** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-KSB**

 

**x****ANNUAL REPORT PURSUANT TO SECTION 13or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**     For the fiscal year ended September 30,2007**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**      Forthe transition period from       to      **

 

## **Commission File No. 0-11336**

##  

**CIPRICO INC.**

(Name of smallbusiness issuer in its Charter)

 

| **Delaware**                                                                | ** ** | **41-1749708**                         |
|-----------------------------------------------------------------------------|------------|----------------------------------------|
| (State or  Other Jurisdiction of  Incorporation or Organization)            |       | (I.R.S.  Employer  Identification No.) |
|                                                                        |       |                                   |
| **7003  West Lake Street, Suite 400, St. Louis Park, Minnesota 55426** |
| (Address of  Principal Executive Offices, Including Zip Code)               |
|                                                                        |       |                                   |
| Issuer’s  Telephone Number:**(952) 540-2400**                          |

 

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Securities registered under Section 12(b) ofthe Exchange Act: **Common Stock (par value$0.01 per share)**

 

Securities registered pursuant to Section 12(g) ofthe Exchange Act: **None**

 

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Indicate by checkmark whether the issuer isnot required to file pursuant to Section 13 or 15(d) of the SecuritiesExchange Act  o

 

Indicate by checkmark whether the issuer (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirement for the past 90 days. Yes  x    No  o

 

Indicate by checkmark ifthere is no disclosure of delinquent filers pursuant to Item 405 of RegulationS-B contained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB. x

 

Indicate by checkmark whether the registrant is shell company (asdefined by Rule 12b-2 of the Exchange Act).

 Yes  o  No  x

 

State issuer’s revenues for its most recent fiscal Year $8,605,000

 

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The aggregate market value of shares held by non-affiliateswas approximately $27.1 million computed by reference to the last sale price ofthe Company’s Common Stock, as reported in the NASDAQ National Market system,on November 30, 2007.

 

As of November 30, 2007, the Company had outstanding5,112,994 shares of Common Stock.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Portions of the Proxy Statement for the Annual Meeting ofStockholders to be held on February 7, 2008 are incorporated by referenceinto Part III of this report.

 

     Transitional Small BusinessDisclosure Format:  Yes  o  No  x

 

 

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CIPRICO INC.

INDEX TO ANNUAL REPORT ON FORM 10-KSB

FOR THE YEAR ENDED SEPTEMBER 30,2007

 
| PART I   |                                                                                                                       |   |
|---------------|----------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1        | Description of Business                                                                                                    | 3      |
| Item 2        | Description of Property                                                                                                    | 12     |
| Item  3       | Legal  Proceedings                                                                                                         | 12     |
| Item 4        | Submission of Matters to a Vote of Security Holders                                                                        | 12     |
|          |                                                                                                                       |   |
| PART II  |                                                                                                                       |   |
| Item 5        | Market for Common Equity, Related Stockholder Matters and Small  Business Issuer Purchases of Equity Securities            | 13     |
| Item 6        | Management’s Discussion and Analysis                                                                                  | 14     |
| Item 7        | Financial Statements                                                                                                       | 19     |
| Item 8        | Changes In and Disagreements With Accountants on Accounting and  Financial Disclosure                                      | 32     |
| Item 8A       | Controls and Procedures                                                                                                    | 32     |
| Item  8B      | Other  Information                                                                                                         | 32     |
|          |                                                                                                                       |   |
| PART III |                                                                                                                       |   |
| Item 9        | Directors, Executive Officers, Promoters and Control Persons;  Compliance With Section 16(a) of the Exchange Act | 32     |
| Item 10       | Executive Compensation                                                                                                     | 32     |
| Item 11       | Security Ownership of Certain Beneficial Owners and Management and  Related Stockholder Matters                            | 33     |
| Item 12       | Certain Relationships and Related Transactions                                                                             | 33     |
| Item  13      | Exhibits                                                                                                                   | 33     |
| Item 14       | Principal Accountant Fees and Services                                                                                     | 33     |
|          |                                                                                                                       |   |
|          | Signatures                                                                                                                 | 34     |
|          | Exhibit Index  to Form 10-KSB                                                                                    | 35     |

 

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**NOTEREGARDING FORWARD–LOOKING STATEMENTS**

 

Certain statements contained in this AnnualReport on Form 10-KSB, including, but not limited to, statements regardingthe development and growth of our business, our intent, belief or currentexpectations, primarily with respect to our future operating performance andthe products and services we expect to offer and other statements containedherein regarding matters that are not historical facts are “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended, and are subject to the “safe harbor” created by those sections. Generally,words such as “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”“will,” “predict,” “intend,” or “potential” and similar expressions identifyforward-looking statements. Because such statements include risks anduncertainties, many of which are beyond our control, actual results may differmaterially from those expressed or implied by these forward-looking statements.These risks and uncertainties include, but are not limited to: (i) competitivefactors, including pricing pressures; (ii) variability in quarterly sales;(iii) economic trends generally and in various markets; (iv) generaleconomic conditions; (v)  risks associated with introducing new products,features and services; and (vi) other events and important factorsdisclosed previously and from time to time in our filings with the U.S.Securities and Exchange Commission (“SEC”). Future SEC filings, future pressreleases and oral or written statements made by us or with our approval, whichare not statements of historical fact, may also contain forward-lookingstatements.

 

Readers are cautioned not to place unduereliance on these forward-looking statements. Forward-looking statements speakonly as of the date on which they were made, and except as required by law, weassume no obligation to update any forward-looking statements. Although webelieve that the expectations reflected in these statements are reasonable, wecannot guarantee future results, levels of activity, performance orachievements. We do not intend to update or revise any forward-lookingstatements whether as a result of new information, future events or otherwise.

 

**PART I**

 

**ITEM 1.****                                           DESCRIPTIONOF BUSINESS**

 

**Overview**

 

Ciprico Inc. (“theCompany” or “we” or “our” or “us”)is a leadingprovider of intelligent storage software solutions for servers, professionalworkstations and digital media workflows. Ciprico has been a leader in manyaspects of data storage protection and introduced one of the first dataprotection “RAID” systems in 1988. In June 2006 we acquired the RAIDCoreTMline of business from Broadcom via asset purchase and technology license. Withthe RAIDCore software as a base, the Company is once again focused on being aleader in data protection technology with its software based virtual RAIDtechnology. RAIDCore is written to be silicon and operating system agnostic, akey feature as to its flexibility. Within the emerging software basedvirtualized RAID market, the Company’s RAIDCore product line is one of theleading products due to its reliability, performance and scalability. Webelieve these rich features combined with low power requirements andsubstantial cost savings make the RAIDCore product line compelling.

 

Currently Ciprico is in transition from beinghardware product centric to software product centric. The Company hastraditionally sold hardware products incorporating proprietary software. Ourlegacy hardware products are seeing significant competition from low costproducers that in some environments offer a solution that is “good enough”,negating some of the advantages our products have relied on for marketpenetration. The Company is also changing and expanding the markets itaddresses.  In the years prior to fiscal2007, our largest market was the Broadcast market. As we did not keep up withrequired technological changes our sales in this market have declinedsubstantially over the past several years. Our new engineering talent and focuson RAIDCore software allows us to address a much larger market including thelarge enterprise market and particularly the growing SMB (small to mediumbusiness) marketplace. Our transition to emphasizing software has been drivenby several catalysts: the purchase of the RAIDCore software product line fromBroadcom in June 2006, the expanding market for data protection,technology improvements by chip makers (principally the deployment ofmulti-core processors), and the transition of our engineering talent.

 

According to Gartner, the amount of digital storagegenerated by businesses and consumers is growing at a rate of greater than 50%per year. Key drivers of this growth are the changing regulatory requirements,general business needs, as well as increased digital based personalcommunication. The need to protect, scale and retrieve data efficiently overextended periods of time is a significant issue.   The amount of data that can be stored on anyone disk drive is accelerating  thisgrowth in the amount of digital storage and also highlighting the need forhighly automated data protection products that minimize IT management overhead.The majority of data protection products require an integrated disk failureprotection technology called “RAID” (Redundant Array of Independent Disks) inorder to protect data loss due to hard disk drives that may fail overtime.

 

For the past 20 years, disk data protection via RAIDhas been accomplished largely via a dedicated hardware based design whichincluded its own processor, memory as well as other components. The key factorfor the hardware design was the 

 

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amountof processing power needed to perform the RAID algorithms, which requireddedicated processors apart from the CPU. Recently advances in RAIDtechnology have resulted in increasingly more complex and expensive dedicatedRAID processors in order to keep pace. In addition, these hardware designscould only work with a specified chip set. Any change in the chip set wouldrequire entire rework of the hardware.

 

Ciprico’s RAIDCore technology eliminates the needfor a dedicated RAID processor by instead utilizing the same multi-core CPUused in the workstation, server or PC, which is much more powerful than thededicated RAID processor. We believe our host CPU based software solution willaccelerate the use of advanced Raid products, moving away from expensivehardware RAID products, by taking advantage of the increased processing powerperformance of the CPUs and chipsets that are available.   We can deliver with only software whatpreviously needed to be done with a combination of software and hardware. Webelieve our software approach is disruptive to the industry and enables RAID tobecome a more standard feature versus the option it is today. In the ITindustry software replacing what has been done by hardware is not new: computermodems and sound cards are but two examples.

 

Currently our software runs on the majority ofmainstream chip sets and operating system environments, following our siliconagnostic path. This provides for optimum flexibility. Our softwareand products leverage the significantinvestments by Intel and AMD in multi-core CPU technology. Using RAIDCore andmulti-core CPUs as a foundation, the Company is creating new products in theIntel architecture server and workstation markets, as well as transforming ourappliance product lines to provide feature rich solutions that leverageindustry standard hardware components.

 

We believe our business model is expandable. We sellour software three ways:

 

1) Software only - sold to OEMs, ODMs andmotherboard vendors. We believe our software only model allows for penetrationof base level RAID data protection into new markets and also allows forweb-based activation and upgrades. We anticipate that the lower cost of baselevel RAID protection combined with the increased awareness of the need fordata protection will result in an expansion of the market to low-end servers,desk top PCs and dual disk drive laptops. We believe our silicon agnosticapproach allows us to make swift changes to adapt to market and customerdemand, plus help our customers offer a more consistent look and feel acrossmultiple platforms.

 

2) RAID controller card (also referred to as an HBA-host bus adapter) - sold to system builders via distribution. We utilizenationally known distribution channel partners like Bell Microproducts andAvnet to help facilitate our model. All of our RAID controller cardsincorporate our RAIDCore software. Today system builders (also referred to aswhite box builders) would use our RAID controller cards when there is a needfor more ports (or SAS drive support) for additional drives than offered on thehost processor board. As motherboard manufacturers add additional ports moresystem builders can move to our software only approach.  There will continue to be a market for thesecards for the foreseeable future. As more system builders are introduced to ourproduct we believe they will find it very attractive given ourprice/performance advantage over our competitors, as well as our energy efficiency,and technology flexibility.

 

3) Appliances – sold through a dealer anddistribution network. Our software is incorporated as part of a storage ordata protection appliance that may contain numerous drives and may becustomized for particular applications.     We continue to serve certain markets withour legacy based appliances; however it is our intention to transition all ofour appliances to RAIDCore software. We believe that the revitalization of ourappliance line of products with our RAIDCore software will allow us to bettercompete in the video and media marketplace, accelerate our time to market andallow us to enter into new market segments with a more advanced enterprise class solution. The first of the RAIDCore software basedproducts were launched in September 2007 and consisted of both RAIDCoreHBA and a new and improved MediaVault product. This product, MediaVault 5108,received a Vanguard award in December 2007, an award given to the year’smost groundbreaking new products for the video production professionals.  By mid-year 2008, we expect substantially allof our appliance products will be based on the RAIDCore technology.

 

The vast majority of our employees are new toCiprico in the last year. As noted above we have transitioned virtually ourentire engineering team to one which has particular skills in themulti-core processor environment. Ourmanagement team is well experienced in the storage industry. In addition to ourindustry experienced executive team, we have recently hired sales andmarketing personnel with extensive industry experience and specific experiencewith our key competitors. Theirfamiliarity with the industry and understanding of our value proposition, lendscredence to our belief that our software can be a game changing disruptiveforce in the data protection marketplace.

 

**Corporate Information**

 

We were incorporated under the name ComputerProducts Corporation in February 1978 and changed our name to Ciprico Inc.in May 1983. Ciprico was established to focus on next generationstorage solutions for storage area networks and developed andmanufactured controller-based products for manufacturers and end users ofcomputer systems. The companysuccessfully established itself as a leader in many aspects of digital dataprotection technology, including introducing one of the first RAID data  

 

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storage system products.  Throughout the 1990’s, we provided theindustry standard for reliability in disk arrays with the 6700, 6900, 7000 andFibreSTORE® series. In January 2005, we purchased substantiallyall of the assets of Huge Systems, Inc. including their MediaVaultTMproduct line, which is focused on the digital content creation marketplace forvideo, graphics and movie production including digital cinema. In June 2006we entered into a Technology License and Asset Purchase Agreement with BroadcomCorporation that included the purchase of the assets of Broadcom’s RAIDCoreTMbusiness and the cross license of software technology between Ciprico andBroadcom. We have made key improvements on the RAIDCore software and believe with this new class of softwarebased data protection technology the Company will again become a dataprotection leader.

 

**(1)****                    ****Products and Services**

 

***Software Products***

We believe the sale of our software only RAIDaddresses the needs of the market of the future. We offer customers achoice of several different solutions depending on their value and performanceneeds. . RAIDCore software is available today in basic RAID (RAID 0, 1, 10) aswell as advanced RAID 5 (for high input/output (“I/O”) oriented uses) andcontroller spanning.  RAID 0, 1, 10 –stripes data across multiple disk drives to increase sustained data throughputperformance and duplicates data via mirroring to provide redundancy   RAID 5 – stripes data and parity across allthe disk drives in the array, making it good for transaction processing and isthus best for traditional data processing or enterprise applications. Additionalenhanced features include RAID 1n, 10n advanced mirroring, full controllerspanning support and mixed capacity drive support, along with several advancedfeatures to provide recovery from potential system crashes. RAID 6 will beavailable in the near future in the RAIDCore software only mode. RAID 6 isimportant in very large arrays that contain business-critical data, such aslarge customer databases, digital archives, large digital feature films andmovies archives where data loss could be catastrophic. RAID 6 – providesenhanced data protection where any two drives can fail and the array will stillmaintain all the data, and sustain the throughput so the customer can continueto work.

 

Our key enabling technology is the RAIDCore softwarestack which allows transition from hardware device-centric to softwaresystems-centric. This feature rich software is hardware independent and siliconagnostic and can run on virtually any multi-core CPU a chipset, as a RoC (Raidon Chip), RoMB (RAID on MotherBoard), or HBA (Host Bus Adapter). Inaddition to being offered in multiple levels of RAID protection, our softwareincludes the unique ability to virtualize or group multiple I/O ports togethervia its controller spanning feature to form extremely large single RAIDarrays of 32 disk drives. Our software is compatible with SATA I, SATA II, orSAS (Serial Attached Storage) drives.

 

Although previously limited to just the Broadcomchip set, the RAIDCore software has already been deployed in tens of thousandsof Windows and Linux based servers and embedded video workflow environments atnumerous OEMs and system builders. The available market to the Company hasexpanded greatly with our September 2007 announcement that our softwarewill also run on Intel and Intel compatible chip sets.  Ciprico also anticipates continually expandingthe number of platforms and operating systems supported, including MAC (Apple)OS X, in the next fiscal year.

 

Our RAIDCore software is a highly integratedstorage platform that includes enterprise-class RAID software thatruns on multiple storage silicon offerings and provides our customers with acompetitive advantage. We accomplish this by lowering total cost of ownershipand providing a more consistent look and feel across multiple platforms. Byeliminating much of the dedicated RAID hardware, the RAIDCore solution has alsodemonstrated significant energy savings over competing hardware RAIDcontrollers.

 

***RAID Controller Cards (HBAs)***

This is the primary and largest part ofthe RAID controller market today, almost exclusively a hardware based approachtoday with a dedicated processor on the Card or HBA. With our host basedapproach the primary need for these cards is when the motherboard does notcontain enough SATA I/O ports for the configuration desired or SAS disk drivesupport is required. Our RAIDCore product family offers storage ODMs, OEMs andsystem builders (including white box server builders) complete and feature-richstorage platform software delivered as a HBA (also referred to as a RAIDcontroller card or board).

 

The RAIDCore RAID controller card series delivers multiple RAIDlevels for servers and workstations.  Webelieve the close interoperability between the RAIDCore software and thesilicon provides significant cost savings as the Ciprico product eliminates theneed for separate processor, memory and AISC engine on the RAID controller card. Thus we believe Ciprico has significant cost advantage over itscompetitors in supplying this marketplace. In addition, there is decreasedenergy consumption and improved performance as the Ciprico product uses thepower of the multi-core host processor (which is almost always faster than thededicated processor on a controller card). With controller spanning, online capacity expansion, online RAID levelmigration and distributed sparing, our HBA products offer enterprise-level dataintegrity and high data access performance at an economical total cost ofownership. These HBA products cover both SAS and SATA interfaces and come in avariety of models related to the number of I/O ports needed by a customer.

 

Our RAIDCore software stack is built into our ownline of PCI Express and PCI-X based RAID controller SAS/SATA II HBAs. Webelieve the RAIDCore host CPU based software leads the industry with featuresets that go well beyond traditional 

 

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hardwarebased RAID and forms a solid foundation for implementing robust and reliable24/7 data protection platform for any enterprise class server, be itweb, email, data center or small business multi-function servers. By providinga common software stack and management suite that covers a broader rangeof platforms, we believe RAIDCore allows system builders and OEMs to streamlinesupport costs and IT managers to simply software update management. For smallerbusiness users, we believe the RAIDCore management utility provides a greatlysimplified and easy to use management tool when compared to other competinghardware or single solution based products.

 

***Appliance Products***

Our appliance products are organized intothree product line families: **MediaVault****ä, DiMeda® and TALON®.**Wecreate, design, and develop all of our product appliances to operate at peakperformance levels while maintaining high reliability. Very high performanceapplications may require one or several systems and different levels ofRAID protection.

 

**MediaVaultTM**

The MediaVaultTM line of fixed and portable DAS(Direct Attached Storage) and SAN storage appliances provide a high level ofperformance and reliability in demanding digital video editing, capture andtransport systems. Having one of the Content Creation market’s most reliable-performanceprofiles, the MediaVault products are capable of surviving fatal drive crashesduring intensive video streaming or creation projects, protecting end users’precious time and creative content without holding up the project in the eventof drive failure.

 

Our MediaVault product line is designed as a cost effective solution forhigh-bandwidth content creation applications such as uncompressed SD / HD / 2Kediting, film digital intermediate work, and digital cinema. The legacyMediaVault RAID software family is a third generation code set that is focusedon providing high performance throughput for video applications using RAID 0, 3and 6 in low cost hardware architecture.  Webelieve this provides asuperior price/performance proposition for the content creation/digital cinemamarket. Our current product offerings include a high performance 4Gb Fibre Channel and U320 SCSI interface, andswitchable RAID 0 and RAID 3 operation, offering both performance andprotection. RAID 6 operations are now included on select models offering usersadded level of data protection.

 

The recently introduced new MediaVaultproduct line based on RAIDCore software and new 20Gbps PCI Express cablingstandard offers significant performance improvement at a very competitive pricefor direct attached storage applications. The new 5100 series MediaVaultappliances offer enterprise quality features and thus have application beyondjust the video and media marketplace. We are expanding our market for theseproducts as we believe they have broad appeal including thesystem builder channels as well as the military and government sector.

 

**TALON®**

TALON is a highly ruggedized product formilitary applications with the mechanical chassis designed to enable theoperation of a disk array in harsh environments of temperature, shock,vibration, salt-fog, etc.  This producthas now transitioned to use the RAIDCore software and includes unique featuressuch as guaranteed performance in degraded modes, redundant power supplies, andstorage scalability. Additionally, we believe the patent pendingremovable disk pack feature is a key differentiation, enabling the portabilitybenefits of tape, with the random access benefits of disk drives. A key benefitto the customer is enhanced application performance as it pertains touninterrupted data availability at full performance levels. We believe these features make theproduct uniquely suited for high bandwidth applications.

 

For years, Ciprico’s leadership in high performance real time digitaldata capture and streaming media has allowed the company to provide storage inenvironmentally demanding applications. High altitude avionics class digitalvideo capture, rugged terrain and harsh environments all present uniquechallenges for sensitive storage equipment. Ciprico’s TALON® line of ruggedstorage is sold to several military and government departments around the worldfor demanding applications. The Company continues to develop products inthis area, leveraging RAIDCore technology in its next generation productdevelopments.

 

**DiMeda®**

Our *DiMeda*product linefamily utilizes our RAIDCoresoftware as well as our NAS software. This software consists of several codesub-libraries, including open source operating and file systems. The DiMedafamily product line was designed to provide high performance,high-availability, shared storage utilizing IP based networking protocols ofCIFS (Common Internet File System) and NFS (Network File System) in a filebased shared storage system delivering near-Fibre Channel SAN (Serial AttachedNetwork) performance with the ease-of-use of an appliance. It is built onindustry standard PC motherboard and chassis hardware with Linux based softwarecomponents and incorporates the RAIDCore controller card. The DiMedaTM line ofNAS appliances offers a flexible form of multiple stream video deliveryacross local area networks. Scaling from 1Gbps up to 10Gbps on the networkside, the DiMeda platform provides a comprehensive multi-platform sharedmedia server that supports most of the popular file operating systems in theindustry. We believe the DiMeda appliances offer an easy to use, highperformance, resilient networked storage solution capable of storing large quantities ofdigital media content. This allows for usage in supporting broadcast media andnext generation digital cinemas environments as well as other related areas.

 

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***SpecializedSoftware Licensing***

In the past fiscal year the company hasutilized its core software intellectual property to design customized softwarefor military applications with unique features. This service generatesnon-recurring engineering fees for software development and ongoing softwarelicensing fees for the life of the related program. The Company continues toprovide such specialized software licensing utilizing RAIDCore technologywherever appropriate.

 

***Warranty and Product Services Programs***

**StandardWarranty –** We generally include our standard warranty(from one to three  years) with ourcontroller card and appliance sales, which comprises standard business hourstelephone support to record, diagnose, advise on and solve issues ofoperational nature relating to all products. Standard warranty technicalsupport can also be accessed through e-mail or on our website. In addition to thestandard warranty offered on appliance sales, in select cases we offer a rangeof contract-based service programs**.**

 

***Sales and Marketing***

Our software, HBAs and appliance solutionsare sold through a direct sales force calling on a combination of OEMs,motherboard vendors, system integrators, distribution partners and dealers. Ourdirect sales organization is primarily responsible for demand creationactivities and customer development within these distribution channels.   In addition to the United States we havedistribution channels and arrangements in Canada, Asia Pacific and Europe. Wealso have inside sales, business development and pre-sales system engineeringresources that work closely with and complement our direct sales force.

 

The sales cycle related to an OEM sale variesbased on the specific OEMs design-in cycle, test process and where they are inthe technology cycle of a particular platform. Therefore the entire sales cycleranges form two to six months. Distribution and dealer sales cycles aretypically shorter than with an OEM type sale, and range from two weeks to threemonths.

 

We our offer our software, HBAs, andappliance solutions to multiple storage markets. In the past we have trackedour sales to particular markets. As we sell more of our software only andsoftware on HBA****we will have less insight as towhich marketplace our product ultimately reaches the end user. Sales cycles forthe****military and government market may rangefrom three to eighteen months and contracts from one to seven years.

 

Our primary focus is on  **small-to-medium****business** and the **enterprise marketplace.  **Wewill continue to deliver our software via storage appliances to the **digital media contentcreation and delivery**and **military and government**markets.We intend to limit specific efforts in the Broadcast market, utilizing productsfor our other markets as appropriate.

 

***Small-to-Medium Business andEnterprise***

This market focus includes thehigh-end consumer, game developers, media specialists and the SMB servermarkets. We reach these markets through OEMs, motherboard vendors, systemsbuilders and VARs with either a software license or a HBA. By providing a common software stack andmanagement suite that covers a broader range of platforms, we believeRAIDCore provides system builders and OEMs the ability to streamline supportcosts and IT managers to simply software update management. This is especiallyimportant for smaller business users, as we believe the RAIDCore managementutility provides a greatly simplified and easy to use management tool whencompared to other competing hardware or single solution based products. For example, a current customer, a majorChina based OEM – H3C (originally a joint venture of Huawei and 3Com), is usingour software platform in its line of iSCSI appliances, combined withFalconStor software, to address the growing SMB market in China.   We believe that less than 20% of the low-endservers, principally addressing the SMB marketplace are currently penetratedwith RAID capability. With our software approach we believe we can address thismarketplace with a cost effective solution for base level RAID. Customers inthis low-end server market, as well as all SMB and enterprise markets, canavail themselves of a higher level of RAID protection via a web-based upgrade. Theinitial sales process for OEMs, ODMs and system integrators is complex,requiring interaction with several layers of the customer’s organization andextensive technical exchanges as well as product demonstrations. We believe the RAIDCore host CPU based software leads the industry withfeature sets that go well beyond traditional hardware based RAID and forms asolid foundation for implementing robust and reliable 24/7 data protection platform forany enterprise class server, be it web, email, data center or smallbusiness multi-function servers. Ourgoal for this market is to make our software ubiquitous throughout the server,PC, and workstation industry and drive storage management costs lower for endusers and decrease the cost of management for the OEM.

 

***Digital Media Content Creationand Delivery***

The film industry is beginningto capture original content with digital cameras, rather than with traditionalfilm reels. Many movies created with film are then converted to digital forintermediate work (i.e. editing, special effects, lighting changes, colorchanges, etc.) and ultimately put back on film for distribution. We believe there is potential for increased storage and the protection of suchstorage, as the movie industry uses more digital technology, including archivesfor the digital intermediate work, digital storage at the movie theater andultimately the permanent archiving of these digital assets. In addition todigital cinema, companies involved in video content creation such asadvertising agencies, post-production houses and video production companies areincreasing their digital storage. As these workflows move from SD (StandardDefinition) to HD (High Definition) and eventually 2K/4K resolution, the needfor storage increases dramatically. Applications include 3D animation, specialeffects, film restoration, editing 

 

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and archive. These markets are beginning touse enterprise class storage equipment and data management techniques andwe believe this provides significant potential for our RAIDCore technology.

 

***Military and Government***

Our primary focus in this market is toprovide software customization services and ruggedized appliance products withremovable disks for applications commonly referred to as “Command and Control”or C4I. The primary applications involve the collection, processing anddissemination of visual reconnaissance and surveillance data for missionplanning, intelligence gathering and targeting. A single image frame rangesfrom a few megabytes up to 14 GB in size, with the data capture phase requiringthe collection of hundreds to thousands of frames per day. In the case ofsatellite-based imagery sensors, our products are used at the supporting groundstations.  For airborne applications, ourproducts are onboard aircraft and imagery data is captured at a very hightransfer 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 imagery data is stored in digital assetmanagement databases for fast query and retrieval. These databases often reachmultiple terabytes in size and require the high bandwidth performance webelieve our products provide. We rely on a direct sales method toaddress this market through resellers and government contractors.

 

***Broadcast***

The broadcast video market includes companiesthat create, edit, manipulate and broadcast images, in real-time using digitaltechnology. The expansion of HDTV worldwide provides opportunity for vendorswith solutions that improve the productivity of creating, managing and storingHD content. We believe our appliance solutions developed forother markets meet many of the requirements of broadcast and video servicesapplications. This market has become increasingly competitive and the Companyanticipates engaging in this market going forward only where it can providevalue and maintain reasonable margins.

 

**(2)****                                ****Distribution**

 

***Software Products***

The Ciprico storage software platform is offeredto ODMs, OEMs and motherboard vendors on a direct basis. We offercustomers a choice of several different solutions depending on their value andperformance needs.   We believe a key component ourdistribution model is that our software products can be accessed and sold viathe internet.   This allows users theopportunity to purchase our software at any time, and also access upgrades.

 

Due to the fact our software now runs on allIntel and Intel compatible platforms, a key to our distribution model is salesof base level RAID protection on a vast amount of motherboards beingmanufactured. We intend to sell base level RAID data protection directly andencourage upgrades. At any subsequent step in the distribution, including theend-user, a customer can seamlessly purchase an upgrade to a higher level ofprotection via a simple web activation or download. We anticipate ourdistribution model will allow for channel partners and manufacturers to becompensated on a rebate or commission basis when customers, including end-userstake advantage of the available upgrade.

 

We believe this distribution model combinedwith our silicon agnostic approach (software can run on multiple chip sets),cost savings, reduced energy consumption, faster time to market for newtechnologies, improved features and usability make our software offering acompelling proposition.

 

***RAID Controller Cards (HBAs)***

Our RAIDCore product family offers storageODMs, OEMs and system builders (including white box server builders) completeand feature-rich storage platform software delivered as a HBA (alsoreferred to as a RAID controller card or board). These products are marketed anddistributed primarily through large multi-national distributors.

 

This is the primary and largest part ofthe RAID controller market today, almost exclusively a hardware based approachtoday with a dedicated processor on the Card or HBA. Webelieve our host-based approach provides significant cost savings as theCiprico product eliminates the need for separate processor, memory and AISCengine on the RAID controller card.  Thuswe believe Ciprico hassignificant cost savings over its competitors in supplying this marketplace. Inaddition, there is decreased energy consumption and improved performance as theCiprico product uses the power of the multi-core host processor, which isalmost always faster than the dedicated processor on a controller card. Thus webelieve our value proposition can create demand through the distributionchannel.

 

***Appliance Products***

Our appliance products are organized intothree product line families: **MediaVault****ä, DiMeda® and TALON®.**Wecreate, design, and develop all of our product appliances to operate at peakperformance levels while maintaining high reliability. Very high performanceapplications may require one or several systems and different levels ofRAID protection.

 

8

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**MediaVaultTM**

These products are marketed primarily through distributors todealers and integrators in the pre-media and video content creation industrywho combine the high bandwidth attributes of MediaVault with high definitionand film resolution software/hardware components for a complete solution fortheir end user customers. The new 5100 series MediaVault appliances offerenterprise quality features and thus have application beyond just the video andmedia marketplace. We are expanding our distribution network for these productsas we believe they havebroad appeal including the system builder channels as well as the military andgovernment sector.

 

**TALON®**

The TALON appliance product is marketed andsold directly to government and military contractors as well as throughgovernment VARs and distributors.

 

**DiMeda®**

Our *DiMeda*product line familyutilizes our RAIDCore software as well as our NAS software. These products are marketed and solddirectly to OEMs, and through distributors to dealers and integrators in themedia and broadcast industry.

 

**(3)****                               ****Status of New Products**

 

In late September, 2007 Ciprico enhanced theaddressable market for its enterprise-class RAIDCoreTM software suite forserver and workstation motherboards by announcing it now runs on market-leadingIntel® core logic chipsets as well as Intel compatible chip sets.  Intel is estimated to ship more than 75% ofall server chipsets. Prior to this, outside of the RAIDCore HBA family, thesoftware could only support the Broadcom HT1000 Serverworks core logic chipset. In the next fiscal year it is expectedthat the RAIDCore software will support additional chipsets and operatingsystems such as Marvell and AMD core logic along with Vista, Windows Server2008 and Apple OS X operating systems. In addition, host software based RAID 6and SAS Expansion features will be added to the RAIDCore core technology, enablinga new generation of products to be launched. We believe the Ciprico RAIDCoresoftware solution significantly increases the RAID performance and features ofmotherboards, eliminating more expensive and less powerful add-on RAIDcontroller cards. In addition, by virtualizing underlying hardware disk I/Oports, the RAIDCore software is able to offer seamless spanning of RAID arraysfrom the core logic to Ciprico’s line of RAIDCore HBAs, a feature unique toRAIDCore and Ciprico.

 

**(4)****                               ****Competition**

 

Our RAIDCore software only and HBA productscompete directly with 3Ware (a part of AMCC – Applied Micro CircuitsCorporation), LSI Logic, Promise and Adaptec, Inc. We believe a  software only RAID approach is still in theearly adoption phase in the data protection industry, putting Ciprico in aleadership position. . In addition, until motherboard manufacturer provide anincreased number of I/O ports there will continue to be a need for our RAIDCorecontroller cards (HBAs).

 

Our controller cards do not need their owndedicated processor as we rely on the much more robust host multi-coreprocessor. Our cards also do not need the memory or ASIC contained on ourcompetitor’s cards. Because of this we are able to offer our customers a lowerpriced RAID data protection solution.  Inaddition to a lower price for our product, our controller cards providesignificant energy savings. These energy savings are greatly increased if acustomer is able to use our software only solution. We also believe ourRAIDCore products provide better performance compared to the competitors.  Rather than any competitor, we believe thetime and resources necessary to achieve significant design-in wins and getthough customer approval cycles will be a key determinant of our sales growth.

 

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 havegreater engineering and development resources, marketing resources, financialresources, manufacturing capability, customer support resources and namerecognition. As a result, our competitors may have greater credibilitywith existing and potential customers. Our ability to compete successfully alsodepends upon our ability to recruit and retain key human capital capable ofcontinuing to expand our intellectual property. Although we believe that oursoftware platform has certain competitive advantages that are patentpending, there can be no assurances that we will be able to competesuccessfully in the future or that other companies may not developproducts with greater utility and thus reduce demand for our software products,or that we will not encounter increased price competition for our productofferings which could materially and adversely affect our operating results. Webelieve that our software approach, however, will allow us to adapt morequickly to industry changes and evolution than our competitors.

 

We also offer appliance product solutionsthat compete against well established companies with substantial sales channelorganizations. They may adopt more aggressive pricing policies and devotegreater resources to the development, promotion and sale of their products thanwe can to ours, which would allow them to respond more quickly to changes incustomer requirements. These competitive pressures may materially harm ourbusiness. The market for storage appliance solutions is highly competitive. 

 

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We compete against independent storage suppliers, including but notlimited to Apple Computer Inc., Avid Technology Inc., Dot Hill SystemsCorporation, Infortrend Technology, Inc., Xyratex, Ltd., Isilon SystemsInc., DataDirect Networks, BlueArc Corporation as well as numerousprivately-held companies including G Tech, Cal Digit and Facilis TechnologyInc.

 

**(5)****                               ****Manufacturing and Suppliers**

 

Our appliance product solutions aremanufactured utilizing both configure-to-order and inventory fulfillmentoperations models. Manufacturing activities for our products primarily involvequality assurance testing of subassemblies, final system assembly, integrationand final test. Our assembly operations are ISO 9001:2000 certified, located inSt Louis Park, Minnesota and are typical of the electronics industry with nounusual methods or equipment required. The sophisticated nature of some of ourproducts does, however, require extensive testing by skilled personnel.

 

Our storage appliance products are comprisedmainly of a controller, an enclosure, disk drives, power supply and othermiscellaneous parts. Although the subsystems are unique and not readilyavailable, they do contain many components that are industry standard partsthat are readily available from many suppliers at competitive prices. Ourcontroller board assemblies are purchased from ISO 9001 contract manufacturingcompanies, which manufacture the assemblies to our specifications. Thecompleted board assembly is subject to test procedures to insure productperformance, reliability and quality. The metal enclosure and power supply arespecified to our needs, but alternative sources for the components areavailable. Some of our DiMeda products are sourced as a fully integratedhardware solution from our supplier, with our software loaded at theirlocation.

 

Our RAIDCore controller boards are alsopurchased from third-party manufacturing services to take advantage of theinherent quality and cost benefits. We believe that using outsourcedmanufacturing services allows us to focus on product development and increasesoperational flexibility, thus allowing us to more rapidly introduce newproducts.

 

We depend heavily on our suppliers to providehigh quality materials on a timely basis and at reasonable prices. We have nolong-term supply contracts. There can be no assurance that we will be able toobtain, on a timely basis, all of the components we require. If we cannotobtain essential components as required, we could be unable to meet demand forour products, thereby materially adversely affecting our operating results andallowing competitors to gain market share. In addition, scarcity of suchcomponents could result in cost increases and adversely affect our operatingresults. Our principal suppliers are Seagate Technology, Inc., HitachiGlobal Storage Technologies, Bell Microproducts Inc., AIC (Advanced IndustrialComputer), and Gigabyte.

 

For certain components, such as disk drivesor controller boards, if we had to seek alternative sources of supply, theincorporation of such components from alternative suppliers and the manufactureand shipment of the our products could be delayed while modifications to suchproducts and the accompanying software were made to accommodate theintroduction of the alternative suppliers’ components. We estimate thatreplacing certain components, such as our controller board, or changingmanufacturers would involve several months of hardware and softwaremodifications and would disrupt sales.

 

**(6)****                               ****Customer Dependence**

 

Our products are sold to a broad base ofcustomers, in most cases through distribution. As a percentage of sales, onedistributor of our appliance products represented 11% and 13% of net sales infiscal 2007 and 2006, respectively. Thomson Broadcast Solutions, a direct salecustomer, represented 1% and 12% of net sales in fiscal 2007 and 2006,respectively.

 

**(7)****                               ****Patents and Trademarks**

 

While our success is not dependent on patentsand trademarks, it is important to us to protect our core technology andintellectual property. We rely primarily on a combination of copyright, tradesecret, patent and trademark laws as well as contractual provisions withemployees and third parties to establish and protect our intellectual propertyrights. Our products are provided to customers pursuant to agreements thatimpose restrictions on use and disclosure. Our agreements with our employeesand contractors who participate in the development of our core technology andintellectual property include provisions that assign any intellectual propertyrights to us. In addition, we generally control access to our proprietary andconfidential information through the use of internal and external controls.

 

The intellectual property exclusively licensed toCiprico from Broadcom as part of the Technology License and Asset PurchaseAgreement dated June 6, 2006 consists of a number of patents and patentapplications. In November 2005, apatent was awarded to Ciprico for Media Server with single chip storagecontroller. In March 2004, we were granted a patent relatedto the interprocessor communication technology suitable for use in highreliability / availability storage server products. We have also submitted twoadditional patent applications on certain key attributes of the TALON product. Weintend to pursue other patent applications to the extent we identifytechnologies or processes that may be patentable.

 

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We have obtained federal registrations forthe trademarks Ciprico®, TALON®, NETarray®, DiMeda®, and FibreSTORE® and have registration applicationspending for our trademarks MediaVaultTM, and vPODTM. As part of ourAgreement with Broadcom we have the rights to use the trademarks RAIDCoreTM,XelcoreTM, FulcrumTM and HyperraidTM.

 

**(8)****                               ****Government Approvals**

 

Certain of our products may incorporateencryption or other technology subject to the “dual use” export regulations asadministered by the U.S. Department of Commerce. We are not required to obtaingovernment approval of our products when they are not exported. Because ourcontroller cards and appliances contain electronics we do obtain properapprovals from certified testing agencies.

 

**(9)****                               ****Effect of GovernmentRegulations**

 

We do not believe that any existing orproposed governmental regulations not pertaining to export regulation will havea material effect on our business. Environmental regulation is addressed below.

 

**(10)****                        ****Research and New ProductDevelopment**

 

Weoperate in an industry subject to rapid technological change. Our goals inresearch and development are to develop industry leading features and functionsthat take advantage of the significant investments made in the development ofmulti-core processors. Our ability to achieve these goals is largely dependentupon our ability to anticipate and respond to change. We use engineering designteams that work cross-functionally with sales and marketing, systemengineering, suppliers, silicon chip manufacturers, and customers to developproducts and product enhancements. As part of our development strategy, weactively seek cooperative and co-development activities with industry leadersin the software, hardware, and systems businesses.

 

Our research and development expenses were$4.7 million and $3.7 million in fiscal 2007 and 2006, respectively. All of ourresearch and development expenditures are expensed as incurred. During fiscal2007 we have hired substantially all of the current research and developmentteam. The new skills are predominantly software development skills with focuson abilities in the multi-core processing area.

 

In fiscal 2007 and 2006 we provided softwareand hardware design services for certain customers. We were paid a total ofapproximately $300,000 and $900,000 in fiscal 2007 and fiscal 2006,respectively for this work. We also outsourced some development although thiswork was at our direction and supervised by our engineers.

 

The majority of our research and developmentexpenses in the past year were focused on the further development of theRAIDCore software.  As a result of theseinvestments we were able to produce one of the industry’s first PCI Express andPCI-X SAS/SATA RAID controller cards, complete integration of the RAIDCoresoftware into a major OEM’s new iSCSI storage appliance, introduce a newMediaVault product based on the RAIDCore technology, and complete the softwareporting and announce the compatibility of RAIDCore software with the Intel chipset. We expect to continue to transition all of our appliance products over toRAIDCore based technology as well as to continue with enhancements andadditional features in our RAIDCore product line.

 

**(11)****                        ****Environmental Regulation**

 

Compliance with present federal, state andlocal provisions regulating the discharge of material into the environment, orotherwise relating to the protection of the environment, has not had and is notexpected to have any material effect upon our capital expenditures, earnings orcompetitive position. All of our products for the European market are compliantwith the European Union doctrine - ROHS (Restriction of Hazardous Substances)and the WEEE (Waste Electrical and Electronic Equipment) protocol.

 

**(12)****                        ****Employees**

 

As of November 30, 2007, we had 76 fulltime equivalents of which 64 were employees (63 full-time). Full timeequivalents include contracted personnel used to meet shorter-term goals. Ofthe 76: 33 were in engineering, research and development and technical support,25 in sales, marketing and customer service, 8 in manufacturing, operations andquality assurance, and 10 in general management, accounting, informationsystems and administration. None of our employees are represented by a laborunion. We have experienced no work stoppages and believe that our employeerelations are satisfactory.

 

We believe that the future success of ourbusiness will depend in part on our ability to attract and retainqualified technical, management and sales and marketing personnel. Suchexperienced personnel are in demand, and we must compete for their serviceswith other firms, which may be able to offer more favorable benefits.

 

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**ITEM 2.****                                                     DESCRIPTIONOF PROPERTY**

 

In October, 2007 we moved our administrativeheadquarters, research and development, and manufacturing to a single site inSt. Louis Park, Minnesota, totaling approximately 20,600 square feet. Thisfacility is leased under an operating lease through November 2014. Thelease provides for monthly base rental payments of approximately $22,000 throughNovember 2008 with increases of approximately 2% each subsequent 12-monthperiod.  Additionally, we are responsiblefor our proportionate share of real estate taxes and operating expensesassociated with operating the facility which approximate $5,000 per month, asdefined by the lease agreement.

 

In July of 2006 we entered into a leasefor approximately 4,800 square feet in Agoura Hills, California for sales andservice. The lease expires in October 2011 and provides for gross rentalpayments of approximately $9,900 per month with increases of approximately 3%in each subsequent 12-month period.

 

We believe that our existing facilities andequipment are well maintained and in good operating condition. We own all ofthe equipment used in our operations. Such equipment consists primarily ofmanufacturing and test equipment, tools, fixtures and computer hardware andsoftware.

 

The Company invests its excess cash incommercial paper, government agencies and other asset-backed short terminvestments which include participation loans in real estate mortgages forfirst and/or second mortgages for residential, commercial and developmentproperties.

 

**ITEM 3.****                                                     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.

 

**ITEM 4.****                                                     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.

 

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**PART II**

 

**ITEM 5.****                                                 MARKETFOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUERPURCHASES OF EQUITY SECURITIES.**

 

STOCK TRADING:

 

Ciprico common stock is traded on the NASDAQNational Market under the symbol CPCI. As of November 30, 2007, there wereapproximately 1,100 stockholder accounts of record. Closing stock sale priceranges for the years ended September 30, 2007 and 2006, were:

 
| ** **  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| **Quarter** | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| First       |       | $        | 6.05       |     | $          | 4.50 |   | $ | 5.66 |   | $ | 4.12 |   |
| Second      |       | 8.09     |       | 5.91     |       | 6.12 |   | 5.47 |   |
| Third       |       | 8.30     |       | 7.33     |       | 6.37 |   | 5.77 |   |
| Fourth      |       | 8.35     |       | 7.09     |       | 6.04 |   | 4.08 |   |
|             |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

We have not, and do not intend to pay cashdividends on any of our securities for the foreseeable future. We made no salesof unregistered securities, and made no repurchase of equity securities, duringthe year ended September 30, 2007.

 

The following chart compares the cumulativetotal stockholder return on the Company’s Common Stock with the S&PSmallcap 600 Index and the S&P Computer Storage & PeripheralsIndex. The comparison assumes $100 was invested on September 30, 2002 inthe Company’s Common Stock and in each of the foregoing indices and assumesreinvestment of dividends.

 

 
| ** **                                           | ** ** | **9/02**   | ** ** | **9/03**   | ** ** | **9/04**   | ** ** | **9/05**   | ** ** | **9/06**   | ** ** | **9/07**   | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Ciprico  Inc.**                                    | ** ** | **100.00** | ** ** | **169.49** | ** ** | **123.39** | ** ** | **152.08** | ** ** | **152.54** | ** ** | **254.24** | ** ** |
| **S&P  Smallcap 600**                            | ** ** | **100.00** | ** ** | **126.86** | ** ** | **158.03** | ** ** | **191.56** | ** ** | **205.28** | ** ** | **235.93** | ** ** |
| **S&P  Computer Storage & Peripherals** | ** ** | **100.00** | ** ** | **230.96** | ** ** | **236.76** | ** ** | **241.96** | ** ** | **247.74** | ** ** | **303.15** | ** ** |

 
| Copyright © 2007 Standard & Poor’s,  a division of The McGraw-Hill Companies, Inc. All rights reserved. |
|---------------------------------------------------------------------------------------------------------------------------------|
| www.researchdatagroup.com/S&P.htm                                                                                           |

 

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EQUITYCOMPENSATION PLAN INFORMATION: -See Item 11.

 

**ITEM 6.****                                                     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion and analysis of thefinancial condition and results of operations of Ciprico Inc. should be read inconjunction with the Financial Statements and the Notes thereto, includedelsewhere in this Annual Report on Form 10-KSB.

 

**Company Transition**:

Currently Ciprico is in transition from beinghardware product centric to software product centric. The Company hastraditionally sold hardware products incorporating proprietary software. Ourlegacy products are seeing significant competition from low cost producers thatin some environments offer a solution that is “good enough”, negating some ofthe advantages our products have relied on for market penetration. The Companyis also changing and expanding the markets it addresses.  In the years prior to fiscal 2007, our largestmarket was the Broadcast market. As we did not keep up with requiredtechnological changes our sales in this market have declined substantially overthe past several years. Our new engineering talent and focus on RAIDCoresoftware allows us to address a much larger market including the largeenterprise market and particularly the growing SMB (small to medium business)marketplace. Our transition to emphasizing software has been driven by severalcatalysts: the purchase of the RAIDCore software product line from Broadcom in June 2006,the expanding market for data protection, technology improvements by chipmakers (principally the deployment of multi-core processors), and thetransition of our engineering talent.

 

As a leader in the RAID technology field,Ciprico is now introducing virtualized RAID. The Company is focused on atechnology solution that does with host-based software what has beentraditionally been done with expensive, dedicated hardware. Our softwaredevelopment leverages massive investments by processor and chipsetmanufacturers in multi-core processor environments. Our RAIDCore software usesthe power and speed of the host multi-core processor to perform the RAIDdata protection function. Our software is designed to be silicon agnostic,meaning it is portable to any processor or platform.  We believe this allows for great expansion ofthe applicability of RAID data protection. We believe the need and awarenessfor data protection is growing rapidly as both the amount of data being storedand the amount that can be stored on a single disc drive is increasing.

 

Not only is the emphasis of the Companychanging, the way the product is going to market is also changing. By the endof the next fiscal year we anticipate all revenue will be based on the RAIDCoresoftware. This software is delivered to customers in 3 ways:

 

1)                                      **Software only** - via electronic distribution to OEMs andmotherboard vendors. This allows for distribution via the Web of new copies,upgrades from one level of protection to another, upgrades from one version toanother or additional features or data management tools.

2)                                      **Controller Cards (HBAs)**– when a customer has need of aphysical controller card (required when additional I/O ports are needed)customers can purchase our RAIDCore software based controller card that has keycompetitive advantages: the Ciprico HBA is 40-60% less in cost versushardware-based solutions as it does not require a dedicated processor, memoryor custom ASIC. In addition, we believe our card performs better than thecompetition because it uses the speed and capacity of the host processor. Italso a “green” alternative in that it requires far less energy to power andcool versus traditional hardware based products. This product is distributedthrough national distributors such as Bell Microproducts and Avnet.

3)                                      **Appliance Products**–our current appliance products,MediaVault, DiMeda, and TALON will be transitioned to include RAIDCore softwareas a key differentiator. The first RAIDCore based MediaVault product wasintroduced in September, 2007. We believe a key to our short term success is the revitalization of theseproducts. By utilizing industry standard components integrated with ourRAIDCore software, we can offer price competitive products with improvedfeatures, functions and performance. We anticipate that this will allowapplicability beyond our traditional reach into Video and Media markets andgives us significant opportunity in the general IT marketplace.

 

During fiscal 2007 we made significantinvestments in human capital with the addition of experienced talent in keymanagement roles, engineering, sales and marketing. The Company’s President andCEO, Senior VP of Development and Marketing, as well as the Chief Engineer allcame on board late in the first quarter of this year. All but two members ofthe current engineering team were added in fiscal 2007. The entire RAIDCoresales force was added in the last half of the fiscal year after we were assuredengineering could execute on the technology roadmap. The VP of RAIDCore sales,as well as his entire team are seasoned, industry experienced sales andmarketing personnel. Their industry experience includes time at our directcompetitors. We believe we have assembled a team with the right skills andexperience to facilitate a change in how RAID data protection is delivered inthe marketplace. Because of their experience in the industry, a major factor inthe decision of these sales people in joining the Company related to theopportunity to have an impact on the data protection marketplace by doing insoftware what has previously been done with hardware.

 

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We believe the timing is right for our transition to focus on asoftware based approach from a number of standpoints:

 

**Customer opportunity**– the RAID controller marketplace is shifting to SAS/SATA and we are deliveringthis technology. We believe that with our software approach we provide a lowertotal cost of ownership with both upfront cost savings and lower energy usage.

**Technology opportunity**– the investments made by the processor and chipset manufactures in multi-coreprocessors environment has facilitated our move to providing host basedsoftware RAID protection. With continued processor performance improvements andmore features being integrated into the chipsets our host based software uses avery small incremental percent of the server or workstation processor cycles. Wevirtualize the I/O ports within a RAID system and are agnostic as to whichsilicon we run on.

**Marketplace opportunity**– the need and awareness of data protection is growing rapidly, particularly inthe SMB (small to medium business) marketplace, creating an opportunity for oursoftware model to become ubiquitous by providing a base level of protectionthat is upgradeable.

**Distribution opportunity**– using a secure software key, we are in the process of being able to offerdistribution of our software via the web. When our base software is put down onmotherboards, customers can upgrade their level of RAID protection via the web.In addition, this is a vehicle to provide updates and more advanced datamanagement software to our customers.

 

**Liquidity and capital resources**:

As of September 30, 2007, we had a total ofcash, cash equivalents, marketable securities and asset-backed short-term investmentsof $4.6 million compared to $11.0 million at the end of 2006. Cash flows used in operating activities were$5.9 million and $4.2 million in 2007 and 2006, respectively. The use of cashfor operations for both years reflects the net loss and the impacts ofdepreciation and changes in working capital.  In addition to the use of cash in operations,the change in total cash and investments between 2007 and 2006 relates to cashfrom option exercises and capital expenditures.

 

We have made significant investments in newmanagement, research and development talent, developing a significant testinglab, and more recently in sales and marketing. As part of the transitionof the Company many of these expenditures are by necessity in advance of therevenues that will be generated by the associated activities.

 

Because of these investments and the time torevenue given the required design-in cycles of customers, we believe our cashposition at September 30, 2007 was not sufficient to execute our strategicplan. Therefore on December 26, 2007 we entered into a financingarrangement whereby the Company would have access to funds to allow the Companyto execute on its strategic plan. This financing arrangement is in the form ofa convertible note with a total principal amount of $5.1 million and a maturitydate of March 26, 2009. The financing does provide for additional closingsif additional funds are sought and secured. Our intention is that we wouldenter into further closings only if they occurred in the very near term. Theloan provides for an interest rate of LIBOR plus 6%. The loan has a conversionfeature for both principal and interest at the lender’s option. The conversionprice of $3.86 per share was set at the market rate prior to the closing date. Inaddition, lenders receive warrants for the purchase of additional shares at arate of $0.25 for each $1.00 of principal converted to shares at the samemarket conversion rate noted above. The Company is also planning an additionalcapital raising event in 2008. The specifics of the convertible note financinghave been disclosed via a Form 8-K filing.

 

With access to the capital referred toabove, we believe that current cash balances and cash generated from operationswill be adequate to fund requirements for operating losses, working capital andcapital expenditures in fiscal 2008. We believe that we are making theappropriate investments now that will allow us to double our revenues in fiscal2008 (over fiscal 2007) and attain profitability in 2009. The timing of whenprofitability is achieved in fiscal 2009 is dependent on the mix of business. Weare dependent on a substantial increase in sales to be able to achieveprofitability.

 

Capital expenditures were$791,000 in 2007 versus $94,000 in 2006, and relate to equipment purchases orsmall leasehold improvements.   Weanticipate that capital expenditures and related expenses for productdevelopment activities in 2008 will approximate $500,000.  Some of our development work may becomereimbursable via non-recurring engineering fees we anticipate receiving fromcertain customers.

 

In October 2007 we exercised our optionto vacate our 39,000 sq. ft Plymouth, MN facility in order to right size ourlease commitment. Our new corporate headquarters in St. Louis Park, MN consistsof 20,500 sq ft and we have lease commitments, including base rents andoperating costs, of approximately $250,000 annually.  The lease expires in November of 2014.  In addition, we have lease commitments on ourCalifornia office of approximately $125,000 annually through October 2011.

 

**Net sales**:

In the past we have tracked our sales toparticular markets to the best of our ability given that majority of our salesare through distribution and therefore in many cases we do not know thespecific market our products are being used in. As we sell more of oursoftware-only products to motherboard manufacturers and HBA products to systembuilders we will have less insight as to which marketplace our productultimately reaches the end user.  Therefore for fiscal 2008 we intend to focuson segregating sales of just our software and related upgrades (including wherethis software is delivered as an HBA) from those sales where the software isintegrated as part of an appliance sale.

 

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For purposes of this analysis of our netsales for the past two fiscal years we have separated sales into the followingmarket categories:

(in millions):

 
| ** **                      | ** ** | **2007**  | ** ** | **2006**             | ** ** |
|---------------------------------|------------|-----------|------------|----------------------|------------|
| **Market**                      | ** ** | **Sales** | ** ** | **% of  Total** | ** ** | **Sales** | ** ** | **% of  Total** | ** ** |
| Digital Media  Content Creation |       | $         | 4.7        |                 | 54.2       | % | $ | 6.2 |   | 52.1 | % |
| Broadcast                       |       | 1.0       |       | 11.2                 |       | 2.8 |   | 23.5 |   |
| Enterprise                      |       | 0.8       |       | 9.0                  |       | 0.2 |   | 1.7 |   |
| Military &  Government |       | 2.2       |       | 25.6                 |       | 2.5 |   | 21.0 |   |
| Other                           |       | 0.0       |       | 0.0                  |       | 0.2 |   | 1.7 |   |
| Total                           |       | $         | 8.6        |                 | 100        | % | $ | 11.9 |   | 100 | % |

 

Sales for 2007 decreased 28% from 2006 sales,which is due to:

•                  Decreasesin sales of our older legacy products as the technology ages – these sales wereconcentrated in the Broadcast and Military & Government markets;

•                  Decreasesin the sales of our older MediaVault products primarily due to low costcompetition, along with aging technology – these sales were primarily in theDigital Media Content Creation markets;

•                  Increasein competition in the Content Creation market from solutions not specificallydesigned for this market but with enough features to be usable;

•                  Onlyslightly offsetting the above points is the increase in the Enterprise marketrelated to the first meaningful sales of RAIDCore software and Controller cards(HBAs) primarily in the enterprise market; and

•                  Inaddition, the first  RAIDCore basedMediaVault, the 5100 series had it first sales in September 2007

 

Many of our current appliance products arescheduled for revitalization by use of the RAIDCore software platform. Webelieve this will allow for industry competitive features and functions atattractive price points, allowing us to be a significant player in the DigitalMedia Content Creation marketplace. Our solutions are designed to meet thespecific needs of these customers. We also believe that we have and aredeveloping applications that are critical to the stages in the digital workflowprocess, including capture, management, archival and distribution of digitalassets. Some of these solutions may also find applicability in the Broadcastmarket, however this is not a market in which we are currently investing newproduct development efforts.

 

We believe sales in the Military andGovernment market will also increase in fiscal 2008 over 2007 due to theappliance product revitalization which will include our customized andruggedized TALON product. Sales in this market are dependent upon the actualappropriation and funding of government programs that specify our products. Salesin the Military market have historically fluctuated due to the timing ofspending on defense-related programs. We believe that we can leverage ourtechnology to satisfy certain customers in this market that could involvemultiple year contracts.

 

We believe that because our RAIDCore softwareis enterprise class it has many applications in the Enterprise market.Part of our strategy is to provide a number of motherboard manufacturerswith a software only base level RAID offering, with the ability of systemsbuilders or others in the channel, as well as end-users to purchase upgrades tohigher levels of protection via the internet.

 

The fourth quarter of fiscal2007 marked the first time this fiscal year that MediaVault product line salesincreased quarter over quarter. This was due in small part to theintroduction of the first MediaVault RAIDCore based product.  In addition, the fourth quarter saw the firstmeaningful sales from RAIDCoreTM software license and related RAIDCoreTMcontroller cards (HBAs). While we are pleased with some short term revenuegrowth and the initial traction of the RAIDCore software and controller cardsales, we understand the investment of time and resources needed to drive thedesign-in wins needed to grow our revenues. RAIDCore evaluation samples are inthe hands of a large number of potential customers and partners. We are workingwith these customers to help them accelerate their qualification and design-inprocess.

 

As we gain momentum in the marketplace our revenues may be erraticin the near term. As a result of investments in development and sales andmarketing we expect strong growth in 2008. We anticipate our revenues doublingfrom fiscal 2007 levels as we realize sales from our RAIDCore software andrevitalized appliance products. We also believe our growth will be supported bysignificant growth in our international sales as we have invested in resourcesto assist us in these marketplaces, including our agreement with PIE (PartnersIn Europe) announced in September 2007.

 

16

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**Cost of sales and gross profit**:

Gross profit, as a percentage of net sales,was 33% in 2007 and 36% in 2006. The 2007 percentage was adversely affected bylower volumes of sales and inventory charges related to our legacy products,offset by the slightly higher gross margin percentages related to the RAIDCoresoftware and controller card sales.  Gross profit on appliance product sales ishighly dependent on the cost of various components including disk drives and may fluctuatefrom quarter to quarter. We expect to experience continued competitivepressures on gross profit margins throughout fiscal 2008 in our applianceproduct sales. We intend to partially offset these margin pressures through therevitalization of the appliance products, transforming them to make use of theRAIDCore software. In addition we should realize some cost reductions relatedto the use of industry standard component. Software-only product sales and theRAIDCore solutions product line carry higher gross margin percentages andshould have a favorable impact on gross margin in fiscal 2008

 

**Research and development expenses**:

Research anddevelopment expenses increased approximately $1.0 million or 27% compared tothe previous year. Only two members of the current research and developmentstaff were present at the beginning of the current fiscal year. The Company hasbeen able to hire top notch engineering talent without paying above marketprices. Although the actual number of employees in this area of the Company hasnot changed much from the previous year the skill set has changed dramaticallyand this has increased our average engineering employee expenses. In additionthere were a number of consultants that assisted development efforts throughout the year.

 

Thequality of the staff is reflected in the fact they have been able to meetvirtually all of their development deadlines and allowed for a number of key technologyannouncements including:

•                  RAIDCore software suite  running onIntel chipsets (ICH 7,8,9 & ESB2)

•                  New MediaVault models 5100 series based on RAIDCore software

•                  Improvements to existing MediaVault products

•                  New version of the RAIDCore code

•                  Integration into H3C Technologies iSCSI servers for SMB market

•                  2.2 Gig/sec Raid Performance – critical forhigh data rate transfer

•                  Vista support

 

Our team has expertise in working inmulti-core processing environments as well as working with storagevirtualization. We believe these are key advantages as chipset manufacturerscontinue massive investments in multi-core technology and storage virtualizationbecomes widely used.

 

**Sales and marketing expenses**:

Sales and marketing expenses increasedapproximately $900,000 or 31% compared to the previous year. The sales andmarketing team is substantially larger than it was in the previous year with mostof the resources being added in the last four months of fiscal 2007. Substantiallyall of the increase in costs and personnel relate to the RAIDCore sales team. Weexpect to incur substantially more expense in this area in fiscal 2008 as allpersonnel will be in place for a full year. With lead time for design-in winsand customer qualifications ranging from 60 days to nine months, we believe itis critical to begin the investment in this area now in order to fulfill oursales goals later in fiscal 2008 and beyond. The vast majority of sales andmarketing personnel hired this year come with extensive industry experience andspecific experience with our key competitors, 3 Ware (AMCC), LSI Logic, andAdaptec. In addition, we expect marketing expenses to increase in absolutedollars during fiscal 2008 as a result of business development costs associatedwith the RAIDCore product line.

 

**General and administrative expenses**:

General and administrative expenses increased$687,000 from 2006. This net increase is a result of many factors including:costs related to hiring of new President and CEO, costs for former CEO who wasunder contract until September 30, 2007, stock option expense asfiscal 2007 was the first year that the Company was required to expense stockoptions, and some cost related to IT infrastructure upgrades (apart fromthose capitalized).  In addition, and asnoted in last year’s report, we expected and did see expenses increase infiscal 2007 due to higher insurance costs, increased costs to ensureregulatory compliance, increased accounting and audit fees, and costs toimplement a new accounting, manufacturing and sales system. We do not expect tosee substantial increase in general and administrative costs in fiscal 2008except for costs related to the completion of our new system implementation andcosts related to compliance with section 404 of Sarbanes Oxley.

 

**Loss from operations**

Total operating expenses for the fiscal year were $11.3 million,compared to operating expenses of $8.7 million for the prior fiscal year, dueto the investment in new management, sales, marketing and engineeringtalent. For the fiscal year the operatingloss was $8.5 million compared to a loss of $4.3 million in the previous fiscalyear. We believe comparisons to the prior year are not entirely meaningful,because  the Company is in transitionfrom hardware-centric to software-centric products, over 80% of the Companypersonnel are new in the last 12 months, and the product lines are in variousstages of transition. Our profitability will continue to be impacted bythe investments we are making in order to aggressively bring our RAIDCoretechnology to market and increase our revenue. This revenue growth and changein mix of revenue source is anticipated to position Ciprico to return toprofitability in fiscal year 2009.

 

17

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**Other income**:

Other income of $473,000 and $660,000 infiscal 2007 and 2006, respectively, is primarily attributable to interestincome on cash and marketable securities. The decrease for 2007 is directlytied to lower principal balances, despite the increase in overall rate ofreturn on investments.

 

**Income tax expense**:

For fiscal2007 we recognized income tax expense related to the difference in how goodwillis treated for tax purposes from how it is treated for financial statementpurposes. See Note 4 to the Financial Statements*.*

 

**New accounting pronouncements**:

In July 2006, the FASB issued FASBInterpretation No. 48 (“FIN 48”), *Accounting for Uncertaintyin Income Taxes - an interpretation of FASB Statement 10*9. FIN 48prescribes a comprehensive model for recognizing, measuring, presenting anddisclosing in the financial statements tax positions taken or expected to betaken on a tax return, including the decision whether to file or not to file ina particular jurisdiction. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006, in the Company’s case for the fiscal year ending September 30,2008. If there are changes in net assets as a result of application of FIN 48these will be accounted for as an adjustment to retained earnings. The Companydoes not believe this will result in any material impact to its financialstatements.

 

In September 2006, theFASB issued SFAS No. 157, *FairValue Measurements.* This statement does not require any new fairvalue measurement, but it provides guidance on how to measure fair value underother accounting pronouncements. SFAS No. 157 also establishes a fairvalue hierarchy to classify the source of information used in fair valuemeasurements. The hierarchy prioritizes the inputs to valuation techniques usedto measure fair value into three broad categories. This standard is effectivefor the Company on October 1, 2008. The Company is currently evaluatingthe impact of this pronouncement on its consolidated financial statements.

 

In February 2007, theFASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities.*SFAS No. 159 permits companies to choose to measure certain financialinstruments and certain other items at fair value. The election to measure thefinancial instrument at fair value is made on an instrument-by-instrument basisfor the entire instrument, with few exceptions, and is irreversible. SFAS No. 159is effective for the Company on October 1, 2008. The Company is currentlyevaluating the impact of this pronouncement on its consolidated financialstatements.

 

18

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**ITEM 7.****                                                   FINANCIALSTATEMENTS**

 

BALANCE SHEET

Ciprico Inc.

Amounts in thousands, except share data

 
| **September 30**                                  | ** ** | **2007** | ** ** |
|--------------------------------------------------------|------------|----------|------------|
|                                                   |       |     |       |
| **ASSETS**                                             |       |     |       |
|                                                   |       |     |       |
| CURRENT  ASSETS:                                       |       |     |       |
| Cash and  cash equivalents                             |       | $        | 1,271      |   |
| Marketable  securities and short term investments      |       | 3,279    |       |
| Accounts  receivable, less allowance of $127           |       | 838      |       |
| Inventories                                            |       | 1,815    |       |
| Other  current assets                                  |       | 24       |       |
| Total  current assets                                  |       | 7,227    |       |
|                                                   |       |     |       |
| PROPERTY AND  EQUIPMENT, AT COST:                      |       |     |       |
| Furniture  and fixtures                                |       | 515      |       |
| Equipment                                              |       | 3,694    |       |
| Construction  in process                               |       | 248      |       |
| Leasehold  improvements                                |       | 637      |       |
|                                                   |       | 5,094    |       |
| Accumulated  depreciation and amortization             |       | (4,334   | )          |
| Net property  and equipment                            |       | 760      |       |
|                                                   |       |     |       |
| GOODWILL                                               |       | 2,784    |       |
| OTHER  INTANGIBLES, NET                                |       | 34       |       |
| OTHER ASSETS                                           |       | 47       |       |
|                                                   |       | $        | 10,852     |   |
|                                                   |       |     |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**         |       |     |       |
|                                                   |       |     |       |
| CURRENT  LIABILITIES:                                  |       |     |       |
| Accounts  payable                                      |       | $        | 1,286      |   |
| Accrued  compensation                                  |       | 525      |       |
| Warranty  accrual                                      |       | 154      |       |
| Other  accrued expenses                                |       | 369      |       |
| Deferred  revenue                                      |       | 60       |       |
| Total  current liabilities                             |       | 2,394    |       |
|                                                   |       |     |       |
| LONG TERM  LIABILITIES:                                |       |     |       |
| Deferred tax  liability                                |       | 132      |       |
|                                                   |       |     |       |
| STOCKHOLDERS’  EQUITY:                            |       |     |       |
| Common  stock, 5,112,644 shares issued and outstanding |       | 51       |       |
| Additional  paid-in capital                            |       | 37,208   |       |
| Retained  deficit                                      |       | (28,433  | )          |
| Deferred  compensation from restricted stock           |       | (500     | )          |
| Total stockholders’  equity                       |       | 8,326    |       |
|                                                   |       | $        | 10,852     |   |

 

THE ACCOMPANYING NOTES ARE ANINTEGRAL PART OF THIS FINANCIAL STATEMENT.

 

19

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STATEMENTS OF OPERATIONS

Ciprico Inc.

Amounts in thousands, except per share amounts

 
| **Years ended September 30**   | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                     |       | $        | 8,605      |     | $          | 11,932 |   |
| Cost of  sales                                |       | 5,762    |       | 7,590    |       |
| Gross profit                                  |       | 2,843    |       | 4,342    |       |
| Operating  expenses:                          |       |     |       |     |       |
| Research and  development                     |       | 4,715    |       | 3,714    |       |
| Sales and  marketing                          |       | 3,972    |       | 3,013    |       |
| General and  administrative                   |       | 2,634    |       | 1,936    |       |
| Total  operating expenses                     |       | 11,321   |       | 8,663    |       |
| Loss from  operations                         |       | (8,478   | )          | (4,321   | )          |
|                                          |       |     |       |     |       |
| Other income  net, primarily interest         |       | 469      |       | 660      |       |
| Loss before  income taxes                     |       | (8,009   | )          | (3,661   | )          |
|                                          |       |     |       |     |       |
| Income tax  expense (benefit)                 |       | 65       |       | —   |       |
| Net loss                                      |       | $        | (8,074     | )        | $          | (3,661 | ) |
| Shares used  to calculate net loss per share: |       |     |       |     |       |
| Basic and  diluted                            |       | 5,071    |       | 4,916    |       |
|                                          |       |     |       |     |       |
| Net loss per  share:                          |       |     |       |     |       |
| Basic and  diluted                            |       | $        | (1.59      | )        | $          | (0.74 | ) |

 

STATEMENTS OF STOCKHOLDERS’ EQUITY

Ciprico Inc.

Amounts in thousands, except share data

 
| **Years ended September 30, 2007 and 2006** | ** ** | **Shares** | ** ** | **Common  stock and  additional  paid-in-  capital** | ** ** | **Retained  deficit** | ** ** | **Deferred  compensation  from  restricted  stock** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|-----------------------|------------|-----------------------------------------------------|------------|-----------|------------|
|                                                                      |       |       |       |                                                      |       |                  |       |                                                |       |      |       |
| Balance, September 30,  2005                                         |       | 4,783,457  |       | 35,335                                                    |       | (16,698               | )          | (5                                                  | )          | 18,632    |       |
|                                                                      |       |       |       |                                                      |       |                  |       |                                                |       |      |       |
| Employee  plan stock purchases                                            |       | 16,749     |       | 82                                                        |       | —                |       | —                                              |       | 82        |       |
| Exercise of  employee stock options                                       |       | 146,525    |       | 627                                                       |       | —                |       | —                                              |       | 627       |       |
| Restricted  stock issued                                                  |       | 68,500     |       | 396                                                       |       | —                |       | (396                                                | )          | —    |       |
| Amortization  of restricted stock                                         |       | —     |       | —                                                    |       | —                |       | 29                                                  |       | 29        |       |
| Net loss                                                                  |       | —     |       | —                                                    |       | (3,661                | )          | —                                              |       | (3,661    | )          |
| Balance, September 30,  2006                                         |       | 5,015,231  |       | 36,440                                                    |       | (20,359               | )          | (372                                                | )          | 15,709    |       |
|                                                                      |       |       |       |                                                      |       |                  |       |                                                |       |      |       |
| Employee  plan stock purchases                                            |       | 2,913      |       | 18                                                        |       | —                |       | —                                              |       | 18        |       |
| Exercise of  employee stock options                                       |       | 44,800     |       | 149                                                       |       | —                |       | —                                              |       | 149       |       |
| Restricted  stock issued                                                  |       | 49,700     |       | 372                                                       |       | —                |       | (372                                                | )          | —    |       |
| Stock option  expense                                                     |       | —     |       | 280                                                       |       | —                |       | —                                              |       | 280       |       |
| Amortization  of restricted stock                                         |       | —     |       | —                                                    |       | —                |       | 244                                                 |       | 244       |       |
| Net loss                                                                  |       | —     |       | —                                                    |       | (8,074                | )          | —                                              |       | (8,074    | )          |
| Balance, September 30,  2007                                         |       | 5,112,644  |       | 37,259                                                    |       | (28,433               | )          | (500                                                | )          | 8,326     |       |

 

THE ACCOMPANYING NOTES ARE ANINTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

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STATEMENTS OF CASH FLOWS

Ciprico Inc.

Amounts in thousands

 
| **Years ended September 30**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash Flows  from Operating Activities:                                             |       |     |       |     |       |
| Net loss                                                                           |       | $        | (8,074     | )        | $          | (3,661 | ) |
| Adjustments  to reconcile net loss to net cash flows used in operating activities: |       |     |       |     |       |
| Depreciation  and amortization                                                     |       | 401      |       | 321      |       |
| Compensation  related to stock transactions                                        |       | 525      |       | 28       |       |
| Loss on sale  of furniture and equipment                                           |       | 4        |       |     |       |
| Changes in  operating assets and liabilities, net of assets acquired:              |       |     |       |     |       |
| Accounts  receivable, net                                                          |       | 608      |       | (320     |       |
| Inventories                                                                        |       | 110      |       | (201     | )          |
| Other assets                                                                       |       | 158      |       | 87       |       |
| Accounts  payable                                                                  |       | 76       |       | 79       | )          |
| Accrued  expenses                                                                  |       | 349      |       | (428     | )          |
| Deferred  revenue                                                                  |       | (18      | )          | (80      | )          |
| Net cash  flows used in operating activities                                       |       | (5,861   | )          | (4,175   | )          |
| Cash Flows  from Investing Activities:                                             |       |     |       |     |       |
| Equipment  purchases                                                               |       | (791     | )          | (94      | )          |
| Business  acquisition                                                              |       |     |       | (1,495   | )          |
| Purchase of  marketable securities                                                 |       | (4,454   | )          | (6,486   | )          |
| Proceeds  from sale or maturity of marketable securities                           |       | 8,654    |       | 11,804   |       |
| Net cash  flows provided by investing activities                                   |       | 3,409    |       | 3,729    |       |
| Cash Flows  from Financing Activities:                                             |       |     |       |     |       |
| Proceeds  from issuance of common stock                                            |       | 166      |       | 709      |       |
| Net cash  flows provided by financing activities                                   |       | 166      |       | 709      |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents                              |       | (2,286   | )          | 263      |       |
| Cash and  Cash Equivalents at Beginning of Year                                    |       | 4,357    |       | 4,094    |       |
| Cash and  Cash Equivalents at End of Year                                          |       | 1,271    |       | 4,357    |       |
| Marketable  Securities—Current                                                |       | 3,279    |       | 6,679    |       |
| Marketable  Securities—Long-term                                              |       | —   |       | —   |       |
| Total Cash  and Investments at End of Year                                         |       | $        | 4,550      |     | $          | 11,036 |   |

 

THE ACCOMPANYING NOTES ARE ANINTEGRAL PART OF THIS FINANCIAL STATEMENT.

 

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NOTES TO FINANCIAL STATEMENTS

Ciprico Inc. – For the Fiscal Years ending on September 30, 2007and 2006

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BUSINESS: The principal business activity ofCiprico Inc. (the Company) is the creation and design, manufacture andmarketing of storage solutions for digital media assets throughout the UnitedStates and internationally.

 

ACCOUNTING ESTIMATES: In the preparation ofthe Company’s consolidated financial statements in accordance with accountingprincipals generally accepted in the United States of America, management isrequired to make estimates and assumptions that affect the reported amounts ofassets and liabilities and related revenue and expenses. Actual results coulddiffer from those estimates used by management.

 

REVENUE RECOGNITION: The Company recognizesrevenue in accordance with:

•                  StaffAccounting Bulletin No. 101, *Revenue Recognition in FinancialStatements*, issued by the United States Securities and ExchangeCommission as amended by Staff Accounting Bulletin No. 104;

•                  Statementof Position (“SOP”) No. 97-2, *Software RevenueRecognition*, issued by the American Institute of Certified PublicAccountants and interpretations;

•                  AICPASOP No. 98-9, *Modification of SOP 97-2,Software Revenue Recognition, With Respect to Certain Transactions*;

•                  SOP No. 81-1, *Accountingfor Performance of Construction-Type and Certain Production-Type Contracts*,issued by the AICPA;

•                  Financial Accounting Standards Board (“FASB”)Emerging Issues Task Force (“EITF”) EITF 00-21, *RevenueArrangements with Multiple Deliverables*.

 

Materiallyall of revenue to date has been from the sale of product solutions as a resultof a customer purchase order. As it is clear that an arrangement exists, thefee is fixed and determinable, and collection is reasonably assured, theCompany recognizes revenue upon shipment of product. The Company’s softwaresales to date do not involve any undelivered elements. When the Company entersinto services contracts based on time and materials, revenue isrecognized when these services are provided. If the Company enters into arrangements in which the customer paymentsare tied to specific milestones, the Company applies the provisions of SOP81-1. The Company is offering its software platform under licensingarrangements and recognizes revenue upon shipment of the software or upon useby the customer in a per unit arrangement, provided there are no other materialundelivered elements.

 

Though the Company has notsold a licensing agreement with multiple elements to date, if a licensingarrangement does include other elements such as maintenance or other consultingservices, it is considered a multiple-element arrangement and the Companyaccounts for the software license component using the residual method. Theresidual method generally requires recognition of software license revenue in amultiple-element arrangement once all software products have been delivered andaccepted by the customer and the only undelivered element is maintenanceservices or consulting services. The fair value of the maintenance services isdetermined based on VSOE of fair value and is deferred and recorded to revenueratably over the maintenance term. The residual revenue is allocated to thelicense fee associated with the software products in the transaction. TheCompany’s maintenance services’ VSOE of fair value is determined by referenceto the price the Company’s customers are required to pay for the services whensold separately (i.e. the maintenance services fees paid by the Company’scustomers upon renewal).

 

The Company accrues a warranty reserve withincost of sales for estimated costs to provide warranty services. The Companyestimates the costs to service its warranty obligations based on historicalexperience and expectation of future conditions.

 

PRODUCT WARRANTY COSTS: Estimated futurewarranty costs are provided for at the time of revenue recognition. Activity ofthe warranty account is as follows for the years ended (in thousands):

 
| ** **               | ** ** | **Balance at  Beginning  of Period** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions** | ** ** | **Balance at  End  of Period** | ** ** |
|--------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|------------------------------------------|------------|
|                     |       |                                           |       |                                          |       |           |       |                                     |       |
| September 30,  2007 |       | $                                              | 166        |                                          | $          | 139            |       | $                                        | (151       | ) | $ | 154 |   |
| September 30,  2006 |       | $                                              | 220        |                                          | $          | 71             |       | $                                        | (125       | ) | $ | 166 |   |

 

Deductions represent warranty work performed during the year.

 

22

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INVENTORIES: Inventories are stated at thelower of cost or replacement market. Inventory costs include outside assemblycharges, allocated manufacturing overhead and direct material costs. Cost isdetermined using an average cost method, which approximates a first in firstout cost.

 

Inventory consists of the following (inthousands) at September 30:

 
| ** **      | ** ** | **2007** | ** ** |
|-----------------|------------|----------|------------|
| Finished  Goods |       | $        | 1,264      |   |
| Work-In-Process |       | 329      |       |
| Raw  Materials  |       | 222      |       |
|            |       | $        | 1,815      |   |

 

SHIPPING AND HANDLING COSTS: The Companyincludes shipping and handling fees billed to customers in net sales. Shippingand handling costs associated with outbound freight are included in cost ofsales.

 

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

 

ADVERTISING COSTS: Advertising costs arecharged to expense as incurred. For the years ended September 30, 2007 and2006, advertising expenses were approximately $52,000 and $68,000 respectively.

 

SALES TAXES: The Company collects sales taxesfrom its customers on sales of its various products for sales in which thecustomer is not a reseller or distributor . Sales taxes collected are includedin Other accrued expenses. Sales taxes are remitted, in a timely manner, to theappropriate government tax authority on behalf of the customer.

 

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, 2007 and2006 the Company’s cash and cash equivalents were invested in a money marketfund and/or commercial paper. The Company maintains cash balances at severalfinancial institutions, and at times, such balances exceed insured limits. TheCompany has not experienced any losses in such accounts and believes it is notexposed to any significant credit risk on cash.

 

ACCOUNTS RECEIVABLE: Credit isextended based on an evaluation of a customer’s financial condition and,generally, collateral is not required. Accounts receivable are typically duefrom customers within 30 days and are stated at amounts due from customers netof an allowance for doubtful accounts. Accounts outstanding longer than thecontractual payment terms are considered past due. The Company determines itsallowances by considering a number of factors, including the length of timereceivables are past due, the Company’s previous loss history, the customer’scurrent ability to pay its obligation to the Company, and the condition of thegeneral economy and the industries as a whole. The Company writes-off accountsreceivable when they become uncollectible, and payments subsequently receivedon such receivables are credited to the allowance for doubtful accounts.

 

Changes in the Company’s allowance for doubtfulaccounts has decreased as a result of a 33% decrease in accounts receivable,and is as follows for the years ended (in thousands):

 
| ** **               | ** ** | ** **                                     | ** ** | **Additions**                                 | ** ** | ** **                           | ** ** |
|--------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------|------------|
| ** **               | ** ** | **Balance at  Beginning  of Period** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions &  Other (A)** | ** ** | **Balance at  End  of Period** | ** ** |
| ** **               | ** ** | ** **                                     | ** ** | ** **                                    | ** ** | ** **                           | ** ** | ** ** | ** ** |
| September 30,  2007 |       | $                                              | 186        |                                          | $          | (38                                  | )          | $ | (21 | ) | $ | 127 |   |
| September 30,  2006 |       | $                                              | 467        |                                          | $          | 59                                   |       | $ | (340 | ) | $ | 186 |   |

 

----

(A)- Represents accounts receivablewritten-off during the year.

 

MARKETABLE SECURITIES AND SHORT TERMINVESTMENTS: The Company invests its excess cash in commercial paper,government agencies and other asset-backed short term investments. Commercialpaper consists of auction rate securities that are held for seven to ten daysand then sold. These investments are classified as available-for-salesecurities, and their amortized cost approximates fair value, and thus thereare no unrealized gains or losses. Other investments are classified asheld-to-maturity given the Company’s intent and ability to hold the securitiesto maturity and are carried at amortized cost, which approximates fair value.Asset-backed short term investments are participation loans in real estatemortgages. The mortgage loans are for first and/or second mortgages forresidential, commercial and development properties. Investments that havematurities of less than one year have been classified as current marketablesecurities.

 

Marketable securities and short terminvestments consist the following (in thousands) at September 30:

 

23

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| ** **                | ** ** | **2007** | ** ** |
|---------------------------|------------|----------|------------|
| Current                   |       |     |       |
| Commercial  paper         |       | $        | 800        |   |
| Asset-backed  investments |       | 2,479    |       |
|                      |       | $        | 3,279      |   |

 

PROPERTY AND EQUIPMENT: Property andequipment are 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 of depreciation areused for income tax reporting.

 

VALUATION OF GOODWILL: In accordance withStatement of Financial Accounting Standard (“SFAS”) No. 142, *Goodwill and Other Intangible Assets* (“SFAS 142”), goodwilland other intangible assets with indefinite lives are not amortized, they areinstead tested for impairment annually or whenever events or changes incircumstances indicate that the asset may be impaired. There have been noimpairment charges.

 

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.

 

STOCK OPTION PLAN: 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 in most cases expire five years from thedate of grant; however, the plan provides a maximum term of 10 years.

 

On October 1, 2006, the Company adoptedSFAS No. 123(R), *Share-Based Payment*,(“SFAS 123(R)”) which requires the measurement and recognition of compensationexpense for all share-based payment awards made to employees, directors andconsultants, including stock option grants. SFAS 123(R) supersedes ourprevious accounting under Accounting Principles Board Opinion (“APB”) No. 25,*Accounting for Stock Issued to Employees*(“APB 25”). In March 2005, theSEC issued SAB No. 107, *Share-BasedPayments*, and the Company has applied SAB No. 107’s provisionsin the adoption of SFAS 123(R).

 

The Company adopted SFAS 123(R) using themodified prospective transition method, which requires the application of theaccounting standard as of October 1, 2006, as further described below. Inaccordance with the modified prospective transition method, the Company’sfinancial statements for the year ended September 30, 2006 have not beenrestated to reflect, and do not include, the impact of the adoption of SFAS123(R).

 

SFAS 123(R) requires companies to estimate thefair value of share-based payment awards on the date of grant using anoption-pricing model. The value of the award’s portion that is ultimatelyexpected to vest is recognized as expense over the requisite service periods inthe accompanying condensed financial statements for the year ended September 30,2007. Prior to the adoption of SFAS 123(R), the Company accounted forshare-based awards using the intrinsic value method in accordance with APB 25.Under the intrinsic value method, share-based compensation expense was onlyrecognized if the exercise price of the grant was less than the fair marketvalue of the underlying stock at the date of grant. No stock-based compensationexpense was recorded by the Company as options have been granted at fair marketvalue on the date of grant.

 

Prior to October 1, 2006, the Company disclosedcompensation cost related to stock options in accordance with APB 25. Thefollowing table illustrates the effect on net income and earnings per share forthe year ended September 30, 2006 if the Company had applied the fairvalue recognition provisions of FASB Statement 123, *Accounting for Stock-Based Compensation,* to stock-basedemployee compensation (amounts in thousands, except per share amounts):

 
| ** **                            | ** **                                                                                                                                              | **2006** | ** ** |
|---------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|----------|------------|
| Net loss, as  reported                |                                                                                                                                                    | $        | (3,661     | ) |
| Deduct:                               | Total stock-based employee compensation  determined under fair value based method for awards granted, modified, or  settled, net of related tax effects |     | (218       | ) |
| Pro forma  net loss                   |                                                                                                                                                    | $        | (3,879     | ) |
|                                  |                                                                                                                                                    |     |       |
| Net loss per  share                   |                                                                                                                                                    |     |       |
| Basic and  Diluted – as reported |                                                                                                                                                    | $        | (0.74      | ) |
| Basic and  Diluted — pro forma   |                                                                                                                                                    | $        | (0.79      | ) |
|                                       |                                                                                                                                                         |          |            |  |  |

 

24

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The weighted average fair value of optionsgranted in 2007 and 2006 was $2.12 and $1.37, per share, respectively. 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 2007 and 2006: no dividend yield; risk-free rateof return of 4.67% and 4.5%, respectively; volatility of 35.4% and 35.2%, respectively;and an average term of 3.0 years. The Company uses historical information toestimate expected term and forfeiture rates of options. The forfeiture rateapplied to 2007 grants is 4.75%. These effects may not be representativeof the future effects of applying the fair value method.

 

NEW ACCOUNTING PRONOUNCEMENTS: In July 2006,the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting forUncertainty in Income Taxes - an interpretation of FASB Statement 109. FIN 48prescribes a comprehensive model for recognizing, measuring, presenting anddisclosing in the financial statements tax positions taken or expected to betaken on a tax return, including the decision whether to file or not to file ina particular jurisdiction. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006, in the Company’s case for the fiscal year ending September 30,2008. If there are changes in net assets as a result of application of FIN 48these will be accounted for as an adjustment to retained earnings. The Companydoes not believe this will result in any material impact to its financialstatements.

 

In September 2006, theFASB issued SFAS No. 157, *FairValue Measurement.* This statement does not require any new fairvalue measurement, but it provides guidance on how to measure fair value underother accounting pronouncements. SFAS No. 157 also establishes a fairvalue hierarchy to classify the source of information used in fair valuemeasurements. The hierarchy prioritizes the inputs to valuation techniques usedto measure fair value into three broad categories. This standard is effectivefor the Company beginning year ending September 30, 2009. The Company iscurrently evaluating the impact of this pronouncement on its financialstatements.

 

In February 2007, theFASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities.*SFAS No. 159 permits companies to choose to measure certain financialinstruments and certain other items at fair value. The election to measure thefinancial instrument at fair value is made on an instrument-by-instrument basisfor the entire instrument, with few exceptions, and is irreversible. SFAS No. 159is effective for the Company beginning year ending September 30, 2009. TheCompany is currently evaluating the impact of this pronouncement on itsfinancial statements.

 

2. GOODWILL AND INTANGIBLES

 

In June 2006, TheCompany entered into a Technology License and Asset Purchase Agreement (“Agreement”)with Broadcom Corporation, a California corporation. This Agreement involvesthe purchase of Broadcom’s RAIDCoreTM line of business and the cross license ofsoftware technology between the Company and Broadcom. The initial amount paidat closing of $330,000 was allocated in its entirety to fixed assets, primarilycomputer equipment. No goodwill or intangibles were recorded as part ofthis transaction. The Agreement with Broadcom also provides for payment ofroyalties and commissions based on actual revenue from product sales andlicensing fees until life-to-date payments total $25 million. The Agreementfurther provides for contingent consideration in the form of warrants topurchase Ciprico common stock at certain prices, these warrants vest only whencertain revenue targets are achieved.

 

In January 2005, theCompany purchased substantially all of the assets (primarily the MediaVaultä product line) of Huge Systems, Inc. (“Huge”).Huge was a privately held company and a leading supplier of data storagesolutions for the graphic and video content creation marketplace. The totaltransaction cost of approximately $3.4 million included an allocation ofapproximately $2.8 million to goodwill. As part of the analysis of theacquisition, it was determined there was no material in-process research anddevelopment at the date of acquisition.

 

In conjunction with the acquisition, the Companyalso issued certain warrants to purchase an aggregate of 30,000 shares ofCiprico common stock at a price of $5.00 per share to certain stockholders ofHuge. The warrants become exercisable ratably through January 2009 andterminate five years from the date of issuance.

 

In accordance with SFAS 142,goodwill and other intangible assets with indefinite lives are not amortized,but are instead tested for impairment annually or whenever events or changes incircumstances indicate that the asset may be impaired. No impairments wereidentified in 2007 and 2006.

 

Intangible assets withfinite lives that are subject to amortization are listed in the table below asof September 30, 2007 (in thousands):

 

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| ** **             | ** ** | **Estimated Life  (in years)** | ** ** | **Estimated  Value** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|------------------------|------------|------------------------------------------|------------|----------------------|------------|-------------------------------|------------|---------|------------|
| RAID  technology       |       | 3                                        |       | $                    | 170        |                          | $          | (151    | )          | $ | 19 |   |
| Noncompete  agreements |       | 3                                        |       | 135                  |       | (120                          | )          | 15      |       |
|                   |       |                                     |       |                 |       |                          |       |    |       |
|                   |       |                                     |       | $                    | 305        |                          | $          | (271    | )          | $ | 34 |   |

 

Amortizationexpense for the year ended September 30, 2007 was $102,000. Theseintangibles will be fully amortized in the fiscal year 2008.

 

3. SUPPLEMENTARY BALANCE SHEET INFORMATION

 

Other accrued expenses includes the following(in thousands) as of September 30:,

 
| ** **                         | ** ** | **2007** | ** ** |
|------------------------------------|------------|----------|------------|
| Commissions  and royalties payable |       | $        | 96         |   |
| Accrued  restructuring             |       | 47       |       |
| Deferred  rent                     |       | 39       |       |
| Other  miscellaneous accruals      |       | 187      |       |
|                               |       | $        | 369        |   |

 

Accrued restructuring is related to leasetermination costs for the abandonment of our headquarters facility in Plymouth,Minnesota.

 

4. INCOME TAXES

 

Income tax expense (benefit) consists of thefollowing (in thousands):

 
| **Years ended September 30** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Current:                                    |       |     |       |     |       |
| Federal                                     |       | $        | —     |     | $          | — |   |
| State                                       |       | —   |       | (66      | )          |
|                                        |       | —   |       | —   |       |
| Deferred                                    |       | 66       |       | 66       |       |
|                                        |       | $        | 66         |     | $          | — |   |

 

Deferred income taxes arise from temporarydifferences between financial and tax reporting. In accordance with SFAS 142,goodwill and other intangible assets with indefinite lives are not amortizedfor financial reporting purposes. As goodwill is amortized for tax purposes,the company has recorded deferred tax expense of approximately $66,000 for both2007 and 2006. The deferred tax expense and deferred tax liability are relatedto an asset with an indefinite life and are thus created as it is more likelythan not that any deferred tax asset will not be realized. Also during thefiscal year 2006 it became apparent that $66,000 accrued for state taxes was nolonger necessary.

 

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The tax effects of the cumulative temporary differences result in netdeferred taxes as follows (in thousands):

 
| **As of September 30** | ** ** | **2007** | ** ** |
|---------------------------------------|------------|----------|------------|
| Current  deferred tax assets:         |       |     |       |
| Inventory                             |       | $        | 195        |   |
| Allowance  for doubtful accounts      |       | 47       |       |
| Warranty  accrual                     |       | 57       |       |
| Loss and  credit carryforwards        |       | 12,411   |       |
| Compensation  accrual                 |       | 73       |       |
| Other                                 |       | 19       |       |
| Less –  valuation allowance      |       | (12,802  | )          |
| Current  deferred tax asset           |       | —   |       |
|                                  |       |     |       |
| Long-term  deferred tax assets:       |       |     |       |
| Depreciation                          |       | 171      |       |
| Less –  valuation allowance      |       | (171     | )          |
| Long-term  deferred tax asset         |       | —   |       |
|                                  |       | $        | —     |   |
| Long-term  deferred tax liabilities:  |       |     |       |
| Goodwill                              |       | 67       |       |
| Long-term  deferred tax liability     |       | $        | 67         |   |

 

As of September 30, 2007, the Companyhad net operating loss carry forwards of approximately $32.8 million, whichexpire at various dates from 2022 to 2027, and general business credit carryforwards of approximately $1.3 million, which expire at various dates from 2011to 2018.

 

The following is a reconciliation of thefederal statutory income tax rate to the consolidated effective tax rate:

 
| **Years ended September 30**     | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Federal  statutory rate                         |       | (34      | )%         | (34      | )%         |
| State taxes,  net of federal income tax benefit |       | (3.0     | )          | (3.0     | )          |
| Change in  valuation allowance                  |       | 37.0     |       | 37.0     |       |
|                                            |       | —   | %          | —   | %          |

 

In July 2006, the FASB issued FIN 48,Accounting for Uncertainty in Income Taxes - an interpretation of FASBStatement 109. FIN 48 prescribes a comprehensive model for recognizing,measuring, presenting and disclosing in the financial statements tax positionstaken or expected to be taken on a tax return, including the decision whetherto file or not to file in a particular jurisdiction. FIN 48 is effective forfiscal years beginning after December 15, 2006, in the Company’s case forthe fiscal year ending September 30, 2008. If there are changes in netassets as a result of application of FIN 48 these will be accounted for as anadjustment to retained earnings. The Company does not believe this willresult in any material impact to its financial statements.

 

5. STOCKHOLDERS’ EQUITY

 

### *Authorized Shares*

###  

The Company is authorized to issue 1,000,000shares of Preferred Stock at $.01 par value and 9,000,000 shares of CommonStock at $.01 par value. The Company has not issued any shares of PreferredStock.

 

### *Stock Repurchase*

###  

The Company’s stock buyback program iscurrently suspended. Under the plan $12.0 million was authorized to be used forthe repurchase program. There were no shares repurchased in the fiscal years2007 and 2006.

 

#### *StockholdersRights Plan*

####  

On January 8,2003, the Board of Directors adopted a stockholder rights plan under which theBoard declared a dividend distribution of one right for each outstanding shareof Ciprico common stock as of January 14, 2003. Upon becoming exercisable,each right would entitle its holder to buy one one-hundredth of a share of anew series of preferred stock at an exercise price of

 

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$32.00 per right. Subject to certainallowable actions by the Board, the rights will become exercisable if a personor group acquires 15% or more of the Company’s common stock or announces atender offer for 15% or more of its common stock. Unless the Board exercisescertain other rights, if such a person acquires 15% or more of the Company’scommon stock, each right would enable a Ciprico stockholder to acquire Cipricostock having a market value of twice the right’s exercise price. The rights areredeemable at the option of the Company in certain instances.

 

### *Stock Options*

###  

Option transactions under the Company’s stockoption plans during the years ended September 30, are summarized asfollows:

 
| ** **                                 | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|--------------------------------------------|------------|
| Outstanding  at September 30, 2005    |       | 850,850                    |       | 5.13                                       |       |
| Granted                                    |       | 123,500                    |       | 5.16                                       |       |
| Exercised                                  |       | (146,225                   | )          | 5.06                                       |       |
| Canceled                                   |       | (256,425                   | )          | 5.45                                       |       |
| Outstanding  at September 30, 2006    |       | 571,700                    |       | 5.65                                       |       |
| Granted                                    |       | 570,375                    |       | 6.26                                       |       |
| Exercised                                  |       | (46,800                    | )          | 4.01                                       |       |
| Canceled                                   |       | (208,375                   | )          | 5.45                                       |       |
| Outstanding  at September 30, 2007    |       | 886,900                    |       | 5.89                                       |       |
| Options  exercisable at September 30: |       |                       |       |                                       |       |
| 2007                                       |       | 256,775                    |       | 5.89                                       |       |
| 2006                                       |       | 287,575                    |       | 5.62                                       |       |

 

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** | ** ** |
| $                                   | 2.82 –   4.23 |                         | 118,000    |   | 2.9 years |   | $ | 4.03 |   | 58,750 |   | $ | 4.02 |   |
| 4.24 –   7.16   |                              | 524,400                      |       | 3.7 years |   | 5.35 |   | 160,025 |   | 5.18 |   |
| 7.17 – 10.76              |                              | 244,500                      |       | 4.0 years |   | 7.97 |   | 38,000 |   | 8.23 |   |
|                                |                              | 886,900                      |       |   |   |   |   | 256,775 |   |   |   |
|                                     |                                   |                              |            |  |  |  |  |  |  |  |  |  |  |  |

 

As of September 30, 2007, total unrecognizedshare-based compensation cost related to unvested stock options was $988,000,which is expected to be recognized over a weighted average period ofapproximately four years. The Company has included the following amountsfor share-based compensation cost, for the year ended September 30, 2007(amounts in thousands, except per share amount):

 
| ** **                                                               | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|
| Cost of  goods sold                                                      |       | $        | 8          |   |
| Research and  development                                                |       | 45       |       |
| Sales and  marketing                                                     |       | 94       |       |
| General and  administrative                                              |       | 133      |       |
| Share-based  compensation expense before taxes                           |       | 280      |       |
| Related  deferred income tax benefits                                    |       | —   |       |
| Share-based  compensation expense, net of income taxes                   |       | $        | 280        |   |
| Net  share-based compensation expense per basic and diluted common share |       | $        | 0.06       |   |

 

The Company did not realize any actual tax benefitfrom the tax deductions for stock option exercises during year ended September 30,2007, due to the full valuation allowance on the Company’s U.S. deferred taxassets

 

Share-based compensation expense recognized duringthe year ended September 30, 2007 included (1) compensation expensefor awards granted prior to, but not yet fully vested as of October 1,2006, and (2) compensation expense for the share-based payment awardsgranted subsequent to September 30, 2006 based on the grant date fairvalues estimated in accordance with

 

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theprovisions of SFAS 123(R). SFAS 123(R) requires forfeitures to be estimatedat the time of grant and revised, if necessary, in subsequent periods if actualforfeitures differ from those estimates. The Company has historically and willcontinue to estimate the fair value of share-based awards using theBlack-Scholes option-pricing model. Total unrecognized share-based compensationcost related to unvested stock options as of September 30, 2007 has beenadjusted for estimated forfeitures.

 

As of September 30, 2007, the Companyhad 279,481 shares reserved for future issuance under the plan.

 

### *Restricted Stock Plan*

###  

The 1996 Restricted Stock Plan (“RSP”)provides for common stock awards to officers, directors and certain keyemployees of the Company. All restricted stock awards entitle the participantto full dividend and voting rights.

 

The following table summarizes the status of theCompany’s non-vested restricted stock as of September 30, 2007.

 
| ** **                             | ** ** | **Non-Vested Restricted Stock** | ** ** |
|----------------------------------------|------------|-------------------------------------------|------------|
| ** **                             | ** ** | **Shares**                                | ** ** | **Weighted-Average  Grant-Date  Fair Value** | ** ** | **Weighted-Average  Remaining  Recognition  Period** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Non-Vested  at September 30, 2006 |       | 68,500                                    |       | $ | 5.78 |   |   |   |   |   |
| Granted                                |       | 79,700                                    |       | 6.48 |   |   |   |   |   |
| Vested                                 |       | (2,000                                    | )          | 5.77 |   |   |   |   |   |
| Forfeited                              |       | (30,000                                   | )          | $ | 5.79 |   |   |   |   |   |
| Non-Vested  at September 30, 2007 |       | 116,200                                   |       | $ | 6.37 |   | 1.4 |   | 740,670 |   |

 

During the year ended September 30, 2007,$244,000 of expense was recognized related to outstanding restricted stockawards. The vesting period for these awards currently ranges from one to twoyears. Those that vest over a one-year period vest without other conditions. Thosethat vest over a two-year period vest only if certain service, market and, insome cases, performance conditions are met.

 

### *Warrants*

###  

Pursuant to the Technology License and AssetPurchase Agreement (“Agreement”) with Broadcom Corporation there is contingentconsideration in the form of warrants to purchase Ciprico stock at certainprices, if certain revenue targets are achieved.

There are three warrants each for 300,000 shares. The exercise price ofthe first warrant is $6.00 and vests if sales of software licenses exceed$2,000,000 and sales of RAID controller cards exceed $5,000,000 in the firstyear ending June 6, 2007. The exercise price of the second warrant is$8.00 and vests if sales of software licenses exceed $4,000,000 and sales ofRAID controller cards exceed $15,000,000 in the second year ending June 6,2008. The exercise price of the third warrant is $10.00 and vests if sales ofsoftware licenses exceed $4,000,000 and sales of RAID controller cards exceed$20,000,000 in the third year ending June 6, 2009. The first tranche ofwarrants related to the period ending June 6, 2007 did not vest as revenuetargets were not achieved. There is provision for a cumulative provision ifsales meet the stated target over the 3 year period ending June 6, 2009.

 

6.               NET LOSS PER SHARE

 

Basic and diluted loss per share amounts werecomputed using weighted average shares outstanding for each respective period. Asthe Company incurred losses for the years ended September 30, 2007 and2006, the effect of potentially dilutive securities has been excluded from thecalculation of loss per share as inclusion would have had an anti-dilutiveeffect.

 

Actual weighted average shares outstanding used incalculating basic and diluted loss per share were as follows for the yearsended September 30:

 
| ** **                           | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|--------------------------------------|------------|-----------|------------|-----------|------------|
|                                 |       |      |       |      |       |
| Weighted  average shares outstanding |       | 5,071,187 |       | 4,915,790 |       |
| Effect of  dilutive securities       |       | —    |       | —    |       |
| Diluted  Shares outstanding          |       | 5,071,187 |       | 4,915,790 |       |

 

Securities excluded from the computation of dilutedloss per share because inclusion would have had an anti-dilutive effect were asfollows for the years ended September 30:

 

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| ** **                | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
|                      |       |     |       |     |       |
| Anti-dilutive  securities |       | 116,104  |       | 60,124   |       |

 

7. EMPLOYEE BENEFIT PLAN

 

The Company provides a 401(k) savingsplan covering substantially all of its employees. Minimum contributions to theplan by the Company are 50 percent of employee contributions up to the first 6percent of the participants’ salaries. Contributions in addition to the minimummay also be made by the Company based on the Company’s financialperformance. The Company’s contributions to the plan in 2007 and 2006 were$146,000 and $116,000 respectively.

 

8. SEGMENT INFORMATION

 

The Company operates in a single reportablesegment.

 

The Company has no material long-lived assetsoutside of the United States. Our products are sold mostly to distributors, whoin turn sell them to the final customer. As such, because we are not selling tothe final customer, we may not know the geographic location in which ourproducts are used. The table below represents sales by major geographic areafor the fiscal year :

 
| ** **     | ** ** | **2007** | ** ** |
|----------------|------------|----------|------------|
| United  States |       | $        | 5,679      |   |
| Foreign        |       | 2,926    |       |
|           |       | $        | 8,605      |   |

 

Sales as a percentage of net sales, to twosignificant customers for the fiscal year 2007 were 11% and 1%, and for thefiscal year 2006 those same customers accounted for 13% and 12%, respectively. Receivablesfrom those two significant customers at September 30, 2007 were $68,000and $0, respectively.

 

9. COMMITMENTS AND CONTINGENCIES

 

In October, 2007, the Company moved itsheadquarters, offices and manufacturing space to St. Louis Park, MN. Theoperating leases for office and manufacturing space expire at varying datesthrough November 2014. Future minimum payments under these leases are asfollows (in thousands) for the fiscal years ending September 30:

 
| 2008       |   | $   | 345    |   |
|------------|--------|-----|--------|--------|
| 2009       |   | 362 |   |
| 2010       |   | 370 |   |
| 2011       |   | 379 |   |
| 2012       |   | 261 |   |
| Thereafter |   | 558 |   |
|       |   | $   | 2,275  |   |

 

For the years ended September 30, 2007and 2006, operating lease expenses were $496,000 and $446,000.

 

10. SUBSEQUENT EVENT

 

On December 26, 2007, Ciprico Inc. (the “Company”)entered into a Convertible Note Purchase Agreement (“Purchase Agreement”) withmultiple accredited investors for the private placement of a minimum of$3,000,000 and a maximum of $7,800,000 of convertible notes and common stockwarrants for $0.25 worth of warrant shares for each $1.00 of principalinvested.

 

The conversion price for the notes and the exerciseprice for the warrants is fixed at an amount equal to the average closing bidprice of the Company’s common stock for the five (5) consecutive tradingdays ending on the trading day prior to the issue date. That price was $3.86for the initial closing on December 21, 2007 for a principal amount of$5.1 million.

 

The notes are due and payable in full on the15-month anniversary of the date of issuance and the warrants are exercisablefrom the date of issuance until the five year anniversary. The number of sharesissuable upon exercise of the warrant is subject to adjustment in the event ofstock splits or dividends, business combinations, sale of assets or othersimilar transitions.

 

The notes, warrants and common stock issuable uponconversion of the notes or exercise of the warrants have not been registeredunder the Securities Act of 1933, as amended, (the “Securities Act”), or anystate securities laws and were sold in a

 

30

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privatetransaction exempt from registration pursuant to Section 4(2) of theSecurities Act, and Rule 506 of Regulation D promulgated thereunder, as atransaction by an issuer not involving any public offering.

 

The Company is obligated to register the shares ofcommon stock issuable upon the conversion of the notes and the exercise of thewarrants pursuant to certain customary terms and conditions contained in thenote and the warrant.

 

Four related parties purchased notes andreceived warrants.  Board member James W.Hansen purchased a Note from the Company in the amount of $100,000 and wasissued 6,577warrants.  Board member JamesD. Gerson purchased a Note from the Company in the amount of $500,000, and wasissued 32,383 warrants. Steven D. Merrifield, President, Chief ExecutiveOfficer, purchased a Note from the Company in the amount of $100,000 and wasissued 6,477 warrants.  Monte S. Johnson,Senior Vice President and Chief Financial Officer, purchased a Note from theCompany in the amount of $100,000 and was issued 6,477 warrants.

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

Boardof Directors and Stockholders

CipricoInc.

Plymouth,Minnesota

 

We have audited the accompanying balance sheet ofCiprico Inc. as of September 30, 2007, and the related statements ofoperations, stockholders’ equity, and cash flows for each of the two years inthe period ended September 30, 2007. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. The Company is not required to have, nor were weengaged to perform an audit of its internal control over financialreporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly,we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all material respects,the financial position of Ciprico Inc. as of September 30, 2007, and theresults of their operations and their cash flows for each of the two years inthe period ended September 30, 2007, in conformity with accountingprinciples generally accepted in the United States of America.

 

/s/ GRANT THORNTON LLP

 

Minneapolis,Minnesota

December 26,2007

 

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**ITEM 8.****                                                 CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 8A.**                                           CONTROLS ANDPROCEDURES

 

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

 

**ITEM8B.****                                           OTHERINFORMATION**

 

None.

 

**PART III**

 

**ITEM 9.****                                                 DIRECTORS,EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OFTHE EXCHANGE ACT**

 

Referenceis made to the information included under the caption “Executive Officers” and “Electionof Directors” in the Company’s Proxy Statement for the Annual Meeting ofStockholders scheduled to be held February 7, 2008, which information isincorporated by reference herein.

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) ofthe Securities Exchange Act of 1934 requires executive officers and directorsof the Company, and persons who beneficially own more than 10 percent of theCompany’s outstanding shares of Common Stock, to file initial reports ofownership and reports of changes in ownership of securities of the Company withthe Securities and Exchange Commission. Officers, directors and greater than 10percent stockholders are required by Securities and Exchange Commissionregulations to furnish the Company with copies of all Section 16(a) formsthey file.

 

Based upon areview of the copies of such reports furnished to or obtained by the Company andupon other information known to the Company, the Company believes that duringthe fiscal year ended September 30, 2007, all filing requirementsapplicable to its directors, officers or beneficial owners of more than 10% ofthe Company’s outstanding shares of Common Stock were complied with.

 

CODE OF ETHICS AND BUSINESS CONDUCT

 

We have adopted the Ciprico Code of Ethics and Business Conduct (the “Codeof Conduct”), a code of conduct that applies to our employees, officers anddirectors. The Code of Conduct is publicly available on our website at http://www.ciprico.com.If we make any substantive amendments to the Code of Conduct or grant anywaiver, including any implicit waiver from a provision of the Code of Conductto our directors or executive officers, we will disclose the nature of suchamendment or waiver on our website or in a report on Form 8-K.

 

**ITEM 10.**                                              EXECUTIVECOMPENSATION.

 

The informationrequired by Item 10 is incorporated herein by reference to the section labeled“Executive Compensation” which appears in the definitive Proxy Statement forits 2007 Annual Meeting of Stockholders to be held February 7, 2008.

 

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**ITEM 11.****                                          SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

 

Theinformation required by Item 11 is incorporated herein by reference to thesections labeled “Principal Stockholders” and “Management Stockholdings” whichappear in the definitive Proxy Statement for our 2007 Annual Meeting of Stockholdersto be held February 7, 2008.

 

EQUITY COMPENSATION PLANINFORMATION

 

The following table setsforth certain information as of September 30, 2007 regarding compensationplans under which equity securities of our company are authorized for issuance:

 
| **Plan Category**                                  | ** ** | **Number of Securities  to  be Issued Upon  Exercise  of Outstanding   Options,  Warrants and Rights  (a)** | ** ** | **Weighted-Average  Exercise Price of   Outstanding  Options,  Warrants and  Rights  (b)** | ** ** | **Number of Securities  Remaining Available  for  Future Issuance Under  Equity Compensation  Plans (Excluding  Securities Reflected in  Column (a))  (c)** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                    |       |                                                                                                                                                |       |                                                                                                           |       |                                                                                                                                                                                                          |       |
| Equity  compensation plans approved by stockholders     |       | 886,900                                                                                                                                             |       | $5.89                                                                                                          |       | 279,481                                                                                                                                                                                                       |       |
| Equity  compensation plans not approved by stockholders |       | —                                                                                                                                              |       | —                                                                                                         |       | —                                                                                                                                                                                                        |       |
| Total                                                   |       | 886,900                                                                                                                                             |       | $5.89                                                                                                          |       | 279,481                                                                                                                                                                                                       |       |

 

The equity compensation plansapproved by our stockholders are the 1999 Amended and Restated Sock Option Planand the 1996 Restricted Stock Plan.

 

**ITEM 12.CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

Theinformation required by Item 12 is incorporated herein by reference to thesections labeled “Certain Transactions” and “Other Compensation Arrangements”which appear in the definitive Proxy Statement for our 2007 Annual Meeting ofStockholders to be held February 7, 2008.

 

**ITEM 13.EXHIBITS**

 

(a)                                                     Exhibits.See “Exhibit Index” on page following financial statement schedules

 

**ITEM 14.****                                              PRINCIPALACCOUNTANT FEES AND SERVICES**

 

The information required by Item 14 is incorporated herein by referenceto the section labeled “Independent Auditors” which appears in thedefinitive Proxy Statement for our 2007 Annual Meeting of Stockholders to beheld February 7, 2008.

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) ofthe Exchange Act, the Registrant caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

 
|                         |   |    CIPRICO INC.                 |
|------------------------------|--------|------------------------------------------------|
|                         |   |    (the “Registrant”) |
|                         |   |                                           |
| Date: December 26, 2007 | By     | /s/ Steven D. Merrifield                       |
|                         |   |    Steven D. Merrifield,        |
|                         |   |    Chief Executive Officer      |

 

In accordance with the Exchange Act, thisreport has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.

 
| **Signature**            | ** ** | **Title**                                          | ** ** | **Date**               |
|--------------------------|------------|----------------------------------------------------|------------|------------------------|
|                     |       |                                               |       |                   |
| /s/ Steven D. Merrifield |       | President, Chief Executive Officer                 |       | December 26, 2007 |
| Steven D. Merrifield     |       | (Principal executive officer)                      |       |                   |
|                     |       |                                               |       |                   |
| /s/ Monte S. Johnson     |       | Senior Vice President and Chief Financial  Officer |       | December 26, 2007 |
| Monte S. Johnson         |       | (Principal financial and accounting  officer)      |       |                   |
|                     |       |                                               |       |                   |
| /s/ James W. Hansen      |       | Chairman of the Board                              |       | December 26, 2007 |
| James W. Hansen          |       |                                               |       |                   |
|                     |       |                                               |       |                   |
| /s/ James D. Gerson      |       | Director                                           |       | December 26, 2007 |
| James D. Gerson          |       |                                               |       |                   |
|                     |       |                                               |       |                   |
| /s/ Mark D. Griffiths    |       | Director                                           |       | December 26, 2007 |
| Mark D. Griffiths        |       |                                               |       |                   |
|                     |       |                                               |       |                   |
| /s/ Gary L. Hokkanen     |       | Director                                           |       | December 26, 2007 |
| Gary L. Hokkanen         |       |                                               |       |                   |
|                     |       |                                               |       |                   |
| /s/ Thomas F. Burniece   |       | Director                                           |       | December 26, 2007 |
| Thomas F. Burniece       |       |                                               |       |                   |
|                     |       |                                               |       |                   |
| /s/ Thomas H. Marmen     |       | Director                                           |       | December 26, 2007 |
| Thomas H. Marmen         |       |                                               |       |                   |

 

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SECURITIES ANDEXCHANGE COMMISSION

Washington,D.C. 20549

 

EXHIBIT INDEX TO FORM 10-KSB

 

| For the fiscal year ended September 30,  2007 |   | Commission  File No.: 0-11336 |
|----------------------------------------------------|--------|-------------------------------|

CIPRICO INC.

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                                                                          |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                     |
| 2.1         |       | Asset Purchase Agreement dated January 31, 2005 by and among  Ciprico Inc., Huge Systems, Inc. and the Principals named  therein—incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K  filed February 3, 2005        |
|        |       |                                                                                                                                                                                                                                                                     |
| 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**      |       | 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                                                         |
|        |       |                                                                                                                                                                                                                                                                     |
| 10.2**      |       | 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                        |
|        |       |                                                                                                                                                                                                                                                                     |
| 10.3**      |       | 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                     |
|        |       |                                                                                                                                                                                                                                                                     |
| 10.4        |       | Indenture of Lease, dated June 12,  2002 by and between Highway 7 Business Center LLC Properties, Inc and Ciprico  Inc. relating to corporate office and manufacturing space located at 7003  West Lake Street, Suite 400, St. Louis Park, Minnesota           |
|        |       |                                                                                                                                                                                                                                                                     |
| 10.5**      |       | Employment Agreement and Change of Control  Agreement dated September 30, 2004 between Steven D. Merrifield and  Ciprico Inc. – incorporated by reference to Exhibit 10.1 of the  Registrants Form 8-K filed December 11,2006                   |
|        |       |                                                                                                                                                                                                                                                                     |
| 10.6**      |       | Employment Agreement and Change of Control Agreement dated June 1,  2005 between Monte S. Johnson and Ciprico Inc.—incorporated by reference to Exhibit 10.15  of the Registrant’s Form 10-K for the fiscal year ended September 30,  2005 |
|        |       |                                                                                                                                                                                                                                                                     |
| 10.7        |       | Asset Purchase Agreement dated June 6,  2006 by and among Ciprico Inc and Broadcom Corporation—incorporated by  reference to Exhibit 10.1 of the Registrant’s Form 8-K filed June 8,  2006                                                 |
|        |       |                                                                                                                                                                                                                                                                     |
| 10.8**      |       | Employment Agreement and Change of Control  Agreement dated September 30, 2004 between Andrew Mills and Ciprico Inc.  — incorporated by reference to the Registrants Form 8-K filed December 11,2006                                                 |
|        |       |                                                                                                                                                                                                                                                                     |
| 23.1        |       | Consent of Grant Thornton LLP***                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                     |
| 31.1        |       | Certification of the Chief Executive  Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                     |
| 31.2        |       | Certification of the Chief Financial  Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                     |
| 32.1        |       | Certification of the Chief Executive  Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                     |
| 32.2        |       | Certification of the Chief Financial  Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                     |

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**          Indicatesa management contract or compensatory plan or arrangement.

***   Filedherewith

 

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