** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-KSB/A**

 

**xANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

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

 

**oTRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the transition period from      to**

 

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

## ** **

**CIPRICOINC.**

(Name of small businessissuer 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) of the ExchangeAct: **Common Stock (par value $0.01 per share)**

 

Securities registered pursuant to Section 12(g) of theExchange Act: **None**

 

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

 

Indicate by checkmark whether the issuer (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject 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

 

Indicateby checkmark whether the registrant is shell company (as defined by Rule 12b-2of the Exchange Act). Yes  o  No  x

 

Stateissuer’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 Business Disclosure Format:  Yes o No  x

 

 

 

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**CipricoInc.EXPLANATORY NOTE**

 

This second Amendment on Form 10-KSB/A to our Annual Report on Form 10-KSBfor the year ended September 30, 2007, initially filed with the Securitiesand Exchange Commission (the “SEC”) on December 27, 2007, is being filedto include updated management certifications required by Sections 302 and 906of the Sarbanes-Oxley Act of 2002, which were included in our original 10-KSBfiled with the SEC on December 27, 2007, but omitted from the 10-KSB/Afiled with the SEC on December 27, 2007, which was filed to correctcertain typographical errors in the Report of Independent Registered PublicAccounting Firm, within Item 7, and the Consent of Independent RegisteredPublic Accounting Firm within Exhibit 23.1.   This amendment is also being filed toinclude the signature of the independent registered public accounting firm onthe Consent of Independent Registered Public Accounting firm within Exhibit 23.1

 

All other notes and financial statements as filed on Form 10-KSB remainunchanged.

 

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

 

BALANCE SHEET

Ciprico Inc.

 

Amountsin 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 AN INTEGRAL PART OFTHIS FINANCIAL STATEMENT.

 

19

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STATEMENTS OF OPERATIONS

Ciprico Inc.

 

Amountsin 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.

 

Amountsin 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 AN INTEGRAL PART OFTHESE 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 AN INTEGRAL PART OFTHIS FINANCIAL STATEMENT.

 

21

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NOTESTO FINANCIAL STATEMENTS

CipricoInc. — For the Fiscal Years ending on September 30, 2007 and 2006

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BUSINESS: The principal business activity of CipricoInc. (the Company) is the creation and design, manufacture and marketing ofstorage solutions for digital media assets throughout the United States andinternationally.

 

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 recognizes revenuein accordance with:

 

·                  Staff Accounting Bulletin No. 101, *RevenueRecognition in Financial Statements*, issued by the United StatesSecurities and Exchange Commission as amended by Staff Accounting Bulletin No. 104;

 

·                  Statement of Position (“SOP”) No. 97-2, *SoftwareRevenue Recognition*, issued by the American Institute of CertifiedPublic Accountants and interpretations;

 

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

 

·                  SOP No. 81-1, *Accounting for Performanceof Construction-Type and Certain Production-Type Contracts*, issuedby the AICPA;

 

·                  Financial Accounting Standards Board (“FASB”) EmergingIssues Task Force (“EITF”) EITF 00-21, *Revenue Arrangements withMultiple 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 within costof 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 future warrantycosts are provided for at the time of revenue recognition. Activity of thewarranty 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 |   |

 

 

22

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Deductionsrepresent warranty work performed during the year.

 

INVENTORIES: Inventories are stated at the lower ofcost or replacement market. Inventory costs include outside assembly charges,allocated manufacturing overhead and direct material costs. Cost is determinedusing an average cost method, which approximates a first in first out cost.

 

Inventory consists of the following (in thousands)at September 30:

 

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

 

SHIPPING AND HANDLING COSTS: The Company includesshipping and handling fees billed to customers in net sales. Shipping andhandling costs associated with outbound freight are included in cost of sales.

 

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

 

ADVERTISING COSTS: Advertising costs are charged toexpense as incurred. For the years ended September 30, 2007 and 2006,advertising expenses were approximately $52,000 and $68,000 respectively.

 

SALES TAXES: The Company collects sales taxes fromits customers on sales of its various products for sales in which the customeris not a reseller or distributor . Sales taxes collected are included in Otheraccrued expenses. Sales taxes are remitted, in a timely manner, to theappropriate government tax authority on behalf of the customer.

 

CASH AND CASH EQUIVALENTS: The Company considers allhighly liquid temporary investments with original maturities of three months orless to be cash equivalents. At September 30, 2007 and 2006 the Company’scash and cash equivalents were invested in a money market fund and/or commercialpaper. The Company maintains cash balances at several financial institutions,and at times, such balances exceed insured limits. The Company has notexperienced any losses in such accounts and believes it is not exposed to anysignificant credit risk on cash.

 

ACCOUNTS RECEIVABLE: Credit is extended based on an evaluation of acustomer’s financial condition and, generally, collateral is not required.Accounts receivable are typically due from customers within 30 days and arestated at amounts due from customers net of an allowance for doubtful accounts.Accounts outstanding longer than the contractual payment terms are consideredpast due. The Company determines its allowances by considering a number offactors, including the length of time receivables are past due, the Company’sprevious loss history, the customer’s current ability to pay its obligation tothe Company, and the condition of the general economy and the industries as awhole. The Company writes-off accounts receivable when they become uncollectible,and payments subsequently received on such receivables are credited to theallowance for doubtful accounts.

 

Changesin the Company’s allowance for doubtful accounts has decreased as a result of a33% decrease in accounts receivable, and is as follows for the years ended (inthousands):

 

 

| ** **              | ** ** | ** **                                     | ** ** | **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 receivable written-off during the year.

 

MARKETABLE SECURITIES AND SHORT TERM INVESTMENTS:The Company invests its excess cash in commercial paper, government agenciesand other asset-backed short term investments. Commercial paper consists ofauction rate securities that are held for seven to ten days and then sold.These investments are classified as available-for-sale securities, and theiramortized cost approximates fair value, and thus there are no unrealized gainsor losses. Other investments are classified as held-to-maturity given theCompany’s intent and ability to hold the securities to maturity and are 

 

23

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carried at amortized cost, which approximates fair value. Asset-backedshort term investments are participation loans in real estate mortgages. Themortgage loans are for first and/or second mortgages for residential,commercial and development properties. Investments that have maturities of lessthan one year have been classified as current marketable securities.

 

Marketable securities and short term investmentsconsist the following (in thousands) at September 30:

 

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

 

PROPERTY AND EQUIPMENT: Property and equipment arecarried at cost, less accumulated depreciation and amortization. Depreciationis provided using the straight-line method over estimated useful lives ofeighteen months to seven years or, in the case of leasehold improvements, overthe period of the related lease, if shorter. Major replacements andimprovements are capitalized; repairs and maintenance are expensed as incurred.Accelerated and straight-line methods of depreciation are used for income taxreporting.

 

VALUATION OF GOODWILL: In accordance with Statementof Financial Accounting Standard (“SFAS”) No. 142, *Goodwill andOther Intangible Assets* (“SFAS 142”), goodwill and other intangibleassets with indefinite lives are not amortized, they are instead tested forimpairment annually or whenever events or changes in circumstances indicatethat the asset may be impaired. There have been no impairment charges.

 

EARNINGS PER SHARE: The Company’s basic earnings pershare amounts are computed by dividing net income by the weighted averagenumber of outstanding common shares. Diluted earnings per share is computed bydividing net income by the weighted average number of outstanding common sharesand common share equivalents attributable to the assumed exercise of dilutivestock options.

 

STOCK OPTION PLAN: The Company has a stock option plan under whichofficers, directors, employees and consultants have been or may be grantedincentive and nonqualified stock options to purchase the Company’s common stockat fair market value on the date of grant. The options become exercisable overvarying periods and in most cases expire five years from the date of grant;however, the plan provides a maximum term of 10 years.

 

On October 1,2006, the Company adopted SFAS No. 123(R), *Share-Based Payment*, (“SFAS 123(R)”) which requires themeasurement and recognition of compensation expense for all share-based paymentawards made to employees, directors and consultants, including stock optiongrants. SFAS 123(R) supersedes our previous accounting under AccountingPrinciples 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).

 

TheCompany adopted SFAS 123(R) using the modified prospective transitionmethod, which requires the application of the accounting standard as of October 1,2006, as further described below. In accordance with the modified prospectivetransition method, the Company’s financial statements for the year ended September 30,2006 have not been restated to reflect, and do not include, the impact of theadoption of SFAS 123(R).

 

SFAS123(R) requires companies to estimate the fair value of share-basedpayment awards on the date of grant using an option-pricing model. The value ofthe award’s portion that is ultimately expected to vest is recognized asexpense over the requisite service periods in the accompanying condensedfinancial statements for the year ended September 30, 2007. Prior to theadoption of SFAS 123(R), the Company accounted for share-based awards using theintrinsic value method in accordance with APB 25. Under the intrinsic valuemethod, share-based compensation expense was only recognized if the exerciseprice of the grant was less than the fair market value of the underlying stockat the date of grant. No stock-based compensation expense was recorded by theCompany as options have been granted at fair market value on the date of grant.

 

Priorto October 1, 2006, the Company disclosed compensation cost related tostock options in accordance with APB 25. The following table illustrates theeffect on net income and earnings per share for the year ended September 30,2006 if the Company had applied the fair value recognition provisions of FASBStatement 123, *Accounting for Stock-BasedCompensation,* to stock-based employee compensation (amounts inthousands, except per share amounts):

 

24

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| ** **            | ** **                                                                                                                                              | **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 | ) |

 

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 historicalinformation to estimate expected term and forfeiture rates of options. Theforfeiture rate applied to 2007 grants is 4.75%. These effects may not berepresentative of the future effects of applying the fair value method.

 

NEW ACCOUNTING PRONOUNCEMENTS: In July 2006, the FASB issued FASBInterpretation No. 48 (“FIN 48”), Accounting for Uncertainty in IncomeTaxes - an interpretation of FASB Statement 109. FIN 48 prescribes acomprehensive model for recognizing, measuring, presenting and disclosing inthe financial statements tax positions taken or expected to be taken on a taxreturn, including the decision whether to file or not to file in a particularjurisdiction. FIN 48 is effective for fiscal years beginning after December 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 48 thesewill be accounted for as an adjustment to retained earnings. The Company doesnot believe this will result in any material impact to its financialstatements.

 

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurement.* Thisstatement does not require any new fair value measurement, but it providesguidance on how to measure fair value under other accounting pronouncements.SFAS No. 157 also establishes a fair value hierarchy to classify thesource of information used in fair value measurements. The hierarchyprioritizes the inputs to valuation techniques used to measure fair value intothree broad categories. This standard is effective for the Company beginningyear ending September 30, 2009. The Company is currently evaluating theimpact of this pronouncement on its financial statements.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial Liabilities.* SFAS No. 159 permits companiesto choose to measure certain financial instruments and certain other items atfair value. The election to measure the financial instrument at fair value ismade on an instrument-by-instrument basis for the entire instrument, with fewexceptions, and is irreversible. SFAS No. 159 is effective for theCompany beginning year ending September 30, 2009. The Company is currentlyevaluating the impact of this pronouncement on its financial 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, the Company purchasedsubstantially all of the assets (primarily the MediaVaultäproduct line) of Huge Systems, Inc. (“Huge”). Huge was a privately heldcompany and a leading supplier of data storage solutions for the graphic andvideo content creation marketplace. The total transaction cost of approximately$3.4 million included an allocation of approximately $2.8 million to goodwill.As part of the analysis of the acquisition, it was determined there was nomaterial in-process research and development at the date of acquisition.

 

Inconjunction with the acquisition, the Company also issued certain warrants topurchase an aggregate of 30,000 shares of Ciprico common stock at a price of$5.00 per share to certain stockholders of Huge. The warrants become 

 

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exercisable ratably through January 2009 and terminate five yearsfrom the date of issuance.

 

In accordance with SFAS 142, goodwill and otherintangible assets with indefinite lives are not amortized, but are insteadtested for impairment annually or whenever events or changes in circumstancesindicate that the asset may be impaired. No impairments were identified in2007 and 2006.

 

Intangible assets with finite lives that are subjectto amortization are listed in the table below as of September 30, 2007 (inthousands):

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

 

Amortization expense for theyear ended September 30, 2007 was $102,000. These intangibles will befully amortized in the fiscal year 2008.

 

3.SUPPLEMENTARY BALANCE SHEET INFORMATION

 

Other accrued expenses includes the following (inthousands) 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.

 

Thetax effects of the cumulative temporary differences result in net deferredtaxes as follows (in thousands):

 

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| **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 Company had netoperating loss carry forwards of approximately $32.8 million, which expire atvarious dates from 2022 to 2027, and general business credit carry forwards ofapproximately $1.3 million, which expire at various dates from 2011 to 2018.

 

The following is a reconciliation of the federalstatutory 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 - aninterpretation of FASB Statement 109. FIN 48 prescribes a comprehensive modelfor recognizing, measuring, presenting and disclosing in the financialstatements tax positions taken or expected to be taken on a tax return,including the decision whether to file or not to file in a particularjurisdiction. FIN 48 is effective for fiscal years beginning after December 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 48 thesewill be accounted for as an adjustment to retained earnings. The Company doesnot believe this will result in any material impact to its financialstatements.

 

5.STOCKHOLDERS’ EQUITY

 

### *Authorized Shares*

### * *

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

 

### *Stock Repurchase*

### * *

The Company’s stock buyback program is currentlysuspended. Under the plan $12.0 million was authorized to be used for therepurchase program. There were no shares repurchased in the fiscal years 2007and 2006.

 

#### *StockholdersRights Plan*

#### * *

On January 8, 2003, theBoard of Directors adopted a stockholder rights plan under which the Boarddeclared a dividend distribution of one right for each outstanding share ofCiprico 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 $32.00 per right.Subject to certain allowable actions by the Board, the rights will become 

 

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exercisable if a person or group acquires 15% ormore of the Company’s common stock or announces a tender offer for 15% or moreof its common stock. Unless the Board exercises certain other rights, if such aperson acquires 15% or more of the Company’s common stock, each right wouldenable a Ciprico stockholder to acquire Ciprico stock having a market value oftwice the right’s exercise price. The rights are redeemable at the option ofthe Company in certain instances.

 

### *Stock Options*

### * *

Option transactions under the Company’s stock optionplans during the years ended September 30, are summarized as follows:

 

| ** **                                 | ** ** | **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 information regardingoutstanding 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 unrecognized share-based compensation cost related to unvestedstock options was $988,000, which is expected to be recognized over a weightedaverage period of approximately four years. The Company has included thefollowing amounts for 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       |   |

 

TheCompany did not realize any actual tax benefit from the tax deductions forstock option exercises during year ended September 30, 2007, due to thefull valuation allowance on the Company’s U.S. deferred tax assets

 

Share-basedcompensation expense recognized during the year ended September 30, 2007included (1) compensation expense for awards granted prior to, but not yetfully vested as of October 1, 2006, and (2) compensation 

 

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expense for theshare-based payment awards granted subsequent to September 30, 2006 basedon the grant date fair values estimated in accordance with the provisions ofSFAS 123(R). SFAS 123(R) requires forfeitures to be estimated at the timeof grant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates. The Company has historically and will continue toestimate the fair value of share-based awards using the Black-Scholesoption-pricing model. Total unrecognized share-based compensation cost relatedto unvested stock options as of September 30, 2007 has been adjusted forestimated forfeitures.

 

As of September 30, 2007, the Company had279,481 shares reserved for future issuance under the plan.

 

### *Restricted Stock Plan*

### * *

The 1996 Restricted Stock Plan (“RSP”) provides forcommon stock awards to officers, directors and certain key employees of theCompany. All restricted stock awards entitle the participant to full dividendand voting rights.

 

Thefollowing table summarizes the status of the Company’s non-vested restrictedstock 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 |   |

 

Duringthe year ended September 30, 2007, $244,000 of expense was recognizedrelated to outstanding restricted stock awards. The vesting period for theseawards currently ranges from one to two years. Those that vest over a one-yearperiod vest without other conditions. Those that vest over a two-year periodvest only if certain service, market and, in some cases, performance conditionsare 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 eachfor 300,000 shares. The exercise price of the first warrant is $6.00 and vestsif sales of software licenses exceed $2,000,000 and sales of RAID controllercards exceed $5,000,000 in the first year ending June 6, 2007. Theexercise price of the second warrant is $8.00 and vests if sales of softwarelicenses exceed $4,000,000 and sales of RAID controller cards exceed$15,000,000 in the second year ending June 6, 2008. The exercise price ofthe third warrant is $10.00 and vests if sales of software licenses exceed$4,000,000 and sales of RAID controller cards exceed $20,000,000 in the thirdyear ending June 6, 2009. The first tranche of warrants related to theperiod ending June 6, 2007 did not vest as revenue targets were notachieved. There is provision for a cumulative provision if sales meet thestated target over the 3 year period ending June 6, 2009.

 

6.               NET LOSS PER SHARE

 

Basicand diluted loss per share amounts were computed using weighted average sharesoutstanding for each respective period. As the Company incurred losses for theyears ended September 30, 2007 and 2006, the effect of potentiallydilutive securities has been excluded from the calculation of loss per share asinclusion would have had an anti-dilutive effect.

 

Actualweighted average shares outstanding used in calculating basic and diluted lossper share were as follows for the years ended 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 |       |

 

 

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Securitiesexcluded from the computation of diluted loss per share because inclusion wouldhave had an anti-dilutive effect were as follows for the years ended September 30:

 

| ** **               | ** ** | **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 reportable segment.

 

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.Receivables from those two significant customers at September 30, 2007were $68,000 and $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, 2007 and2006, 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 PurchaseAgreement (“Purchase Agreement”) with multiple accredited investors for theprivate placement of a minimum of $3,000,000 and a maximum of $7,800,000 ofconvertible notes and common stock warrants for $0.25 worth of warrant sharesfor each $1.00 of principal invested.

 

Theconversion price for the notes and the exercise price for the warrants is fixedat an amount equal to the average closing bid price of the Company’s commonstock for the five (5) consecutive trading days ending on the trading dayprior to the issue date. That price was $3.86 for the initial closing on December 21,2007 for a principal amount of $5.1 million.

 

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Thenotes are due and payable in full on the 15-month anniversary of the date ofissuance and the warrants are exercisable from the date of issuance until thefive year anniversary. The number of shares issuable upon exercise of thewarrant is subject to adjustment in the event of stock splits or dividends,business combinations, sale of assets or other similar transitions.

 

Thenotes, warrants and common stock issuable upon conversion of the notes orexercise of the warrants have not been registered under the Securities Act of1933, as amended, (the “Securities Act”), or any state securities laws and weresold in a private transaction exempt from registration pursuant to Section 4(2) ofthe Securities Act, and Rule 506 of Regulation D promulgated thereunder,as a transaction by an issuer not involving any public offering.

 

TheCompany is obligated to register the shares of common stock issuable upon theconversion of the notes and the exercise of the warrants pursuant to certaincustomary terms and conditions contained in the note and the warrant.

 

Four related parties purchased notes and receivedwarrants.  Board member James W. Hansenpurchased a Note from the Company in the amount of $100,000 and was issued6,577warrants.  Board member James D.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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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Board of Directors andShareholders

Ciprico, Inc.

St. Louis Park, Minnesota

 

                             We have audited the accompanying balancesheet of Ciprico, Inc. as of September 30, 2007, and the relatedstatements of operations, stockholders’ equity, and cash flows for each of thetwo years in the period ended September 30, 2007.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements 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 financialreporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

                             Asdiscussed in Note 1 to the consolidated financial statements, effective October 1,2006, the Company changed its method of accounting for share-based payments toadopt Financial Accounting 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 resultsof its operations and its cash flows for each of the two years in the periodended September 30, 2007, in conformity with accounting principlesgenerally accepted in the United States of America.

 

/s/ GRANT THORNTON LLP

 

Minneapolis,Minnesota

December 26,2007

 

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