Enterprises are storing a growing amount of data, which requires greater storage capacity and results in increased system acquisition and management costs. According to Gartner, between 2005 and 2010 storage demand, as measured by terabyte capacity, is expected to increase by 69% annually. This data growth is taxing enterprises in critical areas such as staffing, training, data and disaster recovery, capacity management, information lifecycle management, power and cooling, and regulatory compliance.

There are currently three primary architectures designed to address the storage challenge: Direct Attached Storage, Network Attached Storage and SAN. Direct Attached Storage is a grouping of storage devices usable only by the server to which they are attached. As more storage and servers are added to meet demand, a Direct Attached Storage environment can cause a proliferation of server and storage “islands,” creating a significant management burden as well as inefficient utilization of capacity and performance capability. Network Attached Storage and SAN are network based solutions that were developed to address the limitations of Direct Attached Storage.

Enterprises are addressing data center complexity and inflexibility with server virtualization, a concept whereby multiple operating environments are able to share the same server infrastructure. Specifically, this means that each individual physical server is able to run multiple instances of the same, or different, operating systems. In effect, this creates multiple virtual servers running on the same physical piece of server hardware. Each virtual server appears to applications and end users to be its own independently operating server and performs the same functions as a physical server would. Enterprises are adopting this technology to better utilize server infrastructure, reduce cost and power consumption and increase data center flexibility and availability.

The foundation of the Company solution is the Dynamic Block Architecture, which utilizes block level intelligence to improve the movement, placement and access of data with a level of functionality that delivers significant improvements in the cost, administration and recovery of data.

Building on the Dynamic Block Architecture, Storage Center’s integrated suite of software applications dramatically improve utilization, automate tiered storage, streamline storage administration and speed data and disaster recovery. A base configuration of Storage Center typically includes a controller, disk enclosure, disk drives, connectivity hardware, Storage Center Core software and Dynamic Capacity. Most users also purchase Data Instant Replay with their initial order.

All of Storage Center’s software applications are managed through a single unified interface that spans the Company’s entire set of technologies, capabilities and configurations. An intuitive point-and-click approach enables rapid set up and installation and reduces the need for training and specialized storage skills.

Storage Center’s Data Progression application automatically classifies and migrates blocks of data based on user selected policies. Users can configure storage tiers based on technology, performance redundancy among other criteria. Storage Center’s block-level intelligence allows blocks of data to move both up and down tiers of storage for appropriate placement over time based on frequency of access.

Storage Center’s Remote Instant Replay application creates any number of space-efficient Replays between primary and remote data centers without a pre-allocation of space. This granularity enables shorter recovery intervals, enabling end users near instant recovery from any point in time.

Enterprise Manager is designed to enable all local and remote Storage Center systems to be monitored and managed using a single console, providing a complete, centralized view of all aspects of an enterprise’s storage environment and enabling a single administrator to monitor multiple systems. System reports present storage resource management information, including summaries for capacity utilization, performance, replications and events.

Total cost of revenue increased by $5.7 million, or 107.8%, to $11.1 million for the six months ended June 30, 2007, compared to $5.3 million for the same period a year ago.

Total operating expenses increased by $6.6 million, or 86.5%, to $14.3 million for the six months ended June 30, 2007, compared to $7.7 million for the same period a year ago.