**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-KSB**
| **x**      | **ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)OF  THE SECURITIES EXCHANGE ACT OF 1934**                                            |
|------------|--------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                           |
| ** ** | **For the fiscal year ended September 30, 2006**                                                                                     |
| ** ** | ** **                                                                                                                           |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 or 15  (d)OF THE SECURITIES EXCHANGE ACT OF 1934**                                        |
| ** ** | ** **                                                                                                                           |
| ** ** | **For the transition period from        to        ** |

 

## **Commission FileNo. 0-11336**

**CIPRICO INC.**

(Name of small business issuer inits Charter)

| **Delaware**                                                     |   | **41-1749708**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification No.) |

 

**17400 MedinaRoad, Suite 800, Plymouth, Minnesota 55447**

(Address of Principal Executive Offices, Including Zip Code)

Issuer’s Telephone Number:**(763) 551-4000**

----

Securitiesregistered under Section 12(b) of the Exchange Act: **Common Stock (par value $0.01 per share)**

Securitiesregistered pursuant to Section 12(g) of the Exchange Act: **None**

----

Indicate by checkmark whether the issuer is not required to filepursuant to Section 13 or 15(d) of the Securities 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 Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirement for the past 90 days.  Yes x  No o

Indicate bycheckmark if there is no disclosure of delinquent filers pursuant to Item 405of Regulation S-B contained in this form, and no disclosure will be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB.  x

Indicate by checkmarkwhether the registrant is shell company (as defined by Rule 12b-2 of theExchange Act).  Yes o  No x

State issuer’s revenuesfor its most recent fiscal Year $11, 932,000

----

Theaggregate market value of shares held by non-affiliates was approximately $25.9million computed by reference to the last sale price of the Company’s CommonStock, as reported in the NASDAQ National Market system, on October 31, 2006.

As ofOctober 31, 2006, the Company had outstanding 5,018,906 shares of Common Stock.

**DOCUMENTS INCORPORATED BY REFERENCE**

Portionsof the Proxy Statement for the Annual Meeting of Stockholders to be held onJanuary 25, 2007 are incorporated by reference into Part III of this report.

Transitional Small Business Disclosure Format:  Yes o  No x

 

----

CIPRICO INC.INDEX TO ANNUAL REPORT ON FORM 10-KSBFOR THE YEAR ENDED SEPTEMBER 30, 2006
| PART I   |                                                                                                              |   |
|----------|-------------------------------------------------------------------------------------------------------------------|--------|
| Item 1   | Description of  Business                                                                                          | 3      |
| Item 2   | Description of  Properties                                                                                        | 11     |
| Item 3   | Legal Proceedings                                                                                                 | 11     |
| Item 4   | Submission  of Matters to a Vote of Security Holders                                                              | 11     |
|     |                                                                                                              |   |
| PART II  |                                                                                                              |   |
| Item 5   | Market for  Common Equity, Related Stockholder Matters and Small Business Issuer  Purchases of Equity Securities  | 12     |
| Item 6   | Management’s  Discussion and Analysis of Plan of Operation                                                   | 12     |
| Item 7   | Financial  Statements                                                                                             | 15     |
| Item 8   | Changes In  and Disagreements With Accountants on Accounting and Financial Disclosure                             | 27     |
| Item 8A  | Controls and  Procedures                                                                                          | 27     |
| Item 8B  | Other Information                                                                                                 | 27     |
|     |                                                                                                              |   |
| PART III |                                                                                                              |   |
| Item 9   | Directors,  Executive Officers, Promoters and Control Persons; Compliance With Section  16(a) of the Exchange Act | 27     |
| Item 10  | Executive  Compensation                                                                                           | 27     |
| Item 11  | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                  | 28     |
| Item 12  | Certain  Relationships and Related Transactions                                                                   | 28     |
| Item  13 | Exhibits                                                                                                          | 28     |
| Item 14  | Principal  Accountant Fees and Services                                                                           | 28     |
|     |                                                                                                              |   |
|     |                                                                                                              |   |
|     | Signatures                                                                                                        | 29     |
|     | Exhibit Index to Form  10-KSB                                                                                     | 30     |

 

2

----

**NOTE REGARDING FORWARD–LOOKINGSTATEMENTS**

Certain statementscontained in this Annual Report on Form 10-KSB, including, but not limitedto, statements regarding the development and growth of our business, ourintent, belief or current expectations, primarily with respect to our futureoperating performance and the products and services we expect to offer andother statements contained herein regarding matters that are not historicalfacts are “forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended, and are subject to the “safe harbor” created by thosesections.  Generally, words such as “may,”“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “will,” “predict,”“intend,” or “potential” and similar expressions identify forward-lookingstatements.  Because such statementsinclude risks and uncertainties, many of which are beyond our control, actualresults may differ materially from those expressed or implied by theseforward-looking statements.  These risksand uncertainties include, but are not limited to: (i) competitivefactors, including pricing pressures; (ii) variability in quarterly sales;(iii) economic trends generally and in various markets; (iv) generaleconomic conditions; (v) unanticipated risks associated with introducingnew products, features and services; and (vi) other events and importantfactors disclosed previously and from time to time in our filings with the U.S.Securities and Exchange Commission (SEC). Future SEC filings, future pressreleases and oral or written statements made by us or with our approval, whichare not statements of historical fact, may also contain forward-lookingstatements.

Readers are cautionednot to place undue reliance on these forward-looking statements.  Forward-looking statements speak only as ofthe date on which they were made, and except as required by law, we assume noobligation to update any forward-looking statements. Although we believe thatthe expectations reflected in these statements are reasonable, we cannotguarantee future results, levels of activity, performance or achievements.  We do not intend to update or revise anyforward-looking statements whether as a result of new information, futureevents or otherwise.

**PART I**

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

**General Development of Business**

Ciprico Inc. (“theCompany” or “We” or “Our” or “Us”) is a storage software, services andsolutions provider for digital media assets.  Ciprico provides a software storage platformwith unique features that allows system builders, value added resellers,and original equipment manufacturers(OEMs) to build storage devices at lower cost, with greater flexibility ofinputs and drive types, and with higher software value added features.  The Company leverages this platform byproviding design and integration services for customers primarily in military,government and other rich media application markets and provideshardware and software product solutions for digital mediaapplications.  Our solutions combinestorage, networking and computing technologies to improve the productivity ofcustomer workflows for the capture, creation, manipulation, archival, managementand distribution of digital assets.   Ourstorage appliances are designed primarily for visual computing applicationsranging from high-speed image data capture, through processing and analysis, toreal-time playback at sustained performance levels within our target markets:content creation/digital cinema (including pre-media, video, digitalintermediate, and post production), broadcast, and other rich media applicationmarkets.

We were incorporated under the name Computer Products Corporation inFebruary 1978 and changed our name to Ciprico Inc. in May 1983.  Until 1990, we developed and manufacturedcontroller-based products for manufacturers and end users of computersystems.  In late 1990, we introduced forsale our first RAID (Redundant Array of Independent Disks) data storage product.   Throughout the 1990’s, we provided theindustry standard for reliability in disk arrays with the 6700, 6900, 7000 and FibreSTORE® series. In January 2005, we purchased substantially all of the assets of HugeSystems, Inc. including their MediaVaultTM product line, which is focused on thevideo/graphic content creation/digital cinema marketplace.  In June 2006 we entered into aTechnology License and Asset Purchase Agreement with Broadcom Corporation thatincluded the purchase of the assets of Broadcom’s RAIDCoreTM business and thecross license of software technology between Ciprico and Broadcom.

We offer the RAIDCoreTM technology through the distribution channel as aRAID controller card, and to original design manufacturers (ODMs) and OEMs assoftware on a chip.   The RAIDCoreTMproducts offer basic RAID (RAID 0, 1, 10) as well as advanced RAID 5 (for highinput/output (I/O) oriented uses) and controller spanning.  Our product solutions and appliances areoffered in a range of open platform, disk-based solutions, including productsthat implement a variety of RAID techniques including RAID 0 for sustaineddata throughput performance, RAID 3 or 4for first level redundancy for any single drive, RAID 5 for high input/output(I/O) oriented uses and RAID 6 for continued performance with two faileddrives.  We also provide SAN (StorageArea Network) and NAS (Network Attached Storage) subsystems, focused on meetingthe multi-stream demands of digital media workgroup applications.

3

----

**(1)****           Productsand Services.**

***Software Products***

The Ciprico storage software platform is offered to ODMs, OEMsand system builders on a direct basis. This feature rich software is hardware independent and agnostic and canrun on a chipset, RoC (Raid on Chip), RoMB (RAID on MotherBoard), or HBA (HostBased Adapter).  In addition, it offersmultiple levels of RAID protection including host-based bootable RAID 5.  This industry-leading software will also beavailable in the next fiscal year with level 6 RAID protection and becompatible with SATA I, SATA II, or SAS drives. Our RAIDCore software is a highly integrated storage platform thatincludes enterprise-class RAID software that runs on multiple storage siliconofferings and provides our customers with a competitive advantage.

The Companyintends to offer a Universal Storage Driver Interface, common managementapplication interface and value added software features such as backup, virtualtape library and thin provisioning to drive down costs, offer flexibility inproduct design, and increase the value our customer can offer to themarketplace resulting in enterprise quality storage appliances at significantlyreduced cost.

***Services***

Ciprico has adecade long history of providing solutions for military and governmentapplications and continues to offer ruggedized solutions for thatmarketplace.  In the past fiscal year thecompany has begun utilizing its core software intellectual property to designcustomized software for military applications with unique features.  This service generates non-recurringengineering fees for software development and ongoing software licensing feesfor the life of the related program.  TheCompany intends to expand this effort in the next fiscal year and will continueto develop and market ruggedized and removable storage solutions.

***Product Solutions and Appliances***

We create, design,and develop all of our product solutions and appliances to operate at peakperformance levels while maintaining high reliability.  We offer customers a choice ofseveral different solutions depending on their value and performanceneeds.  Very high performanceapplications may require one or several systems and different levels of RAIDprotection. Ciprico products are available in several RAID levels tomeet the varying demands of the customer base: RAID 0 **–** stripes dataacross multiple disk drives to increase sustained data throughput performancebut provides no redundancy, acceptable when content can be easily redigitizedor otherwise recovered; RAID 1 **–**duplicates data via mirroring to provide redundancy;  RAID 3 **–**stripesdata across “n” number of disk drives and creates a dedicated parity drive thatprotects data against the loss of any single disk drive in the subsystem, a keyfeature for creative applications such as animation or special effects whereunique data cannot afford to be lost; RAID 4 **–**identical to RAID 3except RAID 4 moves data in large blocks and can show better read datarates;   RAID 5 –stripes data and parityacross all the disk drives in the array, making it very good for transactionprocessing and is thus best for traditional data processing or enterpriseapplications;  RAID 6 **–** provides exceptional data protectionwhere any two drives can fail and the array will still maintain all the data,and all the sustained throughput, so the customer can continue to work. ThisRAID level is important in very large arrays that contain critical data, suchas a feature film, where data loss could be catastrophic.

Our products are organized into four product line families: **RAIDCoreTM, MediaVault****ä, FibreSTORE****®, and DiMeda****®.**

**RAIDCoreTM**

Our RAIDCoreproduct family offers storage ODMs, OEMs and system builders (including whitebox server builders) a complete and feature-rich storage platform softwaredelivered as a HBA.  The closeinteroperability between the software and the silicon provides significant costsavings and the ability for system builders to focus on providing higher valuestorage solutions.

The RAIDCore RAID controller series delivers multiple RAID levels forservers and workstations. These controller boards are marketed and distributed primarily through largemulti-national distributors. With controller spanning, online capacity expansion, online RAID levelmigration and distributed sparing, they offer enterprise-level data integrityand leadership data access performance at a highly economical total cost ofownership.  These board level productscome in both 4 and 8 port SAS (Serial Attached Storage), SATA II, and SATA Imodels.  In addition, both the PCI-X® andPCIe (express) boards provide for either hardware RAID or Host-based RAID.   With the industry’s first SATA RAID on chip(RoC) as well as the industry’s first controller spanning feature, the RAIDCoreproduct’s single chip solution provides for higher reliability and greaterperformance at a lower board and enclosure cost.

**MediaVaultTM**

Our MediaVault product line is designed as a cost effective solution for high-bandwidth contentcreation applications like uncompressed SD / HD editing, film digitalintermediate work, and digital cinema. These products are marketedprimarily through distributors to dealers and integrators in the pre-media andvideo content creation industry who combine the high bandwidth attributes ofMediaVault with high definition and film resolution software/hardwarecomponents for a complete solution for their end user 

4

----

customers. The MediaVault RAID software family is a thirdgeneration code set that is focused on providing very high performancethroughput for video applications using RAID 0, 3 and 6 in a very low costhardware architecture thus providing a superior value for the contentcreation/digital cinema market. Our currentproduct offerings include ahigh performance 4Gb Fibre Channel and U320 SCSI interface, and switchable RAID0 and RAID 3 operation, offering both performance and protection. RAID 6operations are now included on select models offering users added level of dataprotection.

*MediaVaultU320-S* and*U320-S Dual*are respectively single channel and dual channel appliances with Ultra 320 SCSI(Small Computer System Interface) host interfaces and ATA (Advanced TechnologyAttachment) drive interfaces using the same desktop chassis. The MediaVaultU320-S****is a 5-drive system witheach channel capable of data rates in excess of 200MB (Megabytes) per second(which translates in our markets to the ability to stream 10 bit uncompressedHD resolution files). The MediaVault U320-S Dual is essentially two MediaVaultU320-S disk arrays in a single chassis. Each disk array is independent with itsown disk drives and U320 controller. The U320-S and S Dual****can be configured in RAID 0 (performance)or RAID 3 (protected) operation.

*MediaVaultU320-R* and *RX*are next generation versions of the S products in an ergonomically designedchassis, with the same hardware RAID technology providing identical performanceas the S models, but having greater user serviceability through removabledrives and, in the case of the RX version, redundant power supplies. The RXversion has the added benefit of being rack mountable.

*MediaVault4105, 4110* and *4210*are the Company’s 4Gb (Gigabit) Fibre Channel storage appliances and aremarket-leaders in this format, utilizing ATA disk technology to provide bothexcellent value/performance metrics and quiet, heat minimizing features. The4105 is a single channel, 5-drive system with data rate performance of 250MB to300MB (Megabytes) per second.  The 4110is a 10-drive array drive offered in a 1U (one rack mount unit) chassis thatemploys the same 4Gb Fibre Channel RAID controller as the 4105 driving two 5-drivearrays.  This product is capable ofsimilar data transfer rates to the 4105, but the product density lends it muchmore to near line storage solutions such as archiving and digital assetmanagement at a very low cost per GB. The 4210 is a dual controller 10 drive system, and with 2 channelsstriped it is capable of data rates in excess of 600MB per second, making theseproducts ideal for use in HDTV and film resolution applications. The currentversions of these 4Gb MediaVault products allow for multiple product “daisychaining” in archiving applications and are also available in RAID 6.  The 4105 and 4210 models feature removabledisk drives, and the 4210 also has user serviceable controller(s), redundantcooling fans and redundant power supplies. Redundant failover controllers willbe available in the next fiscal year.

The*MediaVault IB* brings data throughput to an unprecedentedlevel by serving as a bridge between multiple 4Gb Fibre Channel MediaVault diskarrays and the InfiniBand interface in the host that is capable of sustaining20Gbit per second data rates.  With Ciprico’s extensive experience inproviding storage solutions to both commercial and government entities, the MediaVaultIB was designed with high bandwidth, high-performance applications in mind: 2Kand 4K film capture and playout in the Digital Intermediate process;multi-stream HD transfers in collaborative shared storage networks for contentproduction and post production; real-time image capture and analysis in labresearch and simulation for industrial or military products development.

The*MediaVault 4440* is a compact, modular, removable highperformance RAID disk system with quad 4Gb Fibre Channel controllers and 40shock resistant 2.5” drives that allows for portability with enhancedprotection for digital media.  Along withindustry leading real-time RAID 6 protection the 4440 has extremely fastperformance with data rates of 1200MB per second, which supports 4K filmresolution files, 2 streams of 2K resolution, or 4 streams of uncompressed HD10 bit.  The unit is configured with fourremovable vPODsTM that each have their own controller and therefore function asa self contained RAID unit.  A ruggedizedversion for military customers and a rack mount version are planned for thenext fiscal year.

**FibreSTORE****®**

Our *FibreSTORE** *product line family utilizes our legacy RAID arraysoftware technology designed by Ciprico andincludes unique features such as Accelerated Drive TeamingTM, guaranteedperformance in degraded modes, as well as premium software packages enablingentire disk packs to be removed and replaced from the base unit.   The FibreSTORE software platform was designedfor flexibility and is primarily marketed as an OEM (Original EquipmentManufacturer) product available as a completed product, as a controller only orthrough a software license arrangement.

*FibreSTORE 2210*is acontinuation of previous generations of Ciprico RAID technology and offers 2GbFibre Channel technology for both the host and drive interfaces.  The base system is comprised of two RAIDcontrollers, ten disk drives and redundant power supplies.  The product scales in capacity to 24 TB persystem by utilizing expansion chassis, each of which comprises two interfaces,ten disk drives and redundant power supplies. Its unique set of benefits to the customer are in the area of enhancedapplication performance as it pertains to ensured, uninterrupted dataavailability at full performance levels without disruption.  These features make the product uniquelysuited for high bandwidth applications for the military and broadcast markets.

*FibreSTORE2212A* and *4212A*are dual RAID systems with 2Gb and 4Gb Fibre Channel host interfaces,respectively, and twelve SATA (Serial ATA) disk drives. The product wasdesigned employing Ciprico’s Accelerated Drive TeamingTM software as the keydifferentiated feature.  AcceleratedDrive Teaming, or XDT for short, is a methodology utilizing hardware andsoftware techniques to overcome the inherent drive delays found in desktopdrives.

5

----

*TALONTM 2211* or “TALON II” is a highly ruggedized product for militaryapplications.   The mechanical chassis isdesigned to enable the operation of a disk array in harsh environments oftemperature, shock, vibration, salt-fog, etc. Additionally, the patent pending removable disk pack feature is a keydifferentiation, enabling the portability benefits of tape, with the randomaccess benefits of disk drives.  TALON IIuses the same Ciprico developed RAID technology as our FibreSTORE 2210family.  This enables the TALON II toachieve 2Gb per second performance through each of the two active RAIDcontrollers in the product for high data rate recording and playbackapplications.  The next generation TALONIII product is being developed utilizing low cost SATA/SAS drives and a lightermore compact chassis.

**DiMeda®**

Our *DiMeda*product line familyutilizes our common NAS software.  This software consists of several codesub-libraries, including open source operating and file systems.  TheDiMeda family product line wasdesigned to provide high performance,high-availability, shared storage utilizing IP based networking protocols of CIFS (Common Internet File System) and NFS (Network File System) in a file based sharedstorage system deliveringnear-Fibre Channel SAN (Serial Attached Network) performance with theease-of-use of an appliance.  It is builton standard off the shelf PC motherboard and chassis hardware with Linux basedsoftware components.  With bothstandard 1Gb and 10Gb Ethernet connectivity and either RAID 5 or RAID 0+1levels of protection, as well as support for industry standard networkingprotocols, the DiMeda appliances offer an easy to use, high performance,resilient networked storage solution capable of storing large quantities ofdigital media content.

The *DiMeda 1712* isconfigured as a single, integrated solution, which includes the NAS serverprocessor board, an internal RAID controller and twelve SATA disk drives withintuitive web-based GUI for simple system and storage management. It istargeted at workgroup-based applications requiring multi-stream sharing ofdigital media content such as in video editing.

The *DiMeda 1724* is thelarger capacity version of the 1712 and is configured as a single, integratedsolution which includes the NAS server processor board, two internal RAIDcontrollers and twenty-four (24) SATA disk drives.

The *DiMeda 10G* is a NASsystem with a 10Gb Ethernet port and is targeted at applications that requiresustained data rates exceeding 300 MB/second such as multi-stream HDediting.  The DiMeda 10G is configured asa single, integrated solution, which includes the NAS server processor board,two internal RAID controllers, and twenty-four (24) SATA disk drives.  DiMeda 1724 customers can be upgraded to 10GbEthernet technology via an upgrade kit.

***Warranty and Product Services Programs***

**Standard Warranty*.***

Included with almost every product sale is our standard warranty(generally 3 years), which comprises standard business hours telephone supportto record, diagnose, advise on and solve issues of operational nature relatingto all products.  Standard warrantytechnical support can also be accessed through e-mail or by filling out andsubmitting the appropriate form on our website. In the event of product or component failure, the technical support teamworks with sales support to respond appropriately.  Shipped products are supplied with astandard return-to-factory warranty.

## **ProductService Programs*****.***

## In addition to the standardwarranty offered on product sales, we offer a range of contract-based serviceprograms with ascending levels of product service coverage.  These service programs are adjunct to thestandard warranty and comprise the following:

i)                                         Lights On **–** 24x7 telephone support.Essentially an all-hours version of the technical support detailed above.

ii)                                      Advance Replacement  **–** Advanced Parts Replacement available as 1, 2 or3 year contracts whereby in the event of a part failure the customer can requestthe shipment of a new replacement part before the failed part is returned.

iii)                                   Advance Replacement with Secure Site Rider **–**Asabove but intended for those with equipment in a secure environment.

Our Advance Replacement Programs provide customers with delivery ofreplacement parts from an authorized Ciprico parts depot.  Depots are currently located in Minneapolis,the United Kingdom and Singapore.

6

----

(2)**           Sales, Marketing and Distribution.**

Our software, services and solutions are sold through a direct salesforce calling on a combination of OEMs, system integrators, distributionpartners and dealers.  Our direct salesorganization is primarily responsible for demand creation activities andcustomer development within these distribution channels in the UnitedStates.  Distribution and dealersales cycles are typically shorter than with an OEM type sale, and range fromtwo weeks to three months.  We also have distribution channels andarrangements in Canada, Asia Pacific and Europe.  In addition to our sales force, we haveinside sales, business development and pre-sales system engineering resourcesthat work closely with and complement our direct sales force.

Over 175 millionstorage platforms were shipped globally in the past year according to GartnerResearch and depending on the specific market is growing at double-digitrates.  These platforms are increasinglybeing used in high-level consumer servers storing video, photographs andmovies.  The drivers of this growth aresocial or regulatory in nature and are complimented by increasing processingpower in core logic chip offerings and new disk drive techniques such as SAS(Serial Attached SCSI).

The availabilityof a standard storage protection software layer (RAID) and management softwarethat can work across different chip vendors, with multiple I/O offerings (FibreChannel, Infiniband, iSCSI), and that can span across both internal motherboards and external appliances, provides system builders and OEMs the basis tooffer Enterprise like storage appliances at much lower total cost of ownership.

We leverage ourcore software technology and distribution system to offer software, services orsolutions for multiple markets**withour primary focus on**enterprise**, **military and government**,**content creation/digital cinema** (including pre-media,video, digital intermediate, and post production), and **broadcast**.

***Enterprise***

Our market focus for the software platformspans the high-end consumer, game developers, media specialists and the SMBmarkets.  We reach these markets throughOEMs, systems builders and VARs with either a software license or a HBA.  For example, a current customer, a majorChina based OEM, is using our software platform, a Broadcom chip, andadditional virtualization software from another vendor to build a storageappliance aimed at the growing SMB market in China.  Our intention is to make this software ubiquitousthroughout the industry and drive storage management costs lower for end usersand decrease the cost of management for the OEM.  We also will introduce into the U.S. marketin the next fiscal year three board level products (HBAs) utilizing our softwareplatform and sold through distribution to system builders.  The initial sales process for OEMs,ODMs and system integrators is complex, requiring interaction with severallayers of the customer’s organization and extensive technical exchanges as wellas product demonstrations with sales cycles ranging from three to eighteenmonths.

***Military and Government***

Our primary focus in this market segment is to provide softwarecustomization services or ruggedized products with removable disks forapplications commonly referred to as “Command and Control” or C4I.  The primary applications within the C4I arethose involving the collection, processing and dissemination of visualreconnaissance and surveillance data. Mission planning, intelligence gathering and targeting applicationsinvolve capturing visual data via airborne or space-based satellite sensors inreconnaissance and surveillance applications. A single image frame ranges from a few megabytes up to 14 GB in size,with the data capture phase requiring the collection of hundreds to thousandsof frames per day.  In the case ofsatellite-based imagery sensors, our products are used at the supporting groundstations.   For airborne applications,our products are onboard aircraft and imagery data is captured at a very hightransfer rate.  In the image processingand archiving applications, the imagery data created from the capture phasemust be processed before it is usable for end-users.  Once processed, the imagery data is stored indigital asset management databases for fast query and retrieval.  These databases often reach multipleterabytes in size and require the high bandwidth performance our productsprovide.  We rely on a direct salesmethod to address this market through government resellers and contractorsprimary to the contract with the governmental unit.  Sales cycles for this market may range from threeto eighteen months and contracts from one to seven years.

***Content Creation/Digital Cinema***

The change has begun in the film industry tocapture the original image with a digital camera, rather than film.  There are still many movies shot with filmthat are then converted to digital for intermediate work (i.e. editing, specialeffects, lighting changes, color changes, etc.) and ultimately put back on filmfor distribution.  There is hugepotential for storage as the movie industry goes digital, including archivesfor the digital intermediate work and ultimately the permanent archiving ofthese digital assets.  In addition toDigital Cinema, companies involved in video content creation such asadvertising agencies, post-production houses and video production companies areanother primary focus.  As theseworkflows move from SD (Standard Definition) assets to HD (High Definition) theneed for storage increases exponentially. Applications within this rapidly expanding global market segment havetraditionally included 3D animation, special effects, film restoration, editingand archive.  Our primary means ofdistributing our products to this market is through authorized distributors andresellers, many of whom put together end-to-end solutions for their customers.

7

----

***Broadcast***

 This market segment growth hasslowed to low single digit unit sales and declined on a revenue basis. Thismarket includes companies that create, edit, manipulate and broadcast images,in real-time using digital technology, which provides reduced cost of ownershipand increased productivity over traditional film and tape based methods.  The expansion of HDTV worldwide provides opportunityfor vendors with solutions that improve the productivity of creating, managingand storing HD content.  Our solutionsmeet the requirements of broadcast and video services applications, whichrequire very high bandwidth and absolute reliability to supply manysimultaneous video streams to multiple users where interruption of service anddead airtime is not acceptable.  Withimages stored as data, applications for storage devices within the televisionbroadcast segment include electronic news gathering, commercial and promotionalinsertion and TV broadcast.  Wehave not emphasized investment in this market due to low margins and increasedcompetition.

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

See item (10) below.

(4)**           Competition.**

The market for alllevels of storage solutions is highly competitive.  We compete against independent storagesuppliers, including but not limited to Apple Computer Inc., Avid TechnologyInc., Dot Hill Systems Corporation, Infortrend Technology, Inc., Xyratex, Ltd.,as well as numerous privately-held companies including Isilon Systems Inc.,DataDirect Networks, BlueArc Corporation, Facilis Technology Inc., and PillarData Systems.  Our RAIDCore product linecompetes with such companies as 3Ware (a part of AMCC – Applied Micro Circuits Corporation),LSI Logic, and Adaptec, Inc..

The markets inwhich we operate are characterized by rapidly changing technology and evolvingindustry standards, resulting in rapid product obsolescence and frequentproduct and feature introductions and improvements. We compete with several companiesthat have greater engineering and development resources, marketing resources,financial resources, manufacturing capability, customer support resources andname recognition. As a result, our competitors may have greater credibilitywith existing and potential customers. They also may be able to adopt moreaggressive pricing policies and devote greater resources to the development,promotion and sale of their products than we can to ours, which would allowthem to respond more quickly than we can to new or emerging technologies andchanges in customer requirements. These competitive pressures may materiallyharm our business.

Our ability to compete successfully depends upon our ability to recruitand retain key human capital capable of continuing to expand our intellectualproperty.  Although we believe that oursoftware platform has certain competitive advantages that are patent pending,there can be no assurances that we will be able to compete successfully in thefuture or that other companies may not develop products with greater utilityand thus reduce demand for our software products, or that we will not encounterincreased price competition for our product offerings which could materiallyand adversely affect our operating results. We also offer complete product solutions that compete against wellestablished companies with substantial sales channel organizations or lowerreturn on investment goals which could materially and adversely affect our thegrowth in product solution sales.

 (5)          **Manufacturing and Suppliers.**

Our productsolutions are manufactured utilizing both configure-to-order and inventoryfulfillment operations models. Manufacturing activities for our products primarily involve qualityassurance testing of subassemblies, final system assembly, integration andfinal test. Our assembly operations are ISO 9001:2000 certified, located inPlymouth, Minnesota and are typical of the electronics industry with no unusualmethods or equipment required.  Thesophisticated nature of some of our products does, however, require extensivetesting by skilled personnel.

Our storageappliance products are comprised mainly of a controller, an enclosure, diskdrives, power supply and other miscellaneous parts.  Although the subsystems are unique and not readilyavailable, they do contain many components that are industry standard partsthat are readily available from many suppliers at competitive prices.  Our controller board assemblies are purchasedfrom ISO 9001 contract manufacturing companies, which manufacture theassemblies to our specifications.  Thecompleted board assembly is subject to test procedures to insure productperformance, reliability and quality. The metal enclosure and power supply are specified to our needs, butalternative sources for the components are available.  Some of our DiMeda products are sourced as afully integrated hardware solution from our supplier, with our software loadedat their location.

Our RAIDCorecontroller boards are also purchased from third-party manufacturing services totake advantage of the inherent quality and cost benefits.  We believe that using outsourcedmanufacturing services allows us to focus on product development and increasesoperational flexibility, thus allowing us to more rapidly introduce newproducts.

8

----

We depend heavilyon our suppliers to provide high quality materials on a timely basis and atreasonable prices.  We have no long-termsupply contracts.  There can be noassurance that we will be able to obtain, on a timely basis, all of the componentswe require.  If we cannot obtainessential components as required, we could be unable to meet demand for ourproducts, thereby materially adversely affecting our operating results andallowing competitors to gain market share. In addition, scarcity of such components could result in cost increasesand adversely affect our operating results. Our principal suppliers are Seagate Technology, Inc., HitachiGlobal Storage Technologies, Bell Microproducts Inc., Plexus Inc., Du FresneManufacturing Co., Arrow Electronics, and JMR.

For certaincomponents, such as disk drives or controller boards, if we had to seekalternative sources of supply, the incorporation of such components fromalternative suppliers and the manufacture and shipment of the our productscould be delayed while modifications to such products and the accompanyingsoftware were made to accommodate the introduction of the alternative suppliers’components. We estimate that replacing certain components, such as ourcontroller board, or changing manufacturers would involve several months ofhardware and software modifications and would disrupt sales.

(6)**           Customer Dependence.**

Our products aresold to a broad base of customers, in most cases through distribution.  As a percentage of sales, Desktop VideoSystems, a distributor, represented 13% and 6% of net sales in fiscal 2006 and2005, respectively.  While ThomsonBroadcast Solutions, a direct sale customer, represented 12% and 18% of netsales in fiscal 2006 and 2005, respectively.

(7)           **Patents and Trademarks.**

In November 2005,a patent was awarded to Ciprico for Media Server with single chip storagecontroller.  This patent relates to theconversion of digital medium direct from disk to TCP/IP (Transmission ControlProtocol/Internet Protocol) format for distribution.  The market applications are in digitalcinema, Video on Demand and related remote play out applications.

In March 2004, wewere granted a patent related to the interprocessor communication technologysuitable for use in high reliability / availability storage serverproducts.  We have also submitted twoadditional patent applications on certain key attributes of the TALONproduct.  These patent applicationsdisclose aspects of removable disk pack technology as it relates to a redundantarray of independent drives.

We intend topursue other patent applications to the extent we identify technologies orprocesses that may be patentable in the digital media workflows.  Protection of our proprietary hardware,firmware and software is very important to us.

We also rely uponcopyright, trade secret protection and confidentiality agreements with ouremployees, customers, suppliers and partners, to preserve our intellectualproperty rights in this material.  Wehave obtained federal registrations for the trademarks Ciprico®, NETarray®,DiMeda®, and FibreSTORE® and have registration applications pending for ourtrademarks MediaVaultTM, and vPODTM.  Aspart of our Agreement with Broadcom we have the rights to use the trademarksRAIDCoreTM, XelcoreTM, FulcrumTM and HyperraidTM.

Intellectualproperty licensed to Ciprico from Broadcom as part of the Technology Licenseand Asset Purchase Agreement dated June 6, 2006 has a number of patents andpatent applications.  These patentsinclude but are not limited to: a patent awarded for a method and system forconfiguring RAID subsystems with block I/O commands and block I/O path; apatent awarded for a File mode RAID subsystem which involves a method andsystem which enables data redundancy across servers, networks, and controllersby using standard redundant files as underlying storage for RAID subsystemconfigurations; a patent awarded for rebuilding redundant disk arrays usingdistributed hot spare space; a patent awarded related to In-place data transformationfor fault-tolerant disk storage systems; as well as 10 patents pending.

(8)**           Backlog.**

We historically have operated on low levels of backlog, and therefore,do not consider the level of backlog to be indicative of future operatingresults.  As of September 30, 2006, wehad approximately $427,000 in backlog that is scheduled to ship in fiscal 2007.

(9)           **Government Approvals and Effectof Government Regulations.**

Certain of our products may incorporate encryption or other technologysubject to the “dual use” export regulations as administered by the U.S.Department of Commerce.

We are not required to obtain government approval of our products whenthey are not exported.  We do not believethat any existing or proposed governmental regulations not pertaining to exportregulation will have a material effect on our business.

9

----

(10)**         Research and New Product Development.**

We operate in anindustry subject to rapid technological change. Our goals in research and development are to develop performance basedsolutions that meet the needs of our customers and provide a return consistentwith our corporate objectives.  Ourability to achieve this goal is largely dependent upon our ability toanticipate and respond to change.  We useengineering design teams that work cross-functionally with sales and marketing,system engineering and customers to develop products and productenhancements.  As part of our developmentstrategy, we actively seek available,cooperative and co-development activities with industry leaders in thehardware, software and systems businesses.

In fiscal 2006 we provided software and hardware design services fortwo customers.  We were paid a total ofapproximately $900,000 for this work. Both projects are substantially completed.  We also outsourced some development to a teamof engineers in Russia.  All their workwas at our direction and supervised by our engineers.  Our contract with them for the projectsassigned to them is substantially complete.

The majority of our research and development expenses in the past yearwere focused on the development of software to protect digital assets from diskdrive failures.  These investmentsincluded: a RAID 6 platform to be utilized in our MediaVault products; anInfiniband based I/O platform that will be sold as a stand alone bridge deviceas well as a add on to our core RAIDCore storage platform; and software for anintermediate archive for digitally captured cinema.    We expect this trend to continue and acceleratein the next fiscal year due to enhancements and additional features in ourRAIDCore product line.

Our research and development expenses were $3.7 million and $3.5million in fiscal 2006 and 2005, respectively. All of our research and development expenditures are expensed asincurred.  As of November 15, 2006, wehad 16 employees and 5 contractors engaged in research and developmentactivities.

We do not have significant firm orders for our development stageproducts.  There is no assurance that anyof our development programs will be completed or that the resulting products,if any, will be marketed successfully.

(11)         **Environmental Regulation.**

Compliance with present federal, state and local provisions regulatingthe discharge of material into the environment, or otherwise relating to theprotection of the environment, has not had and is not expected to have anymaterial effect upon our capital expenditures, earnings or competitiveposition.  All of our products for theEuropean market are compliant with the European Union doctrine - ROHS(Restriction of Hazardous Substances) and we have finalized our compliance withWEEE (Waste Electrical and Electronic Equipment).

(12)         **Employees.**

As of November 15,2006, we had 43 employees (41 full-time), of which 16 were in engineering,research and development and technical support, 11 in sales, marketing andcustomer service, 8 in manufacturing, operations and quality assurance, and 8 ingeneral management, accounting, information systems and administration.  During the year we also utilized numerouscontract employees in engineering, test, and marketing to meet shorter-termgoals.  None of our employees arerepresented by a labor union.  We haveexperienced no work stoppages and believe that our employee relations aresatisfactory.

We believe that the future success of our business will depend in parton our ability to attract and retain qualified technical, management andmarketing personnel.  Such experiencedpersonnel are in demand, and we must compete for their services with otherfirms, which may be able to offer more favorable benefits.

10

----

**ITEM 2.****                                                     DESCRIPTION OF PROPERTIES.**

Our administrative headquarters, manufacturing as well as some of ouroperations are located in one building in Plymouth, Minnesota, totalingapproximately 39,000 square feet.  Thisfacility is leased under a operating lease through October 2009, with anoption to vacate in October 2007.  The lease provides for base rentalpayments of approximately $344,000 through October 2007 with increases ofapproximately 3% each subsequent 12-month period.   Additionally, we are responsible for ourproportionate share of real estate taxes and operating expenses associated withoperating the facility, as defined by the lease agreement.  In connection with a work force reduction andrestructuring implemented in April 2004, we abandoned approximately 17,000square feet of our headquarters facility. In December 2004 we sublet this space (through October 2007) to a thirdparty at a rate lower than our lease rate. As a result of this sublease, we reversed $466,000 of the charge werecorded for lease abandonment in December 2004.

In July of 2006 weentered into a lease for approximately 4,800 square feet in Agoura Hills,California for sales, service and researchand development.  The lease expires inOctober 2011 and provides for gross rental payments of approximately $9,900 permonth with increases of approximately 3% in each subsequent 12-month period.

In June of 2006 we entered into a short-term lease for approximately3,700 square feet in Nashua, New Hampshire for service and research anddevelopment.  The original term of thelease was through December 1, 2006, and is being extended on a month-to-monthbasis with monthly lease payments of $5,400.

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

**ITEM 3.****                                                     LEGAL PROCEEDINGS.**

We are not a partyto, nor is any of our property subject to any material pending legalproceedings, nor are any material legal proceedings known to be contemplated bygovernmental authorities or others.

**ITEM 4.****                                                     SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.**

No matter was submitted to a vote of security holders through thesolicitation of proxies or otherwise during the fourth quarter of our fiscalyear.

11

----

**PART II**
| **ITEM 5.** | ** ** | **MARKET  FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF  EQUITY SECURITIES.** |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------|

 

STOCK TRADING:

Ciprico common stock is traded on the NASDAQ NationalMarket under the symbol CPCI. As of October 31, 2006, there were approximately1,100 stockholder accounts of record. Closing stock sale price ranges for theyears ended September 30, 2006 and 2005, were:
|             | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| **Quarter** | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| First       |       | $        | 5.66       |     | $          | 4.12 |   | $ | 4.45 |   | $ | 3.72 |   |
| Second      |       | 6.12     |       | 5.47     |       | 4.73 |   | 3.82 |   |
| Third       |       | 6.37     |       | 5.77     |       | 4.75 |   | 4.03 |   |
| Fourth      |       | 6.04     |       | 4.08     |       | 4.97 |   | 3.82 |   |
|             |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

Wehave not, and do not intend to pay cash dividends on any of our securities forthe foreseeable future. We made no sales of unregistered securities, and madeno repurchase of equity securities, during the quarter ended September 30,2006.

EQUITY COMPENSATION PLAN INFORMATION: -See Item 11.
| **ITEM 6.** | ** ** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.** |
|-------------|------------|----------------------------------------------------------------------|

 

The followingdiscussion and analysis of the financial condition and results of operations ofCiprico Inc. should be read in conjunction with the Financial Statements andthe Notes thereto, included elsewhere in this Annual Report on Form 10-KSB.

NET SALES:

Themajority of our sales are through distribution and therefore we do not alwaysknow the exact application and market our products are being used in.  For purposes of this analysis of our netsales we have separated sales into 5 major market categories:

Comparativeinformation on sales by market is shown in the charts below (in millions):
|                                  | ** ** | **2006**  | ** ** | **2005**             | ** ** |
|----------------------------------|------------|-----------|------------|----------------------|------------|
| **Market**                       | ** ** | **Sales** | ** ** | **% of  Total** | ** ** | **Sales** | ** ** | **% of  Total** | ** ** |
| Content  Creation/Digital Cinema |       | $         | 6.2        |                 | 52.5       | % | $ | 4.0 |   | 30.3 | % |
| Broadcast                        |       | 2.8       |       | 23.5                 |       | 3.7 |   | 28.0 |   |
| Enterprise                       |       | 0.2       |       | 1.5                  |       | 0.1 |   | 0.8 |   |
| Military &  Government       |       | 2.5       |       | 21.0                 |       | 5.2 |   | 39.4 |   |
| Other                            |       | 0.2       |       | 1.5                  |       | 0.2 |   | 1.5 |   |
| Total                            |       | $         | 11.9       |                 | 100        | % | $ | 13.2 |   | 100 | % |

 

Salesfor 2006 decreased 10% from 2005 sales, which is primarily due to decreases insales of our legacy products, which were, concentrated in the Broadcast andMilitary & Government markets.   Thisdecrease is offset by the increasing sales of our newer products into theContent Creation/Digital Cinema marketplace, which shows a 55% increase over2005.

Webelieve there is considerable growth in the Content Creation/Digital Cinemamarketplace as the creation and capture of media assets completes it migrationfrom SD to HD and from analog/film to digital.  Our solutions are designed to meet the specific needs of thesecustomers.  We also believe that we haveand are developing applications that are critical to the stages in the digitalworkflow process, including capture, management, archival and distribution ofdigital assets.

Salesin the Broadcast segment decreased 24% from 2005.   We believe the decrease is the result oflost business from competitive effects at each of our largest broadcast OEMsand, to a lesser extent, the result of softer demand within the broadcastindustry.  Sales to our two largest OEM’sdecreased over $1 million from 2005 to 2006.

12

----

Salesin the Military and Government market decreased 52% in 2005 versus 2006.  The decrease in the past fiscal year reflectsreduced spending levels from system integrators associated with defense relatedprograms and the end of a long term program. Sales in the Military segment are to some extent dependent upon theactual appropriation and funding of government programs that specify ourproducts.  In fiscal 2005 we had a largeend of program purchase from a military OEM and no such purchases in 2006.  Sales in the Military segment havehistorically fluctuated between years due to the timing of spending ondefense-related programs.  We believethat we can leverage our technology to satisfy certain customers in this marketthat could prove to be multiple year contracts.

Sales of ourlegacy products in our FibreSTORE family dropped with the loss of key OEMs andanticipated technology obsolescence. However, we are encouraged with the continued growth in the sales of ourMediaVault family of products, which were up over 50% as compared to 2005.  In addition we are encouraged as we arerecognizing our first revenues from the RAIDCore product line (purchased inJune 2006) and we expect that a key part of our future revenue streams willcome from these software products and solutions products. We believe ourrevenue growth in the future is dependent on our ability to sign directlicensing arrangements for our software platform, build strong relationshipsfor our HBA products, generate service revenues, and continue penetration of ourproduct solutions into targeted market segments.

COST OF SALES ANDGROSS PROFIT:

Gross profit, as apercentage of net sales, was 36% in 2006 and 2005.  The 2006 percentage was adversely affected bylower volumes of sales and inventory charges related to our legacy products,offset by the slightly higher gross margin percentages of the MediaVaultproduct line.   Gross profit on applianceproduct sales is highly dependent on the cost of various components includingdisk drives and may fluctuate from quarter to quarter.  We expect to experience continued competitivepressures on gross profit margins throughout fiscal 2007 in our solutionsproduct group. We intend to partially offset these margin pressures through newproduct introductions and cost reductions. Software product sales and the RAIDCore solutions product line carrysignificantly higher gross margin percentages and should have a favorableimpact on gross margin in fiscal 2007.

RESEARCH AND DEVELOPMENTEXPENSES:

Researchand development expenses increased approximately $247,000 or 7% compared to theprevious year.  There were increases as aresult of: 1) having a full year of engineering resources related to theMediaVault product line (8 months of costs in 2005 as this was acquired onJanuary 31, 2005); 2) additional engineering resources employed through anarrangement with a company in Russia; and 3) additional resources related todevelopment of the RAIDCore product line, purchased in June 2006.  These increases were offset in part by a decreasein prototype spending on solutions product projects, as there is a continuedshift towards software development activities.

SALES ANDMARKETING EXPENSES:

Salesand marketing expenses increased approximately $221,000 or 8% compared to theprevious year.  The increase is primarily a result of having afull year of expenses related to the MediaVault product line (8 months of costsin 2005 as this was acquired on January 31, 2005) and to a lesser extentrelated to costs related to contractual customer service obligations of theRAIDCore product line purchase in June 2006. We expect these expenses to increase in absolute dollars duringfiscal 2007 as a result of business development costs associated with theRAIDCore product line.

GENERAL ANDADMINISTRATIVE EXPENSES:

Generaland administrative expenses increased $124,000 from 2005.  This net increase is a result of many factorsincluding costs related to the move of the California office, costs related tothe RAIDCore product line acquisition, increased costs of regulationcompliance, increased costs of insurance – offset to some extent by a reductionin personnel costs and lower legal costs.  We expect general and administrative expenses to increase in fiscal 2007due to higher insurance costs, increased costs to ensure regulatory compliance,increased accounting and audit fees, costs to implement a new accounting,manufacturing and sales system, and costs related to preparing forSarbanes-Oxley Section 404 compliance.

RESTRUCTURING:

Duringthe second quarter of 2005 we implemented a workforce reduction, as a result werecorded a charge of $285,000 related to employee termination costs.  In December 2004 (first quarter of fiscal2005) we sublet a portion of our headquarter facility, for which we had taken arestructuring charge in fiscal 2004.  Due to the sublease of the abandoned space and the additional mitigationof other costs associated with previous restructuring charges, $576,000 ofearlier restructuring charges were reversed in first quarter of fiscal2005.  We do not anticipate any furtherrestructuring efforts in the near future.

OTHER INCOME:

Otherincome of $660,000 and $562,000 in fiscal 2006 and 2005, respectively, isprimarily attributable to interest income on cash and marketable securities. Theincrease for 2006, despite lower principal balances is the result of overallhigher market interest rates and active management of the investments.

INCOME TAXEXPENSE:

Forfiscal 2006 and 2005, no net income tax expense or benefit was recognized, aswe do not expect to realize any current income tax benefits.  The effective income tax expense was 0% in2006 and 2005. See Note 4 to the Financial Statements.

13

----

LIQUIDITY ANDCAPITAL RESOURCES:

As ofSeptember 30, 2006, we had a total of cash, cash equivalents, marketablesecurities and asset-backed short-term investments of $11.0 million compared to$16.1 million at the end of 2005.  TheSeptember 30, 2005 amount includes $2.6 million, which was classified asnon-current.

Cash flows used inoperating activities were $4.2 million and $3.5 million in 2006 and 2005,respectively. The use of cash in all years reflects the net loss and theimpacts of depreciation and changes in working capital.   The change in total cash and investmentsbetween 2006 and 2005 relates to the cash flow to support the net loss, changein working capital and $1.0 million of cash paid out as part of the acquisitionof the MediaVault product line.

Capitalexpenditures were $94,000 in 2006 versus $98,000 in 2005, and relate toequipment purchases or small leasehold improvements.    We anticipate that capital expenditures andrelated expenses for product development activities in 2007 will approximate$500,000.   Some of our development workmay become reimbursable via non-recurring engineering fees we anticipatereceiving from certain customers.

As of September30, 2006, we have lease commitments, including base rents and operating costs,on our corporate headquarters of about $400,000 for each of the next twoyears.  The lease contains a terminationclause, which would allow us to leave the premises in October of 2007 for a feeof $42,000.  The lease expires in Octoberof 2009.  We have a sublease in place with a third party for part of thisspace through October of 2007, which provides us with sublease income ofapproximately $139,000 per year.  Inaddition, we have lease commitments on our California office of approximately$125,000 per year through October 2011.

We have no other obligations left to pay related tothe acquisitions of the MediaVault and RAIDCore product lines.  As part of the acquisition of theRAIDCore product line we purchased the assets of the business, principallyinventory and capital assets. The keyconsideration for the RAIDCore transaction relates to royalties and commissionson future sales of the RAIDCore controller boards and software, as well thevesting of warrants in Ciprico stock should certain sales targets be achieved.

Despitethe cost reduction efforts implemented in recent fiscal years, we are uncertainas to when we can expect to return to profitability due to the lack of anyability to forecast sales in our markets and continued investments expected innew product development.  We aredependent on a substantial increase in sales to be able to achieveprofitability. We believe that current cash balances and cash generated fromoperations will be adequate to fund requirements for operating losses, workingcapital and capital expenditures, as well as any potential acquisitions infiscal 2007.

NEW ACCOUNTINGPRONOUNCEMENTS:

 In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards No.123 (Revised 2004) (“SFAS 123R”) “Share-Based Payment”.    SFAS 123R requires companies to measure allemployee stock-based compensation awards using a fair value method and recordsuch expense in its financial statements. SFAS 123R will be effective for the Company at the beginning of fiscal2007 (October 1, 2006).  The Company isin the final stage of evaluating the impact that the adoption of SFAS 123R willhave on our financial statements.  In theNotes to Financial Statements we have added disclosure related to using thefair value method to evaluate stock-based employee compensation.

CAUTIONARYSTATEMENTS:

Anyforward-looking statements included in this section or elsewhere in this Form10-KSB are subject to various risks and uncertainties, which may cause actualresults to differ from the expectations set forth in these forward-lookingstatements.

14

----

**ITEM 7.****                  FINANCIAL STATEMENTS.**

BALANCE SHEET

Ciprico Inc.

Amounts inthousands, except share data
| **September 30**                                  | ** ** | **2006**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|
| ** **                                             | ** ** | ** ** | ** ** |
| **ASSETS**                                             |       |       |       |
|                                                   |       |       |       |
| CURRENT ASSETS:                                        |       |       |       |
| Cash and cash equivalents                              |       | $          | 4,357      |   |
| Marketable securities and short term investments       |       | 6,679      |       |
| Accounts receivable, less allowance of $186            |       | 1,446      |       |
| Inventories                                            |       | 1,925      |       |
| Other current assets                                   |       | 175        |       |
| Total current assets                                   |       | 14,582     |       |
|                                                   |       |       |       |
| PROPERTY AND  EQUIPMENT, AT COST:                      |       |       |       |
| Furniture and fixtures                                 |       | 510        |       |
| Equipment                                              |       | 4,332      |       |
| Leasehold improvements                                 |       | 637        |       |
|                                                   |       | 5,479      |       |
| Accumulated depreciation and amortization              |       | (5,207     | )          |
| Net property and equipment                             |       | 272        |       |
|                                                   |       |       |       |
| GOODWILL                                               |       | 2,784      |       |
| OTHER  INTANGIBLES, NET                                |       | 136        |       |
| OTHER ASSETS                                           |       | 54         |       |
|                                                   |       | $          | 17,828     |   |
|                                                   |       |       |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**         | ** ** | ** ** | ** ** |
|                                                   |       |       |       |
| CURRENT  LIABILITIES:                                  |       |       |       |
| Accounts payable                                       |       | $          | 1,210      |   |
| Accrued compensation                                   |       | 307        |       |
| Warranty accrual                                       |       | 166        |       |
| Accrued restructuring                                  |       | 106        |       |
| Other accrued expenses                                 |       | 186        |       |
| Deferred revenue                                       |       | 78         |       |
| Total current liabilities                              |       | 2,053      |       |
|                                                   |       |       |       |
| LONG TERM  LIABILITIES:                                |       |       |       |
| Deferred tax liability                                 |       | 66         |       |
|                                                   |       |       |       |
| STOCKHOLDERS’  EQUITY:                            |       |       |       |
| Common stock, 5,015,231 shares issued and  outstanding |       | 50         |       |
| Additional paid-in capital                             |       | 36,390     |       |
| Retained deficit                                       |       | (20,359    | )          |
| Deferred compensation from restricted stock            |       | (372       | )          |
| Total stockholders’ equity                        |       | 15,709     |       |
|                                                   |       | $          | 17,828     |   |

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THISFINANCIAL STATEMENT.

15

----

STATEMENTS OF OPERATIONS

Ciprico Inc.

Amounts inthousands, except per share amounts
| Years ended September 30       | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                     |       | $        | 11,932     |     | $          | 13,213 |   |
| Cost of sales                                 |       | 7,590    |       | 8,434    |       |
| Gross profit                                  |       | 4,342    |       | 4,779    |       |
| Operating  expenses:                          |       |     |       |     |       |
| Research and development                      |       | 3,714    |       | 3,467    |       |
| Sales and marketing                           |       | 3,013    |       | 2,792    |       |
| General and administrative                    |       | 1,936    |       | 1,812    |       |
| Restructuring charges                         |       | —   |       | (291     | )          |
| Total operating expenses                      |       | 8,663    |       | 7,780    |       |
| Loss from  operations                         |       | (4,321   | )          | (3,001   | )          |
|                                          |       |     |       |     |       |
| Other income  net, primarily interest         |       | 660      |       | 562      |       |
| Loss before  income taxes                     |       | (3,661   | )          | (2,439   | )          |
|                                          |       |     |       |     |       |
| Income tax  expense (benefit)                 |       | —   |       | —   |       |
| Net loss                                      |       | $        | (3,661     | )        | $          | (2,439 | ) |
| Shares used to  calculate net loss per share: |       |     |       |     |       |
| Basic and diluted                             |       | 4,916    |       | 4,762    |       |
|                                          |       |     |       |     |       |
| Net loss per  share:                          |       |     |       |     |       |
| Basic and  diluted                            |       | $        | (0.74      | )        | $          | (0.51 | ) |

 

STATEMENTSOF STOCKHOLDERS’ EQUITY

Ciprico Inc.

Amounts inthousands, except share data
| **Years ended September 30, 2006 and 2005** | ** ** | **Shares** | ** ** | **Common  stock and  additional  paid-in-  capital** | ** ** | **Retained  deficit** | ** ** | **Deferred  compensation  from  restricted  stock** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|-----------------------|------------|-----------------------------------------------------|------------|-----------|------------|
|                                                                      |       |       |       |                                                      |       |                  |       |                                                |       |      |       |
| Balance, September 30, 2004                                               |       | 4,738,595  |       | 35,165                                                    |       | (14,259               | )          | (49                                                 | )          | 20,857    |       |
|                                                                      |       |       |       |                                                      |       |                  |       |                                                |       |      |       |
| Employee plan  stock purchases                                            |       | 19,162     |       | 78                                                        |       | —                |       | —                                              |       | 78        |       |
| Exercise of  employee stock options                                       |       | 27,200     |       | 93                                                        |       | —                |       | —                                              |       | 93        |       |
| Restricted stock  cancelled                                               |       | (1,500     | )          | (21                                                       | )          | —                |       | 14                                                  |       | (7        | )          |
| Amortization of  restricted stock                                         |       | —     |       | —                                                    |       | —                |       | 30                                                  |       | 30        |       |
| Net loss                                                                  |       | —     |       | —                                                    |       | (2,439                | )          | —                                              |       | (2,439    | )          |
| Warrants issued                                                           |       | —     |       | 20                                                        |       | —                |       | —                                              |       | 20        |       |
| 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    | )          |
| Warrants issued                                                           |       | —     |       | —                                                    |       | —                |       | —                                              |       | —    |       |
| Balance,  September 30, 2006                                              |       | 5,015,231  |       | $                                                         | 36,440     |                  | $          | (20,359                                             | )          | $         | (372       | ) | $ | 15,709 |   |
|                                                                           |            |            |            |                                                           |            |                       |            |                                                     |            |           |            |  |  |  |  |

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESEFINANCIAL STATEMENTS.

16

----

STATEMENTS OF CASH FLOWS

Ciprico Inc.

Amounts inthousands
| **Years ended September 30**                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash Flows from  Operating Activities:                                             |       |     |       |     |       |
| Net loss                                                                           |       | $        | (3,661     | )        | $          | (2,439 | ) |
| Adjustments to  reconcile net loss to net cash flows used in operating activities: |       |     |       |     |       |
| Depreciation and amortization                                                      |       | 321      |       | 349      |       |
| Compensation related to stock transactions                                         |       | 28       |       | 44       |       |
| Changes in  operating assets and liabilities, net of assets acquired:              |       |     |       |     |       |
| Accounts receivable, net                                                           |       | (320     | )          | 539      |       |
| Inventories                                                                        |       | (201     | )          | (394     | )          |
| Other assets                                                                       |       | 87       |       | 11       |       |
| Accounts payable                                                                   |       | 79       |       | (301     | )          |
| Accrued expenses                                                                   |       | (428     | )          | (1,158   | )          |
| Deferred revenue                                                                   |       | (80      | )          | (134     | )          |
| Net cash flows used in operating activities                                        |       | (4,175   | )          | (3,483   | )          |
| Cash Flows from  Investing Activities:                                             |       |     |       |     |       |
| Equipment purchases                                                                |       | (94      | )          | (98      | )          |
| Business acquisition                                                               |       | (1,495   | )          | (1,839   | )          |
| Purchase of marketable securities                                                  |       | (6,486   | )          | (15,769  | )          |
| Proceeds from sale or maturity of marketable  securities                           |       | 11,804   |       | 20,718   |       |
| Net cash flows provided by investing activities                                    |       | 3,729    |       | 3,012    |       |
| Cash Flows from  Financing Activities:                                             |       |     |       |     |       |
| Proceeds from issuance of common stock                                             |       | 709      |       | 171      |       |
| Net cash flows provided by financing activities                                    |       | 709      |       | 171      |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents                              |       | 263      |       | (300     | )          |
| Cash and Cash  Equivalents at Beginning of Year                                    |       | 4,094    |       | 4,394    |       |
| Cash and Cash  Equivalents at End of Year                                          |       | 4,357    |       | 4,094    |       |
| Marketable  Securities—Current                                                |       | 6,679    |       | 9,406    |       |
| Marketable  Securities—Long-term                                              |       | —   |       | 2,591    |       |
| Total Cash and  Investments at End of Year                                         |       | $        | 11,036     |     | $          | 16,091 |   |

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THISFINANCIAL STATEMENT.

17

----

NOTES TOFINANCIAL STATEMENTS

Ciprico Inc.  – For Fiscal Years ending on September 30,2006 and 2005

1. SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

BUSINESS:The principal business activity of Ciprico Inc. (the Company) is the creationand design, manufacture and marketing of storage solutions for digital mediaassets.

ACCOUNTING ESTIMATES: In the preparation of the Company’sconsolidated financial statements in accordance with accounting principalsgenerally accepted in the United States of America, management is required tomake estimates and assumptions that affect the reported amounts of assets andliabilities and related revenue and expenses. Actual results could differ fromthose estimates used by management.

REVENUERECOGNITION: The Company recognizes revenue in accordance with:

·                  Staff Accounting BulletinNo. 101, “Revenue Recognition in Financial Statements,” issued by theUnited States Securities and Exchange Commission as amended by Staff AccountingBulletin No. 104

·                  Statement of Position (SOP)No. 97-2, “Software Revenue Recognition,” issued by the American Instituteof Certified Public Accountants (AICPA) and interpretations;

·                  AICPA SOP No. 98-9, “Modificationof SOP 97-2, Software Revenue Recognition, With Respect to CertainTransactions;”

·                  Statement of Position (SOP)No. 81-1, “Accounting for Performance of Construction-Type and CertainProduction-Type Contracts,” issued by the AICPA.

·                  FinancialAccounting Standards Board (FASB) Emerging Issues Task Force (EITF) EITF 00-21 “RevenueArrangements with Multiple Deliverables.”

Materially all of revenue to date has been from thesale of product solutions as a result of a customer purchase order.  As it is clear that an arrangement exists,the fee is fixed and determinable, and collection is reasonably assured, theCompany recognizes revenue upon shipment of product.  The Company’s software sales to date do notinvolve any undelivered elements. When the Company enters into servicescontracts based on time and materials, revenue is recognized when theseservices are provided.  If the Companyenters into arrangements in which the customer payments are tied to specificmilestones, the Company applies the provisions of SOP 81-1.  The Company is offering its software platformunder licensing arrangements and recognizes revenue upon shipment of thesoftware or upon use by the customer in a per unit arrangement, provided thereare no other material undelivered elements.

If a licensing arrangement does include other elementssuch as maintenance or other consulting services, it is considered amultiple-element arrangement and the Company accounts for the software licensecomponent using the residual method. The residual method generally requiresrecognition of software license revenue in a multiple-element arrangement onceall software products have been delivered and accepted by the customer and theonly undelivered element is maintenance services or consulting services. Thefair value of the maintenance services is determined based on VSOE of fairvalue and is deferred and recorded to revenue ratably over the maintenanceterm. The residual revenue is allocated to the license fee associated with thesoftware products in the transaction. The Company’s maintenance services’ VSOEof fair value is determined by reference to the price the Company’s customersare required to pay for the services when sold separately (i.e. the maintenanceservices fees paid by the Company’s customers upon renewal).

The Company accruesa warranty reserve within cost of sales for estimated costs to provide warrantyservices. The Company estimates the costs to service its warranty obligationsbased on historical experience and expectation of future conditions.

PRODUCTWARRANTY COSTS: Estimated future warranty costs are provided for at the time ofrevenue recognition.  Activity of thewarranty account is as follows for the years ended September 30, 2006 and 2005:
|                     | ** ** | **Balance at  Beginning  of Period** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions** | ** ** | **Balance at  End  of Period** | ** ** |
|---------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|------------------------------------------|------------|
|                |       |                                           |       |                                          |       |           |       |                                     |       |
| September 30,  2006 |       | $                                              | 220,000    |                                          | $          | 71,000         |       | $                                        | (125,000   | ) | $ | 166,000 |   |
| September 30, 2005  |       | 240,000                                        |       | 170,000                                       |       | (190,000       | )          | 220,000                                  |       |
|                     |            |                                                |            |                                               |            |                |            |                                          |            |  |  |  |  |

 

Deductions representwarranty work performed during the year.

18

----

INVENTORIES:Inventories are stated at the lower of cost or replacement market. Inventorycosts include outside assembly charges, allocated manufacturing overhead anddirect material costs.  Cost isdetermined using an average cost method, which approximates a first in firstout cost.

Inventory consistsof the following (in thousands) at September 30:
|                 | ** ** | **2006** | ** ** |
|-----------------|------------|----------|------------|
| Finished Goods  |       | $        | 1,328      |   |
| Work-In-Process |       | 285      |       |
| Raw Materials   |       | 312      |       |
|            |       | $        | 1,925      |   |

 

SHIPPINGAND HANDLING COSTS:  The Company includesshipping and handling fees billed to customers in net sales.  Shipping and handling costs associated withoutbound freight are included in cost of sales.

RESEARCHAND DEVELOPMENT COSTS: Research and development costs are charged to expense asincurred.

ADVERTISING COSTS:Advertising costs are charged to expense as incurred.  For the years ended September 30, 2006 and2005, advertising expenses were approximately $ 68,000 and $50,000respectively.

CASHAND CASH EQUIVALENTS: The Company considers all highly liquid temporaryinvestments with original maturities of three months or less to be cashequivalents. At September 30, 2006 and 2005 the Company’s cash and cashequivalents were invested in a money market fund and/or commercial paper.  The Company maintains cash balances atseveral financial institutions, and at times, such balances exceed insuredlimits.  The Company has not experiencedany losses in such accounts and believes it is not exposed to any significantcredit risk on cash.

ACCOUNTSRECEIVABLE: Credit is extended based on an evaluation of a customer’s finan­cialcondition and, generally, collateral is not required.  Accounts receivable are typically due fromcustomers within 30 days and are stated at amounts due from customers net of anallow­ance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are con­sideredpast 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 accounts receivable when they becomeuncollectible, and payments subsequently received on such receivables arecredited to the allowance for doubtful accounts.

Changesin the Company’s allowance for doubtful accounts are as follows:
|                     | ** ** | ** **                                     | ** ** | **Additions**                                 | ** ** | ** **                                | ** ** |
|---------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------|------------|
| ** **          | ** ** | **Balance at  Beginning  of Period** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions &   Other(A)** | ** ** | **Balance at  End  of Period** | ** ** |
| ** **          | ** ** | ** **                                     | ** ** | ** **                                    | ** ** | ** **                                | ** ** | ** ** | ** ** |
| September 30,  2006 |       | $                                              | 467,000    |                                          | $          | 59,000                                    |       | $ | (340,000 | ) | $ | 186,000 |   |
| September 30, 2005  |       | 401,000                                        |       | 377,000                                       |       | (311,000                                  | )          | 467,000 |   |
|                     |            |                                                |            |                                               |            |                                           |            |  |  |  |  |  |  |

 

----

(A)- Representsaccounts receivable written-off during the year or changes in estimates.

MARKETABLESECURITIES AND SHORT TERM INVESTMENTS: The Company has invested its excess cashin commercial paper, government agencies and other asset-backed short terminvestments. These investments are classified as held-to-maturity given theCompany’s intent and ability to hold the securities to maturity and are carriedat amortized cost. Investments that have maturities of less than one year havebeen classified as current marketable securities.

Amortizedcost approximates fair value of held-to-maturity investments, which consist ofthe following (in thousands) at September 30:
|                          | ** ** | **2006** | ** ** |
|--------------------------|------------|----------|------------|
| Current                  |       |     |       |
| Commercial Paper         |       | $        | 3,030      |   |
| Asset-backed investments |       | 3,649    |       |
|                     |       | $        | 6,679      |   |

 

19

----

PROPERTYAND EQUIPMENT: Property and equipment are carried at cost, less accumulateddepreciation and amortization. Depreciation is provided using the straight-linemethod over estimated useful lives of eighteen months to seven years or, in thecase of leasehold improvements, over the period of the related lease, ifshorter. Major replacements and improvements are capitalized; repairs andmaintenance are expensed as incurred. Accelerated and straight-line methods ofdepreciation are used for income tax reporting.

VALUATIONOF GOODWILL: In accordance with SFAS No. 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.  Therehave been no impairment charges.

EARNINGSPER SHARE: The Company’s basic earnings per share amounts are computed bydividing net income by the weighted average number of outstanding commonshares. Diluted earnings per share is computed by dividing net income by theweighted average number of outstanding common shares and common shareequivalents attributable to the assumed exercise of dilutive stock options.

STOCKOPTION PLAN: The Company has a stock option plan under which officers, directors,employees and consultants have been or may be granted incentive andnonqualified stock options to purchase the Company’s common stock at fairmarket value on the date of grant.  Theoptions become exercisable over varying periods and expire up to 10 years fromthe date of grant.  The Company uses theintrinsic value method in accounting for its plans.  No stock-based employee compensation cost isreflected in net loss, as all options granted under this plan had an exerciseprice equal to the market value of the underlying common stock on the date ofthe grant.  The following tableillustrates the effect on net loss and earnings per share if the Company hadapplied the fair value method to its stock-based employee compensation (inthousands, except per share amounts).
|                        | ** **                                                                                                                                              | **2006** | ** ** | **2005** | ** ** |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|----------|------------|----------|------------|
| Net loss, as  reported |                                                                                                                                                    | $        | (3,661     | )        | $          | (2,439 | ) |
| Deduct:                | Total  stock-based employee compensation determined under fair value based method  for awards granted, modified, or settled, net of related tax effects |     | (218       | )        | (278       | ) |
| Pro forma net  loss    |                                                                                                                                                    | $        | (3,879     | )        | $          | (2,717 | ) |
|                   |                                                                                                                                                    |     |       |     |       |   |
| Net loss per  share    |                                                                                                                                                    |     |       |     |       |
|                   | Basic and  Diluted – as reported                                                                                                                   |     | $          | (0.74    | )          | $ | (0.51 | ) |
|                   | Basic and Diluted – pro  forma                                                                                                                     |     | $          | (0.79    | )          | $ | (0.57 | ) |

 

The weighted average fair value of options granted in 2006and 2005 was $1.37 and $1.08, per share, respectively. The fair value of eachoption grant is estimated on the date of grant using the Black-Scholes optionpricing model with the following weighted average assumptions used for grantsin 2006 and 2005: no dividend yield; risk-free rate of return of 4.5% and 3.2%,respectively; volatility of 35.2% and 32.7%, respectively; and an average termof 3.0 years.  These effects may not berepresentative of the future effects of applying the fair value method.

NEWACCOUNTING PRONOUNCEMENTS: In December 2004, the Financial Accounting StandardsBoard (“FASB”) issued Statement of Financial Accounting Standards No. 123(Revised 2004) (“SFAS 123R”) “Share-Based Payment”.    SFAS 123R requires companies to measure allemployee stock-based compensation awards using a fair value method and recordsuch expense in its financial statements. SFAS 123R will be effective for the Company at the beginning of fiscal2007 (October 1, 2006).  The Company isin the final stage of evaluating the impact that the adoption of SFAS 123R willhave on our financial statements.  In theNotes to Financial Statements we have added disclosure related to using thefair value method to evaluate stock-based employee compensation.

InJuly 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accountingfor Uncertainty in Income Taxes - an interpretation of FASB Statement 109. FIN48 prescribes 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 iseffective for fiscal years beginning after December 15, 2006, in the Company’scase for the 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 is currently assessing the impactof FIN 48 on its financial position and results of operations.

In September 2006,the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements.”  SAB 108 is applicable for fiscalyears ending after November 15, 2006, the Company’s fiscal year endingSeptember 30, 2007.  SAB 108 was issuedto provide 

20

----

consistency between howregistrants quantify financial statement misstatements. The Company does notbelieve there will be any impact on its financial statements as a result ofapplying this SAB.

2. ACQUISITIONS

Inaccordance with SFAS No. 141, *BusinessCombinations* (“SFAS 141”), the Company allocates the purchase priceof its acquisitions to the tangible assets, liabilities and intangible assetsacquired, including in-process research and development when applicable, basedon their estimated fair values.  Theexcess purchase price over those fair values is recorded as goodwill.  The fair value assigned to intangible assetsacquired is based on a number of factors including a valuation prepared by anindependent third party appraisal firm. In accordance with SFAS No. 142, goodwill and other intangible assetswith indefinite lives are not amortized, they are instead tested for impairmentannually or whenever events or changes in circumstances indicate that the assetmay be impaired.  Intangible assets withfinite lives are amortized on a straight-line basis over their respective usefullives.

On June 6, 2006, Ciprico Inc. entered into aTechnology License and Asset Purchase Agreement (“Agreement”) with BroadcomCorporation, a California corporation. This Agreement involved the purchase of assets from Broadcom’s RAIDCoreTMbusiness and the cross license of software technology between Ciprico andBroadcom.  The initial amount paid atclosing was allocated in its entirety to fixed assets, primarily computerequipment.  No goodwill or intangibleswere recorded as part of this transaction. Subsequent to closing, the Agreement also provides for the purchase ofinventory at Broadcom’s cost.  TheAgreement with Broadcom also provides for payment of royalties and commissionsbased on actual revenue from board sales and software licensing fees.  The Agreement further provides for contingentconsideration in the form of warrants to purchase Ciprico stock at certainprices, these warrants vest only when certain revenue targets areachieved.   See Stockholders’ Equityfootnote for warrant details.

In January 2005, Ciprico Inc. purchased substantiallyall of the assets (primarily the MediaVaultäproduct line) of Huge Systems, Inc. (“Huge”). Huge was a privately held company and a leading supplier of data storagesolutions for graphic and video content creation marketplace.  The total transaction cost of approximately$3.4 million included an allocation of $2.8 million to goodwill.  As part of the analysis of the acquisition,it was determined there was no material in-process research and development atthe date of acquisition.

In conjunctionwith the acquisition, Ciprico also issued certain warrants to purchase anaggregate of 30,000 shares of Ciprico common stock at a price of $5.00 pershare to certain stockholders of Huge. The warrants become exercisable ratably over the course of the next fouryears and terminate five years from the date of issuance.

The total transaction cost of approximately $3.4million has been allocated as follows (in thousands):

**PURCHASEPRICE ALLOCATION**

 
| Assets                               |   |   |   |
|--------------------------------------|--------|--------|--------|
| Tangible assets                      |   |   |   |
| Accounts receivable                  |   | $      | 402    |   |
| Inventories                          |   | 94     |   |
| Prepaids & other                 |   | 68     |   |
| Property & equipment             |   | 32     |   |
| Intangible assets                    |   |   |   |
| Developed technology                 |   | 170    |   |
| Noncompete agreements                |   | 135    |   |
| Goodwill                             |   | 2,784  |   |
| Assets acquired                      |   | $      | 3,685  |   |
| Liabilities assumed Accounts payable |   | (241   | )      |
|                                 |   |   |   |
| Net assets acquired                  |   | $      | 3,444  |   |

 

Aspart of the analysis of the acquisition it was determined there was no materialin-process research and development at the date of acquisition.

21

----

Intangible assets with finite lives that are subjectto amortization are listed in the table below as of September 30, 2006 (inthousands):
| ** **            | ** ** | **Estimated Life  (in years)** | ** ** | **Estimated  Value** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|-----------------------|------------|------------------------------------------|------------|----------------------|------------|-------------------------------|------------|---------|------------|
| Developed technology  |       | 3                                        |       | $                    | 170        |                          | $          | (94     | )          | $ | 76 |   |
| Noncompete agreements |       | 3                                        |       | 135                  |       | (75                           | )          | 60      |       |
|                  |       |                                     |       |                 |       |                          |       |    |       |
|                  |       |                                     |       | $                    | 305        |                          | $          | (169    | )          | $ | 136 |   |

 

Estimatedamortization expense for the years ending September 30, 2006, 2007 and 2008 is$102,000, $102,000 and $33,000 respectively.

3. RESTRUCTURINGACTIVITY

In December 2004, theCompany entered into an agreement to sub-lease a portion of its headquarterfacility that had been abandoned in fiscal 2004.  Due to the sublease of the abandoned spaceand the mitigation of other costs associated with previous restructuringcharges, $466,000 of earlier restructuring charges were reversed in fiscal2005.

In the second quarter offiscal 2005 the Company recorded a charge of $285,000 for restructuring relatedto a 15% workforce reduction in March.

Employee terminationcosts consist primarily of severance payments for terminated employees. Thefacility closure and related costs consist of lease termination costs the writedown of certain fixed assets and the abandonment of a portion of ourheadquarter facility, offset by the subsequent sublease of that portion of ourheadquarter facility.

The following is asummary of the accrued restructuring activity (in thousands):
| Years ended September 30, 2006 | ** ** | **Employee  Termination  Costs** | ** ** | **Facility  closure and  related costs** | ** ** | **Total** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|----------------------------------------------------|------------|-----------|------------|
| Balance, September 30,  2005                       |       | 5                                |       | 179                                                |       | 184       |       |
|                                               |       |                             |       |                                               |       |      |       |
| Amounts utilized                                   |       | (5                               | )          | (73                                                | )          | (78       | )          |
| Balance, September 30, 2006                        |       | $                                | —     |                                               | $          | 106       |       | $ | 106 |   |
|                                                    |            |                                  |            |                                                    |            |           |            |  |  |  |

 

4. INCOME TAXES

Incometax expense (benefit) consists of the following (in thousands):
| Years ended September 30 | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
| Current:                                |       |     |       |     |       |
| Federal                                 |       | $        | —     |     | $          | — |   |
| State                                   |       | (66      | )          | —   |       |
|                                    |       | —   |       | —   |       |
| Deferred                                |       | 66       |       | —   |       |
|                                    |       | $        | —     |     | $          | — |   |

 

Deferredincome taxes arise from temporary differences between financial and tax reporting.In accordance with SFAS No. 142, goodwill and other intangible assetswith indefinite lives are not amortized for financial reporting purposes.  As goodwill is amortized for tax purposes,the company has recorded deferred tax expense of approximately $66,000 for 2006although an immaterial amount applied to fiscal 2005. The deferred tax expenseand deferred tax liability are related to an asset with an indefinite life andare thus created as it is more likely than not that any deferred tax asset willnot be realized.  Also during fiscal 2006it became apparent that $66,000 accrued for state taxes was no longernecessary.

22

----

The tax effects ofthe cumulative temporary differences result in net deferred taxes as follows(in thousands):
| As of September 30    | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|
| Current deferred  tax assets:        |       |     |       |
| Inventory                            |       | $        | 155        |   |
| Allowance for doubtful accounts      |       | 69       |       |
| Warranty accrual                     |       | 61       |       |
| Loss and credit carryforwards        |       | 9,896    |       |
| Compensation accrual                 |       | 72       |       |
| Other                                |       | 68       |       |
| Less – valuation allowance      |       | (10,321  | )          |
| Current deferred tax asset           |       | —   |       |
|                                 |       |     |       |
| Long-term  deferred tax assets:      |       |     |       |
| Depreciation                         |       | 199      |       |
| Less – valuation allowance      |       | (199     | )          |
| Long-term deferred tax asset         |       | —   |       |
|                                 |       | $        | —     |   |
| Long-term  deferred tax liabilities: |       |     |       |
| Goodwill                             |       | 66       |       |
| Long-term  deferred tax liability    |       | $        | 66         |   |

 

As of September30, 2006, the Company had net operating loss carry forwards of approximately$24.1 million, which expire at various dates from 2022 to 2026, and generalbusiness credit carry forwards of approximately $1.3 million, which expire atvarious dates from 2011 to 2018.

The followingis a reconciliation of the federal statutory income tax rate to theconsolidated effective tax rate:
| Years ended September 30         | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Federal  statutory rate                         |       | (34      | )%         | (34.0    | )%         |
| State taxes, net  of federal income tax benefit |       | (3.0     | )          | (3.2     | )          |
| Change in  valuation allowance                  |       | 37.0     |       | 37.2     |       |
|                                            |       | —   | %          | —   | %          |

 

5. STOCKHOLDERS’EQUITY

### *AuthorizedShares*

TheCompany is authorized to issue 1,000,000 shares of Preferred Stock at $.01 parvalue and 9,000,000 shares of Common Stock at $.01 par value. The Company hasnot issued any shares of Preferred Stock.

### *StockRepurchase*

TheCompany’s stock buyback program is currently suspended. Under the plan $12.0million was authorized to be used for the repurchase program. There were noshares repurchased in fiscal 2006 and 2005.

#### *StockholdersRights Plan*

On January 8, 2003, the Board of Directors adopted astockholder rights plan under which the Board declared a dividend distributionof one right for each outstanding share of Ciprico common stock as of January14, 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 theBoard, the rights will become 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 Boardexercises certain other rights, if such a person acquires 15% or more of theCompany’s common stock, each right would enable a Ciprico stockholder toacquire Ciprico stock having a market value of twice the right’s exerciseprice.  The rights are redeemable at theoption of the Company in certain instances.

23

----

### *StockOptions*

Optiontransactions under the Company’s stock option plans during the three yearsended September 30, 2006 are summarized as follows:
|                                       | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|---------------------------------------|------------|----------------------------|------------|--------------------------------------------|------------|
| Outstanding at  September 30, 2004    |       | 911,675                    |       | 6.04                                       |       |
| Granted                               |       | 298,500                    |       | 4.06                                       |       |
| Exercised                             |       | (27,200                    | )          | 3.64                                       |       |
| Canceled                              |       | (332,125                   | )          | 6.85                                       |       |
| 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                                       |       |
| Options exercisable at  September 30: |       |                       |       |                                       |       |
| 2005                                  |       | 474,412                    |       | 5.97                                       |       |
| 2006                                  |       | 287,575                    |       | 5.62                                       |       |

 

Thefollowing table summarizes information regarding outstanding and exercisablestock 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  |       | 219,150 |   | 3.1 years |   | $ | 3.91 |   | 59,775 |   | $ | 3.72 |   |
|                                |       | 4.24 –   6.36  |       | 275,050 |   | 3.7 years |   | 5.17 |   | 150,300 |   | 5.10 |   |
|                                |       | 7.17 – 10.76             |       | 47,500 |   | 1.3 years |   | 8.06 |   | 47,500 |   | 8.06 |   |
|                                |       | 11.00 – 11.00            |       | 30,000 |   | 0.3 years |   | 11.00 |   | 30,000 |   | 11.00 |   |
|                                |       |                          |       | 571,700 |   |   |   |   |   | 287,575 |   |   |   |
|                                     |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

As of September30, 2006, the Company had 665,497 shares reserved for future issuance under theplan.

*EmployeeStock Purchase Plan*

The1996 Employee Stock Purchase Plan (“ESPP”) is being terminated effectiveDecember 31, 2006. It provided for the purchase by eligible employees ofCompany common stock at a price equal to 85% of the market price on either thecommencement or the termination date of each six-month plan phase, whichever islower. Since inception of the ESPP, a total of 236,400 shares have been issued.At September 30, 2006, the Company had 13,600 shares reserved for issuanceunder the ESPP for the last six-month period ending December 31, 2006.

### *RestrictedStock Plan*

The1996 Restricted Stock Plan (“RSP”) provides for common stock awards toofficers, directors and certain key employees of the Company. Restricted stockvests generally after continued employment for a period of up to five years.All restricted stock awards entitle the participant to full dividend and votingrights. Since inception of the RSP, a total of 141,120 shares have been issued.At September 30, 2006, the Company had 8,880 shares reserved for futureissuance under the RSP.

### *Warrants*

Pursuantto the Technology License and Asset Purchase Agreement (“Agreement”) withBroadcom Corporation there is contingent consideration in the form of warrantsto purchase Ciprico stock at certain prices, if certain revenue targets areachieved. There are three warrants each for 300,000 shares.  The exercise price of the first warrant is$6.00 and vests if sales of software licenses exceed $2,000,000 and sales ofRAID controller cards exceed $5,000,000 in the first year ending June 6,2007.  The exercise price of the secondwarrant is $8.00 and vests if sales of software licenses exceed $4,000,000 andsales of RAID controller cards exceed $15,000,000 in the second year endingJune 6, 2008.  The exercise price of thethird 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.  There isprovision for a cumulative provision if sales meet the stated target over the 3year period ending June 6, 2009.

24

----

6. EMPLOYEEBENEFIT PLAN

The Company provides a 401(k) savings plan coveringsubstantially all of its employees. Minimum contributions to the plan by theCompany are 50 percent of employee contributions up to the first 6 percent ofthe participants’ salaries. Contributions in addition to the minimum may alsobe made by the Company based on the Company’s financial performance. TheCompany’s contributions to the plan in 2006 and 2005 were approximately$116,000 and $114,000 respectively.

7. SEGMENTINFORMATION

TheCompany has no material long-lived assets outside of the United States.

Salesas a percentage of net sales, to two significant customers for the fiscal year2006 were 12% and 13%, and for fiscal 2005 those same customers accounted for18% and 6%, respectively.  Receivablesfrom those two significant customers at September 30, 2006 were $237,000 and$21,000, respectively.

TheCompany operates in a single reportable segment.

8. COMMITMENTS

TheCompany has operating leases for office and manufacturing space that expire atvarying dates through October 31, 2011. In December 2004 the Company entered into an agreement to sublease partof its office space through October 31, 2007. Future minimum payments under these leases are as follows (in thousands)for the fiscal years ending September 30:
| 2007       |   | $   | 463    |   |
|------------|--------|-----|--------|--------|
| 2008       |   | 482 |   |
| 2009       |   | 486 |   |
| 2010       |   | 189 |   |
| 2011       |   | 133 |   |
| Thereafter |   | 11  |   |
|       |   | $   | 1,764  |   |

 

For the yearsended September 30, 2006 and 2005, operating lease expenses were $446,000 and$550,000.  For the fiscal years endingSeptember 30, 2007 and 2008 base sublease income will approximate, $135,000 and$11,000 respectively.

25

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

Boardof Directors and ShareholdersCiprico Inc.Plymouth, Minnesota

We have audited the accompanying balance sheet ofCiprico Inc. as of September 30, 2006, and the related statements ofoperations, stockholders’ equity, and cash flows for each of the two years inthe period ended September 30, 2006. These financial statements are theresponsibility of the Com­pany’s management. Our responsibility is to expressan opinion on these financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Account­ing Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  The Company is notrequired to have, nor were we engaged to perform an audit of its internalcontrol over financial reporting.  Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position ofCiprico Inc. as of September 30, 2006, and the results of their operations andtheir cash flows for each of the two years in the period ended September 30,2006, in conformity with accounting principles generally accepted in the UnitedStates of America.

/s/ Grant Thornton LLP

Minneapolis,MinnesotaNovember 7, 2006

26

----

** **
| **ITEM 8.** | ** ** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND  FINANCIAL DISCLOSURE.** |
|-------------|------------|---------------------------------------------------------------------------------------------|

 

None.

**ITEM 8A.****                                            CONTROLSAND PROCEDURES.**

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

**ITEM 8B.****                                            OTHERINFORMATION.**

None.

**PART III**
| **ITEM 9.** | ** ** | **DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND  CONTROL PERSONS;  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.** |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------|

 

Reference is made to theinformation included under the caption “Executive Officers” and “Election ofDirectors” in the Company’s Proxy Statement for the Annual Meeting ofStockholders scheduled to be held January 25, 2007, which information isincorporated by reference herein.

SECTION 16(A) BENEFICIALOWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires executiveofficers and directors of the Company, and persons who beneficially own morethan 10 percent of the Company’s outstanding shares of Common Stock, to fileinitial reports of ownership and reports of changes in ownership of securitiesof the Company with the Securities and Exchange Commission. Officers, directorsand greater than 10 percent stockholders are required by Securities andExchange Commission regulations to furnish the Company with copies of allSection 16(a) forms they file.

Based upon a review of the copies of such reports furnished to orobtained by the Company and upon other information known to the Company, theCompany believes that during the fiscal year ended September 30, 2006, allfiling requirements applicable to its directors, officers or beneficial ownersof more than 10% of the Company’s outstanding shares of Common Stock werecomplied with.

CODE OF ETHICS AND BUSINESS CONDUCT

We have adoptedthe Ciprico Code of Ethics and Business Conduct (the “Code of Conduct”), a codeof conduct that applies to our employees, officers and directors.  The Code of Conduct is publicly available onour website at http://www.ciprico.com.  If we make any substantive amendments tothe Code of Conduct or grant any waiver, including any implicit waiver from aprovision of the Code of Conduct to our directors or executive officers, wewill disclose the nature of such amendment or waiver on our website or in areport on Form 8-K.

**ITEM 10.****               EXECUTIVECOMPENSATION.**

The information required by Item 10 isincorporated herein by reference to the section labeled “Executive Compensation”which appears in the definitive Proxy Statement for its 2006 Annual Meeting ofStockholders to be held January 25, 2007.

27

----

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

The information required by Item 11 is incorporatedherein by reference to the sections labeled “Principal Stockholders” and “ManagementStockholdings” which appear in the definitive Proxy Statement for our 2006Annual Meeting of Stockholders to be held January 25, 2007.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information asof September 30, 2006 regarding compensation plans under which equitysecurities of our company are authorized for issuance:
| Plan Category                                      | ** ** | **Number of Securities   to  be Issued Upon   Exercise  of Outstanding  Options,  Warrants and Rights  (a)** | ** ** | **Weighted-Average  Exercise Price of  Outstanding  Options,  Warrants and   Rights  (b)** | ** ** | **Number of Securities  Remaining Available  for  Future Issuance Under  Equity Compensation  Plans (Excluding  Securities Reflected in  Column (a))  (c)** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by stockholders      |       | 571,700                                                                                                                                                   |       | $                                                                                                              | 5.23       |                                                                                                                                                                                                          | 665,497    |   |
| Equity  compensation plans not approved by stockholders |       | —                                                                                                                                                    |       | —                                                                                                         |       | —                                                                                                                                                                                                        |       |
| Total                                                   |       | 571,700                                                                                                                                                   |       | $                                                                                                              | 5.23       |                                                                                                                                                                                                          | 665,497    |   |

 

The equity compensation plans approved by ourstockholders are the 1999 Amended and Restated Sock Option Plan and the 1996Restricted Stock Plan.

The Company alsomaintains an Employee Stock Purchase Plan, participation in which is no longeravailable as this plan will terminate on December 31, 2006.  The last six-month participation period runsfrom July 1 to December 31, 2006. Participating employees could purchase the Company’s common stock at theend of each participation phase at a purchase price equal to 85% of the lowerof the market price of the stock at the beginning or end of the phase.  The Company’s stockholders had approved thisplan.

**ITEM 12.****                                              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**

The information required by Item 12 is incorporatedherein by reference to the sections labeled “Certain Transactions” and “OtherCompensation Arrangements” which appear in the definitive Proxy Statement forour 2006 Annual Meeting of Stockholders to be held January 25, 2007.

**ITEM 13.****                                              EXHIBITS.**

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

**ITEM 14.****                ****          PRINCIPAL ACCOUNTANT FEES AND SERVICES.**

The informationrequired by Item 14 is incorporated herein by reference to the section labeled “IndependentAuditors” which appears in the definitive Proxy Statement for our 2006 AnnualMeeting of Stockholders to be held January 25, 2007.

28

----

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, theRegistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                        | CIPRICO INC.                 |
|------------------------|------------------------------|
|                   | (the “Registrant”) |
|                   |                         |
| Date: December 7, 2006 | By                           | /s/ James W. Hansen |
|                   |                         | James W. Hansen,   Chief Executive Officer |

 

In accordance with the Exchange Act, this report has been signed belowby the following persons on behalf of the Registrant and in the capacities andon the dates indicated.
| Signature              | ** ** | **Title**                                                     | ** ** | **Date**         |
|------------------------|------------|---------------------------------------------------------------|------------|------------------|
|                   |       |                                                          |       |             |
| /s/ James W. Hansen    |       | President, Chief Executive Officer and Chairman of  the Board |       | December 7, 2006 |
| James W. Hansen        |       | (Principal executive officer)                                 |       |             |
|                   |       |                                                          |       |             |
| /s/ Monte S. Johnson   |       | Senior Vice President and Chief Financial Officer             |       | December 7, 2006 |
| Monte S. Johnson       |       | (Principal financial and accounting officer)                  |       |             |
|                   |       |                                                          |       |             |
| /s/ Michael M. Vekich  |       | Lead Director                                                 |       | December 7, 2006 |
| Michael M. Vekich      |       |                                                          |       |             |
|                   |       |                                                          |       |             |
| /s/ James D. Gerson    |       | Director                                                      |       | December 7, 2006 |
| James D. Gerson        |       |                                                          |       |             |
|                   |       |                                                          |       |             |
| /s/ Mark D. Griffiths  |       | Director                                                      |       | December 7, 2006 |
| Mark D. Griffiths      |       |                                                          |       |             |
|                   |       |                                                          |       |             |
| /s/ Gary L. Hokkanen   |       | Director                                                      |       | December 7, 2006 |
| Gary L. Hokkanen       |       |                                                          |       |             |
|                   |       |                                                          |       |             |
| /s/ Thomas F. Burniece |       | Director                                                      |       | December 7, 2006 |
| Thomas F. Burniece     |       |                                                          |       |             |

 

29

----

SECURITIES AND EXCHANGECOMMISSIONWashington, D.C. 20549

EXHIBITINDEX TO FORM 10-KSB
| For the fiscal year ended September 30, 2006 | Commission File No.: 0-11336 |
|----------------------------------------------|------------------------------|

 

CIPRICO INC.
| Exhibit | ** ** | **Description**                                                                                                                                                                                                                                                                                                                               |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 2.1     |       | Asset Purchase Agreement dated January 31, 2005 by  and among Ciprico Inc., Huge Systems, Inc. and the Principals named  therein—incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K  filed February 3, 2005                                                                                                      |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 3.1     |       | The Registrant’s Certificate of Incorporation, as  amended to date—incorporated by reference to Exhibit 19.1 of the Registrant’s  Form 10-Q for the quarter ended March 31, 1988                                                                                                                                               |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 3.2     |       | The Registrant’s Bylaws, as amended to  date—incorporated by reference to Exhibit 19.2 of the Registrant’s Form 10-Q  for the quarter ended March 31, 1988                                                                                                                                                                     |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.1**  |       | Registrant’s 1999 Amended and Restated Stock Option  Plan—incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q  for the fiscal quarter ended December 31, 1998                                                                                                                                              |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.2**  |       | Specimen of Incentive Stock Option Agreement under  1999 Amended and Restated Stock Option Plan—incorporated by reference to  Exhibit 10.2 of the Registrant’s Form 10-Q for the fiscal quarter ended  December 31, 1998                                                                                                            |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.3**  |       | Specimen of Nonqualified Stock Option Agreement  under 1999 Amended and Restated Stock Option Plan—incorporated by reference  to Exhibit 10.3 of the Registrant’s Form 10-Q for the fiscal quarter ended  December 31, 1998                                                                                                         |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.4    |       | Indenture of Lease, dated June 12, 2002 by and  between Moen Leuer Properties, Inc and Ciprico Inc. relating to corporate  office and manufacturing space located at 17400 Medina Road, Plymouth,  Minnesota—incorporated by reference to Exhibit 10.12 of the Registrant’s Form  10-K for the fiscal year ended September 30, 1992 |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.5**  |       | Employment Agreement and Change of Control Agreement  dated September 30, 2004 between James W. Hansen and Ciprico Inc. –  incorporated by reference to Exhibit 10.16 of the Registrants Form 10-K filed  December 20, 2004                                                                                                              |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.6**  |       | Employment Agreement and Change of Control Agreement  dated June 1, 2005 between Monte S. Johnson and Ciprico Inc.—incorporated by  reference to Exhibit 10.15 of the Registrant’s Form 10-K for the fiscal year  ended September 30, 2005                                                                                          |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.7    |       | Short Term Promissory Note of Ciprico Inc. dated as  of January 31, 2005 in the original amount of $300,000—incorporated by  reference to Exhibit 10.1 of the Registrant’s Form 8-K filed February 3, 2005                                                                                                                          |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.8    |       | Promissory Note of Ciprico Inc. dated as of January  31, 2005 in the original principal amount of $1,412,545.10—incorporated by  reference to Exhibit 10.2 of the Registrant’s Form 8-K filed February 3, 2005                                                                                                                      |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.9**  |       | Change in Control Agreement dated April 24, 2006  between Donald L. McDonell and Ciprico Inc. – incorporated by reference to  Exhibit 10.1 of the Registrant’s Form 8-K filed April 24, 2006                                                                                                                                        |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 10.10   |       | Asset Purchase Agreement dated June 6, 2006 by and  among Ciprico Inc and Broadcom Corporation—incorporated by reference to  Exhibit 10.1 of the Registrant’s Form 8-K filed June 8, 2006                                                                                                                                           |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 23.1    |       | Consent of Grant Thornton LLP***                                                                                                                                                                                                                                                                                                              |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 31.1    |       | Certification of the Chief Executive Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                                                                                                    |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 31.2    |       | Certification of the Chief Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                                                                                                    |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 32.1    |       | Certification of the Chief Executive Officer  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                                                                                                    |
|    |       |                                                                                                                                                                                                                                                                                                                                          |
| 32.2    |       | Certification of the Chief Financial Officer  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***                                                                                                                                                                                                                                    |

 

----

**          Indicatesa management contract or compensatory plan or arrangement.

***   Filed herewith

30

----