** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-KSB/A**

 

**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**

##  

**CIPRICOINC.**

(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 suchshorter period 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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**CipricoInc.EXPLANATORY NOTE**

 

This Amendment on Form 10-KSB/A to our AnnualReport on Form 10-KSB for the year ended September 30, 2007, initially filedwith the Securities and Exchange Commission (the “SEC”) on December 27, 2007,is being filed to correct certain typographical errors in the Report ofIndependent Registered Public Accounting Firm, within Item 7, and the Consentof Independent Registered Public Accounting Firm within Exhibit 23.1. 

 

All other notes and financial statements asfiled on Form 10-KSB remain unchanged. 

 

 

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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.

 

20

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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.

 

21

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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 |   |

 

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(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      | ) |
|                                       |                                                                                                                                                         |          |            |  |  |

 

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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

 

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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 OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Board of Directors and Shareholders

Ciprico, Inc.

St. Louis Park, Minnesota

 

                             We have audited the accompanying balancesheet of Ciprico, 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 the responsibility of the Com­pany’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

                             We conducted our audits in accordancewith the standards of the Public Company Account­ing Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform an audit of its internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

                             As discussed in Note 1 to theconsolidated financial statements, effective October 1, 2006, the Companychanged its method of accounting for share-based payments to adopt FinancialAccounting Standards Board Statement No. 123(R), *Share-Based Payments*.

 

                             In our opinion, the financial statementsreferred to above present fairly, in all material respects, the financialposition of Ciprico, Inc. as of September 30, 2007, and the results of itsoperations and its cash flows for each of the two years in the period endedSeptember 30, 2007, in conformity with accounting principles generallyaccepted in the United States of America.

 

/s/ GRANT THORNTON LLP

 

Minneapolis,Minnesota

December 26,2007

 

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