038 |   | $ | 32,983 |   |
| Net income  (loss)                        |   | (86                | )      | (935                | )      | (873               | )      | (5,668              | )      | (7,562    | )      |
| Net income  (loss) per share—diluted |   | (.02               | )      | (.18                | )      | (.17               | )      | (1.12               | )      | (1.50     | )      |
|                                      |   |               |   |                |   |               |   |                |   |      |   |
| 2000                                      |   |               |   |                |   |               |   |                |   |      |   |
| Net sales                                 |   | $                  | 6,847  |                | $      | 8,190              |   | $                   | 9,742  |      | $      | 8,431 |   | $ | 33,210 |   |
| Net income  (loss)                        |   | (109               | )      | 60                  |   | 262                |   | (522                | )      | (309      | )      |
| Net income  (loss) per share—diluted |   | (.02               | )      | .01                 |   | .05                |   | (.10                | )      | (.06      | )      |
|                                      |   |               |   |                |   |               |   |                |   |      |   |
| 1999                                      |   |               |   |                |   |               |   |                |   |      |   |
| Net sales                                 |   | $                  | 7,774  |                | $      | 8,614              |   | $                   | 9,109  |      | $      | 8,562 |   | $ | 34,059 |   |
| Net income                                |   | 283                |   | 521                 |   | 665                |   | 587                 |   | 2,056     |   |
| Net income per  share—diluted        |   | .06                |   | .10                 |   | .13                |   | .12                 |   | .41       |   |

 

**ITEM9.                  CHANGES INAND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

                None

**PART III**

 

**ITEM 10.               DIRECTORS AND EXECUTIVE OFFICERSOF THE REGISTRANT**

 

                Other than “Executive officers of theRegistrant” which is set forth at the end of Part I of this Form 10-K, theinformation required by Item 10 relating to directors and compliance withSection 16(a) is incorporated herein by reference to the sections labeled"Election of Directors" and "Section 16(a) Beneficial OwnershipReporting Compliance," respectively, which appear in the Registrant'sdefinitive Proxy Statement for its 2002 Annual Meeting of Shareholders.

 

 

**ITEM 11.               EXECUTIVE COMPENSATION**

 

                The information required by Item 11 isincorporated herein by reference to the section labeled "Executive Compensation"which appears in the Registrant's definitive Proxy Statement for its 2002Annual Meeting of Shareholders.

 

 

**ITEM 12.               SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

                The information required by Item 12 isincorporated herein by reference to the sections labeled "PrincipalShareholders" and "Management Shareholdings" which appear in theRegistrant's definitive Proxy Statement for its 2002 Annual Meeting ofShareholders.

 

 

**ITEM 13.               CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

                None.

 

 

**ITEM 14.               EXHIBITS, FINANCIAL STATEMENTSAND REPORTS ON FORM 8-K**

 

                (a)           Exhibits.  See "Exhibit Index" on pagefollowing financial statement schedules.

 

                (b)           FinancialStatement Schedules.  See ScheduleII on page following signatures.

 

                (c)           Reportson Form 8-K.

 

                No report on Form 8-K was filed during thethree months ending September 30, 2001.

SIGNATURES

 

                Pursuant to the requirements of Section 13 or15(d) of the Securi­ties Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                         |   |   |   |   |   |    CIPRICO INC.                 |
|------------------------------|--------|--------|--------|--------|--------|------------------------------------------------|
|                         |   |   |   |   |   |    (the "Registrant") |
|                         |   |   |   |   |   |                                           |
| Date:  December 3, 2001 |   |   |   |   | By     |  /s/ Robert H. Kill                       |
|                         |   |   |   |   |   |                                           | Robert H. Kill,  Chief  Executive Offier |
|                         |   |   |   |   |   |                                           | and President |

 

                Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities and on thedates indicated.

 

(Power of Attorney)

 

                Each person whose signature appears belowconstitutes and appoints ROBERT H. KILL and THOMAS S. WARGOLET his true andlawful attorneys-in-fact and agents, each acting alone, with full power ofsubstitution and resubstitution, for him and in his name, place and stead, inany and all capacities, to sign any or all amendments to this Annual Report onForm 10-K and to file the same, with all exhibits thereto, and other documentsin connection therewith with the Securities and Exchange Commission, grantingunto said attorneys-in-fact and agents, each acting alone, full power andauthority to do and perform each and every act and thing requisite andnecessary to be done in and about the premises, as fully and to all intent andpurposes as he might or could do in person, hereby ratifying and confirming allsaid attorneys-in-fact and agents, each acting alone, or his substitute orsubstitutes, may lawfully do or cause to be done by virtue thereof.

 
| Signature                 |   | Title                                  |   | Date             |
|---------------------------|--------|----------------------------------------|--------|------------------|
|                      |   |                                   |   |             |
|                      |   |                                   |   |             |
| /s/ Robert H. Kill        |   | President, Chief Executive Officer and |   |             |
| Robert H. Kill            |   | Director                               |   | December 3, 2001 |
|                      |   | (Principal executive officer)          |   |             |
|                      |   |                                   |   |             |
| /s/ Thomas S. Wargolet    |   | Vice President - Finance and Chief     |   | December 3, 2001 |
| Thomas S. Wargolet        |   | Financial Officer (Principal           |   |             |
|                      |   | financial and accounting officer)      |   |             |
|                      |   |                                   |   |             |
| /s/ William N. Wray       |   | Director                               |   | December 3, 2001 |
| William N. Wray           |   |                                   |   |             |
|                      |   |                                   |   |             |
| /s/ James  W. Hansen |   | Director                               |   | December 3, 2001 |
| James W. Hansen           |   |                                   |   |             |
|                      |   |                                   |   |             |
| /s/ Mark D. Griffiths     |   | Director                               |   | December 3, 2001 |
| Mark D. Griffiths         |   |                                   |   |             |
|                      |   |                                   |   |             |
| /s/ Bruce J. Bergman      |   | Director                               |   | December 3, 2001 |
| Bruce J. Bergman          |   |                                   |   |             |
|                      |   |                                   |   |             |
| /s/ Thomas F. Burniece    |   | Director and Chairman of the Board     |   | December 3, 2001 |
| Thomas F. Burniece        |   |                                   |   |             |

 

 

**SCHEDULE II –VALUATION AND QUALIFYING ACCOUNTS**

 
| ** **                    | ** ** |           | ** ** | **Additions**  | ** ** | ** **     | ** ** | ** **     | ** **   | ** ** |
|-------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|----------------|--------------|------------|
| **Column A**                  | ** ** | **Column B**   | ** ** | **Column C**   | ** ** | **Column D**   | ** ** | ** **     | **Column E** | ** ** |
| ** **                    | ** ** | **Balance at** | ** ** | **Charged to** | ** ** | **Charged to** | ** ** | ** **     | ** **   | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Beginning**  | ** ** | **Costs and**  | ** ** | **Other**      | ** ** | ** **     | ** **   | ** ** | **Balance at End** | ** ** |
| ** **                    | ** ** | **of Period**  | ** ** | **Expenses**   | ** ** | **Accounts**   | ** ** | **Deductions** | ** **   | ** ** | **of Period** | ** ** |
|                          |       |           |       |           |       |           |       |           |         |       |   |   |
| Accounts receivable allowance |       |           |       |           |       |           |       |           |         |       |   |   |
| September 30, 2001            |       | $              | 408,000    |           | $          | 274,000        |       | -              |         | $          | (273,000 | ) | A | $ | 409,000 |   |
| September 30, 2000            |       |           | 545,000    |           |       | 60,000         |       | -              |         |       | (197,000 | ) | A |   | 408,000 |   |
| September 30, 1999            |       | 277,000        |       | 333,000        |       | -              |       | (65,000        | )            | A          | 545,000 |   |
|                          |       |           |       |           |       |           |       |           |         |       |   |   |
|                          |       |           |       |           |       |           |       |           |         |       |   |   |
|                          |       |           |       |           |       |           |       |           |         |       |   |   |
| Warranty reserve              |       |           |       |           |       |           |       |           |         |       |   |   |
| September 30, 2001            |       | $              | 223,000    |           | $          | 242,000        |       | -              |         | $          | (42,000 | ) | B | $ | 423,000 |   |
| September 30, 2000            |       |           | 75,000     |           |       | 148,000        |       | -              |         |       | -- |   | B |   | 223,000 |   |
| September 30, 1999            |       | 135,000        |       | 106,000        |       | -              |       | (166,000       | )            | B          | 75,000 |   |

----

A - Deductions represent accountsreceivable written-off during the year.

 

B - Deductions represent warrantywork performed during the year.

 

SECURITIES AND EXCHANGECOMMISSION

Washington, D.C. 20549

 

EXHIBIT INDEX TO FORM 10-K

 

| For the fiscal year ended | Commission File No.:  0-11336 |
|---------------------------|------------------------------------|
| September 30, 2001        |                               |

 

----

CIPRICO INC.

----

 
| Exhibit |   | Description                                                                                                                                                                                                                                                                                                                      |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 3.1     |   | The Registrant's Certificate of Incorporation, as amended to  date--incorporated by reference to Exhibit 19.1 of the Registrant's Form 10-Q  for the quarter ended March 31, 1988*                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 3.2     |   | The Registrant's Bylaws, as amended to date--incorporated by  reference to Exhibit 19.2 of the Registrant's Form 10-Q for the quarter ended  March 31, 1988*                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.1    |   | Lease Agreement, dated December 3, 1991, relating to manufacturing  space located at 2800 Campus Drive, Plymouth, Minnesota and corporate office  space located at 2955 Xenium Lane, Plymouth Minnesota--incorporated by  reference to Exhibit 10.1 of the Registrant's Form 10-K for the fiscal year  ended September 30, 1991* |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.2    |   | First Amendment, dated July 1, 1996, to Lease Agreement dated  December 3, 1991, relating to space at 2800 Campus Drive, Plymouth,  Minnesota--incorporated by reference to Exhibit 10.2 of the Registrant's Form  10-KSB for the fiscal year ended September 30, 1996.*                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.3    |   | Second Amendment, dated September 2, 1997, to Lease Agreement dated  December 3, 1991 relating to space at 2800 Campus Drive, Plymouth, Minnesota  - - incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10-KSB  for the fiscal year ended September 30, 1997.*                                            |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.4**  |   | Registrant's 1992 Nonqualified Stock Option Plan--incorporated by  reference to Exhibit 10.13 of the Registrant's Form 10-K for the fiscal year  ended September 30, 1992*                                                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.5**  |   | Specimens of Nonqualified Stock Option Agreements under 1992  Nonqualified Stock Option Plan--incorporated by reference to Exhibit 10.14 of  the Registrant's Form 10-K for the fiscal year ended September 30, 1992*                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.6**  |   | Amendment No. 1 to Registrant's 1992 Nonqualified Stock Option  Plan--incorporated by reference to Exhibit 10.11 of the Registrant's Form  10-KSB for the fiscal year ended September 30, 1995*                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.7**  |   | Amendment No. 2 to Registrant's 1992 Nonqualified Stock Option  Plan--incorporated by reference to Exhibit 10.12 of the Registrant's Form  10-KSB for the fiscal year ended September 30, 1995*                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.8**  |   | Registrant's 1994 Incentive Stock Option Plan--incorporated by  reference to Exhibit 10.13 of the Registrant's Form 10-KSB for the fiscal  year ended September 30, 1993*                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.9**  |   | Specimen of Incentive Stock Option Agreement under 1994 Incentive  Stock Option Plan--incorporated by reference to Exhibit 10.14 of the  Registrant's Form 10-KSB for the fiscal year ended September 30, 1993*                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.10** |   | Registrant's 1996 Restricted Stock Plan, as amended--incorporated by  reference to Exhibit 10.4 of the Registrant's Form 10-Q for the fiscal  quarter ended December 31, 1998*                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.11** |   | Specimen of Restricted Stock Agreement under 1996 Restricted Stock  Plan--incorporated by reference to Exhibit 10.16 of the Registrant's Form  10-KSB for the fiscal year ended September 30, 1995*                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.12** |   | Registrant’s 1999 Amended and Restated Stock Option Plan - - incorporated  by reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the fiscal  quarter ended December 31, 1998*                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.13** |   | Specimen of  Incentive Stock  Option Agreement under 1999 Amended and Restated Stock Option  Plan--incorporated by reference to Exhibit 10.2 of the Registrant's Form 10-Q  for the fiscal quarter ended December 31, 1998*                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 10.14** |   | Specimen of  Nonqualified  Stock Option Agreement under 1999 Amended and Restated Stock Option  Plan--incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q  for the fiscal quarter ended December 31, 1998*                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 22      |   | Subsidiaries  of the Registrant                                                                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                             | Jurisdiction |
|    |   | Name                                                                                                                                                                                                                                                                                                                             | of  Incorporation |
|    |   |                                                                                                                                                                                                                                                                                                                             |   |
|    |   | Ciprico FSC, Inc.                                                                                                                                                                                                                                                                                                                | Virgin Islands |
|    |   | Ciprico International Limited                                                                                                                                                                                                                                                                                                    | England |
|    |   | Ciprico Asia-Pacific, Inc.                                                                                                                                                                                                                                                                                                       | Delaware |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 23.1    |   | Consent of  Grant Thornton LLP                                                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 24      |   | Power of  Attorney from Certain Directors--see Signature Page                                                                                                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                             |
| 99A     |   | Cautionary  Statements                                                                                                                                                                                                                                                                                                           |

----

*    Incorporated by reference - Commission File No. 0-11336

**  Indicates a management contract or compensatory plan orarrangement required to be filed as an exhibit to this Form 10-K.