News Column

Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

February 7, 2014

Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. These forward-looking statements include, but are not limited to, statements concerning our possible or assumed future results of operations, business strategies, financing plans, technological leadership, market opportunity, expectations regarding product acceptance, ability to innovate new products and bring them to market in a timely manner, ability to successfully increase sales of our software offerings as part of our overall sales strategy, expectations concerning our technologies, products and solutions, including our current ioDrive, ioScale, and ioFX product lines, our ION Data Accelerator software, our virtualization acceleration software, and our ioControl hybrid storage system, competitive position and the effects of competition, industry environment, the impact of recent management changes, potential growth opportunities, ability to expand internationally, ability to expand in adjacent markets, the impact of quarterly fluctuations of revenue and operating results, changes to and expectations concerning gross margin, expectations concerning relationships with third parties, including channel partners, key customers and original equipment manufacturers, or OEMs, expectations regarding future revenues from our customers, levels of capital expenditures, future capital requirements and availability to fund operations and growth, the adequacy of facilities, impact and expectations concerning our acquisitions of the ID7 Ltd. and SCST Limited, or ID7 Entities, and NexGen Storage, Inc., or NexGen, the adequacy of our intellectual property rights, expectations concerning pending legal proceedings and related costs, the sufficiency of our issued patents and patent applications to protect our intellectual property rights, the effects of a natural disaster on us or our suppliers, our ability to resell inventory that we cannot use in our products due to obsolescence, our ability to maintain or grow our sales through OEMs and other channel partners and to maintain our relationships with those channel partners, including the timely qualification of our products for promotion and sale through those channels, particularly OEMs, OEMs continuing to design our products into their products, the importance of software innovation, and volatility regarding our provision for income taxes. Forward-looking statements include statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "intends," "may," "plans," "potential," "predicts, "projects," "should," "will," "would," or similar expressions and the negatives of those terms. These forward-looking statements are inherently subject to uncertainties, risks, and changes in circumstances that are difficult to predict. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, but not limited to, those discussed in the section entitled "Risk Factors" in Part II, Item 1A and elsewhere in this report. Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition, and results of operations. Accordingly, readers should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this Form 10-Q. We are not under any obligation to, and do not intend to, publicly update or review any of these forward-looking statements, whether as a result of new information, future events, or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized, except to the extent required by applicable securities laws. Please carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission, or SEC, that attempt to advise interested parties of the risks and factors that may affect our business, prospects, and results of operations. The information included in this management's discussion and analysis of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes included in this report, and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2013.



Overview

We provide solutions for enterprises, hyperscale, and small to medium enterprise markets that accelerate databases, virtualization, cloud computing, big data, information systems, and the applications that help drive business from the smallest e-tailers to some of the world's largest data centers, social media leaders, and Fortune Global 500 businesses. Our integrated hardware and software platforms enable the acceleration of applications away from legacy architectures and proprietary hardware. This core technology leverages flash memory and software to significantly increase datacenter and computer-based information system efficiency, with enterprise grade performance, reliability, availability, and manageability. We were incorporated in December 2005 and have experienced significant growth since inception. Our growth has included significant increases in end-customers, introduction of new products including those from acquisitions, and investments in our product roadmap and business operations to support this growth. As a result of these factors, our headcount increased from 803 employees as of December 31, 2012 to 883 employees as of December 31, 2013. -20-



--------------------------------------------------------------------------------

Table of Contents

We sell our products through our global direct sales force, OEMs, including Cisco, Dell, Fujitsu, HP, and IBM, and other channel partners. Some of our OEMs and channel partners integrate our platform into their own proprietary product offerings. Our primary sales office is located in San Jose, California, and we also have additional sales presence in North America, Europe, and Asia. Large purchases by a limited number of customers, including OEMs and resellers which sell to end-customers, have accounted for a substantial majority of our revenue, and the composition of the group of our largest customers changes from period to period. Some of our customers make concentrated purchases to complete or upgrade specific large-scale data storage installations. These concentrated purchases are short-term in nature and are typically made on a purchase order basis rather than pursuant to long-term contracts. Customers that accounted for 10% or more of our revenue represented 69% and 62% of revenue for the three months ended December 31, 2012 and 2013, respectively, and 70% and 54% of revenue for the six months ended December 31, 2012 and 2013, respectively. Revenue from the 10 largest customers in each period, including the applicable OEMs, accounted for approximately 89% and 82% of revenue for the three months ended December 31, 2012 and 2013, respectively, and 90% and 79% of revenue for the six months ended December 31, 2012 and 2013, respectively. As a result of our revenue concentrations, our quarterly and annual revenue, gross margin, and operating results are likely to fluctuate in the future and will be difficult to estimate. We expect that sales to a limited number of customers will continue to contribute materially to our revenue for the foreseeable future. As our solutions become more broadly deployed in the market place and the number of our end-customers increases, we expect to have a broader customer base to support the continued growth of our business. We anticipate that sales through OEMs and other channel partners will continue to constitute a substantial portion of our future revenue. In some cases, our products must be designed or qualified into the OEM's products. If that fails to occur for a given product line of an OEM, we would likely be unable to sell our products to that OEM during the life cycle of that product, which would adversely affect our revenue. We expect that as we continue to expand our global presence and business overseas, we will increasingly depend on our OEM relationships in such markets. We believe that extending our platform differentiation through software and hardware innovation will be critical to achieving broader market acceptance and to maintaining or increasing our gross margins. In this regard, our ioTurbine virtualization and direct acceleration software, ION Data Accelerator software, ioVDI virtual desktop acceleration, ioControl hybrid storage software, ioSphere management software, and specialized storage memory programming software interface extensions that allow Integrated Software Vendors to develop, integrate, and add significant value to applications using our platforms are important strategic investments that differentiate our products from hardware competitors. We invest in hardware qualification so that we can apply the value of our software to new non-volatile technologies as they become available. We also invest in new hardware controllers to ensure that our products are competitive in performance, reliability, power, and density. If we are unable to successfully develop or acquire hardware or software technology, and then market and sell additional functionality, our ability to increase our revenue and gross margins could be adversely affected. Our ioMemory technology forms the basis of our ioDrive, ioScale, and ioFX product offerings. Our ioMemory is designed as a portfolio of upgradeable design modules, enabling faster time-to-market and increased extensibility, and it provides server-based storage class memory, low access latency, field upgradeability, deep error correction, self-healing protection, and native PCI-Express connectivity. Our second generation ioMemory technology supports the latest NAND geometries, significantly increases performance and capacity, improves reliability and cost while retaining the ability to build storage systems of varying capacity, performance, and form factors. At the heart of the ioMemory technology is our proprietary field programmable data path controller. It connects a large array of non-volatile memory chips natively to the server's PCI-Express 1.0 or 2.0 peripheral bus, and addresses the innate reliability issues of non-volatile memory with our error correction architecture and Adaptive Flashback Protection, an advanced chip-level fault tolerance technology, which is capable of restoring, correcting, and resurrecting lost data in the flash-based storage sub-system. We outsource manufacturing of our ioMemory-based products using a limited number of contract manufacturers. We outsource manufacturing of our shared acceleration products using a limited number of system integrators. We procure a majority of the components used in our products directly from third-party vendors and have them delivered to our contract manufacturers for manufacturing and assembly. Once our contract manufacturers perform sub-assembly and assembly quality tests, our products are assembled to our specified configurations. We then perform final manufacturing assurance tests, labeling, final configuration, including a final firmware installation and shipment to our customers. As a consequence of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of revenue and other operating results, including gross margin and operating expenses as a percentage of our revenue should not be relied upon as indications of future performance. Although we have historically experienced significant percentage growth in our revenue, we do not believe that our historical growth rates are likely to be sustainable or indicative of future growth. -21-



--------------------------------------------------------------------------------

Table of Contents

Components of Condensed Consolidated Statements of Operations

Revenue

We derive revenue primarily from the sale of our storage memory products and support services. We sell our solutions through our global direct sales force, OEMs, and other channel partners. We provide our support services pursuant to support contracts, which involve hardware support, software support, and software upgrades on a when-and-if available basis for a period of one to five years. We recorded services, support, and maintenance revenue of $9.0 million and $8.6 million for the three months ended December 31, 2012 and 2013, respectively, and $16.5 million and $17.0 million for the six months ended December 31, 2012 and 2013, respectively. For the periods presented, our software revenue was not significant to our condensed consolidated statements of operations. Cost of Revenue Cost of revenue consists primarily of material costs including amounts paid to our suppliers and contract manufacturers for hardware components and assembly of those components into our products. The largest portion of our cost of revenue consists of the cost of non-volatile memory components. Given the commodity nature of memory components, neither we nor our contract manufacturers generally enter into long-term supply contracts for our product components, which can cause our cost of revenue to fluctuate. Cost of revenue is recorded when the related product revenue is recognized. Cost of revenue also includes costs related to carrying value adjustments recorded for excess and obsolete inventory, amortization of intangible assets, allocated personnel expenses related to customer support, manufacturing operations, warranty costs, and costs of shipping. Operating Expenses The largest component of our operating expenses is personnel costs, consisting of salaries, benefits, and incentive compensation for our employees, which includes stock-based compensation. Our headcount increased from 803 to 883 from December 31, 2012 to December 31, 2013. As a result, operating expenses have increased over these periods. Certain expense amounts previously reported in the condensed consolidated statements of operations for the three and six months ended December 31, 2012 have been reclassified to reflect an adjustment to the method in which we allocate information technology and facility costs and to conform to fiscal 2014 presentation. As a result of the reclassifications, for the three and six months ended December 31, 2012, cost of revenue increased by $0.1 million and $0.2 million, respectively, sales and marketing expenses increased by $1.0 million and $1.6 million, respectively, research and development expenses increased by $1.1 million and $1.7 million, respectively, and general and administrative expenses decreased by $2.2 million and $3.5 million, respectively. The net effect of these reclassifications did not impact the amounts previously reported as income from operations and net income.



Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs, including incentive compensation, travel-related costs, allocated facilities and IT costs, depreciation associated with sales and marketing acquired assets, contract labor and consulting expenses associated with sales and marketing activities, and amortization of intangible assets.



Research and Development

Research and development expenses consist primarily of personnel costs, including incentive compensation, contract labor and consulting services, depreciation associated with research and development acquired assets, allocated facilities and IT costs, amortization of intangible assets, prototype expenses, and travel-related costs. We expense research and development costs as incurred.



General and Administrative

General and administrative expenses consist primarily of personnel costs, including incentive compensation, depreciation expense, legal, finance, and accounting expenses, consulting and professional services, allocated facilities and IT costs for our executive, finance, human resources, information technology, and legal organizations.

Other income (expense), net

Other income (expense), net consists of transactional foreign currency gains and losses, interest expense, and interest income.

Trends in Our Business

Gross Margin

Our gross margin will vary due to product mix, pricing, cost of materials, and product transition. We currently anticipate gross margin to decrease in the near term primarily as a result of our growth strategy and product mix. -22-



--------------------------------------------------------------------------------

Table of Contents

Operating Expenses

We expect operating expenses to remain relatively flat in absolute dollars in the near term and to increase over time to support growth.

Results of Operations

Revenue

The following table presents our revenue for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

Three Months Ended Six



Months Ended

December 31, Change in December 31, Change in 2012 2013 $ % 2012 2013 $ %



Revenue $ 120,569$ 94,501$ (26,068 ) (22 )% $ 238,684

$ 180,794$ (57,890 ) (24 )%

Revenue decreased $26.1 million from the three months ended December 31, 2012 to the three months ended December 31, 2013, and decreased $57.9 million from the six months ended December 31, 2012 to the six months ended December 31, 2013, primarily due to the decrease in the overall volume of our products shipped. Customers that accounted for 10% or more of our revenue represented 69% and 62% of revenue for the three months ended December 31, 2012 and 2013, respectively, and 70% and 54% of revenue for the six months ended December 31, 2012 and 2013, respectively. Revenue from the 10 largest customers, including the applicable OEMs, for the periods presented was 89% and 82% of revenue for the three months ended December 31, 2012 and 2013, respectively, and 90% and 79% of revenue for the six months ended December 31, 2012 and 2013, respectively. Revenue recognized from sales with a ship-to location outside of the United States was 45% and 33% of revenue for the three months ended December 31, 2012 and 2013, respectively, and 41% and 36% of revenue for the six months ended December 31, 2012 and 2013, respectively.



Cost of Revenue and Gross Margin

The following table presents our cost of revenue, gross profit and gross margin for the periods indicated and related changes as compared to the prior periods (dollars in thousands): Three Months Ended Six Months Ended December 31, Change in December 31, Change in 2012 2013 $ % 2012 2013 $ % Cost of revenue $ 46,148$ 41,488$ (4,660 ) (10 )% $ 94,213$ 78,028$ (16,185 ) (17 )% Gross profit 74,421 53,013 $ (21,408 ) (29 )% 144,471 102,766 $ (41,705 ) (29 )% Gross margin 62 % 56 % 61 % 57 % Cost of revenue decreased $4.7 million and gross profit decreased $21.4 million from the three months ended December 31, 2012 compared to the three months ended December 31, 2013, and cost of revenue decreased $16.2 million and gross profit decreased $41.7 million from the six months ended December 31, 2012 compared to the six months ended December 31, 2013. These changes were primarily due to the decrease in the volume of our products shipped. Gross margin decreased period over period due to inventory adjustments primarily from excess and obsolete inventory and amortization of intangible assets acquired in fiscal 2013, partially offset by favorable product mix and material costs.



Operating Expenses

Sales and Marketing

The following table presents our sales and marketing expenses for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

Three Months Ended Six Months Ended December 31, Change in December 31, Change in 2012 2013 $ % 2012 2013 $ % Sales and marketing $ 29,666$ 35,489$ 5,823 20 % $ 55,253$ 70,287$ 15,034 27 %



Sales and marketing expenses increased $5.8 million from the three months ended December 31, 2012 compared to the three months ended December 31, 2013, primarily due to an increase in sales and marketing personnel, as we hired additional employees to focus on acquiring new customers and expanding our business. This increase in headcount resulted in a $5.5 million increase in personnel-related costs, including a $1.6 million increase in sales commissions.

-23-



--------------------------------------------------------------------------------

Table of Contents

Sales and marketing expenses increased $15.0 million from the six months ended December 31, 2012 compared to the six months ended December 31, 2013, primarily due to an increase in sales and marketing personnel, as we hired additional employees to focus on acquiring new customers and expanding our business. This increase in headcount resulted in a $13.9 million increase in personnel-related costs, including a $3.5 million increase in sales commissions. The increase was also due to a $1.2 million increase in travel costs.



Research and Development

The following table presents our research and development expenses for the periods indicated and related changes as compared to the prior periods (dollars in thousands):

Three Months Ended Six Months Ended December 31, Change in December 31, Change in 2012 2013 $



% 2012 2013 $ % Research and development

$ 23,559$ 26,730$ 3,171



13 % $ 45,732$ 56,198$ 10,466 23 %

Research and development expenses increased $3.2 million from the three months ended December 31, 2012 compared to the three months ended December 31, 2013, primarily due to an increase in research and development personnel, resulting in a $1.7 million increase in personnel-related costs. The increase was also due to a $0.6 million increase in depreciation expense. Research and development expenses increased $10.5 million from the six months ended December 31, 2012 compared to the six months ended December 31, 2013, primarily due to an increase in research and development personnel, resulting in an $8.2 million increase in personnel-related costs. The increase was also due to a $1.3 million increase in depreciation expense.



General and Administrative

The following table presents our general and administrative expenses for the periods indicated and related changes as to the prior periods (dollars in thousands): Three Months Ended Six Months Ended December 31, Change in December 31, Change in 2012 2013 $ % 2012 2013 $ % General and administrative $ 14,302$ 11,752$ (2,550 )



(18 )% $ 28,143$ 25,043$ (3,100 ) (11 )%

General and administrative expenses decreased $2.6 million from the three months ended December 31, 2012 compared to the three months ended December 31, 2013, primarily due to lower stock-based compensation expense offset by an increase in other personnel-related costs, both primarily resulting from management transition. General and administrative expenses decreased $3.1 million from the six months ended December 31, 2012 compared to the six months ended December 31, 2013, primarily due to lower stock-based compensation expense offset by an increase in other personnel-related costs, both primarily resulting from management transition.



Other Income (Expense), net

The following table presents our other income (expense), net for the periods indicated and related changes as compared to the prior periods (dollars in thousands): Three Months Ended Six Months Ended December 31, Change in December 31, Change in 2012 2013 $ % 2012 2013 $ % Other income (expense), net $ 96$ (4 )$ (100 ) (104 )% $ 151$ 166$ 15 10 %



Other income (expense), net changed by $0.1 million from the three months ended December 31, 2012 compared to the three months ended December 31, 2013, primarily due to foreign currency exchange rate variances.

Other (expense) income, net changed by less than $0.1 million from the six months ended December 31, 2012 compared to the six months ended December 31, 2013, primarily due to foreign currency exchange rate variances.

-24-



--------------------------------------------------------------------------------

Table of Contents

Income Tax Expense

The following table presents our income tax expense for the periods indicated and related changes as compared to the prior periods (dollars in thousands): Three Months Ended Six Months Ended December 31, Change in December 31, Change in 2012 2013 $ % 2012 2013 $ % Income tax expense $ 5,258$ 339$ (4,919 ) (94 )% $ 9,829$ 601$ (9,228 ) (94 )% Income tax expense decreased by $4.9 million from the three months ended December 31, 2012 compared to the three months ended December 31, 2013, and by $9.2 million from the six months ended December 31, 2012 compared to the six months ended December 31, 2013, primarily due to the current period operating loss. The provision for income taxes for the three and six months ended December 31, 2013 was comprised primarily of foreign and state income taxes.



Financial Position, Liquidity and Capital Resources

Primary Sources of Liquidity

As of December 31, 2013, our principal sources of liquidity consisted of cash and cash equivalents of $244.0 million, net accounts receivable of $50.4 million, and amounts available under our revolving line of credit of approximately $22.0 million. We had working capital of $297.4 million as of December 31, 2013.

Historically, our primary sources of liquidity have been from customer payments for our products and services, and the issuance of common stock.

Cash Flow Analysis Six Months Ended December 31, 2012 2013 (In thousands) Net cash provided by (used in): Operating activities $ 38,892$ (4,141 ) Investing activities (8,712 ) (5,836 ) Financing activities 17,025 15,508



Operating Activities

Our operating cash flow primarily depends on the timing and amount of cash receipts from our customers, inventory purchases, and payments for operating expenses.

Our net cash provided by operating activities for the six months ended December 31, 2012 was $38.9 million. During this period, cash collected from our customers exceeded our operating cash outflows, which consisted primarily of purchases of inventory and personnel-related costs. Our net cash used in operating activities for the six months ended December 31, 2013 was $4.1 million. During this period, our cash used in operating activities was primarily the result of operating cash outflows, which mainly included payments on certain year-end accrued liabilities and purchases of inventory in anticipation of product releases, exceeding cash collected from our customers as a result of decreased revenue.



Investing Activities

Cash flows from investing activities primarily relate to purchases of computer equipment, leasehold improvements, and property and equipment to support our growth.



During the six months ended December 31, 2012 and 2013, our net cash used in investing activities was $8.7 million and $5.8 million, respectively, for purchases of property and equipment.

Financing Activities

Cash flows from financing activities primarily include net proceeds from the exercise of stock options and our employee stock purchase plan.

We generated $17.0 million of net cash from financing activities for the six months ended December 31, 2012, primarily due to net proceeds of $9.5 million from the exercise of stock options and our employee stock purchase plan, and a $9.4 million tax benefit from the exercise of stock options, all offset by $1.9 million in net issuance of restricted stock awards and restricted stock units, net of repurchases. -25-



--------------------------------------------------------------------------------

Table of Contents

We generated $15.5 million of net cash from financing activities for the six months ended December 31, 2013, primarily due to $14.1 million in net proceeds from the exercise of stock options and our employee stock purchase plan, reduced restricted cash of $3.2 million as a result of the majority of our letters of credit being collateralized by our line of credit entered into during the six months ended December 31, 2013, all offset by $1.8 million in net issuance of restricted stock awards and restricted stock units, net of repurchases.



Revolving Line of Credit

In September 2013, we entered into a credit agreement, or the revolving line of credit, with a financial institution. The revolving line of credit allows us to borrow up to a limit of $25.0 million, with a $25.0 million letter of credit sub-facility. The revolving line of credit contains an option to increase the lending commitments, subject to certain requirements, with the financial institution and/or new lenders to provide up to an aggregate of $75.0 million in additional lending commitments. Loan proceeds may be used for general corporate purposes, and we may prepay and/or reborrow revolving loans under the revolving line of credit in whole or in part at any time without premium or penalty. As of December 31, 2013, we had no outstanding revolving loans under the credit agreement and an aggregate face amount of $3.0 million in undrawn letters of credit under the revolving line of credit. The revolving loans bear interest, at our option, at (i) a base rate determined in accordance with the revolving line of credit, minus 0.75%, or (ii) a LIBOR rate determined in accordance with the credit agreement, plus 1.25%. The base rate means the highest of (i) the prime rate published by the Wall Street Journal and (ii) the federal funds rate plus a margin equal to 0.50%. Interest is due and payable in arrears monthly for base rate loans and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) for LIBOR rate loans. Principal, together with all accrued and unpaid interest, is due and payable on September 13, 2016. We are also obligated to pay a quarterly unused commitment fee equal to 0.10% multiplied by the average unused portion of the total revolving commitments, a quarterly fee of 1.25% on the daily amount available to be drawn under each letter of credit, and other customary fees for a facility of this size and type. Upon an event of default, the lender(s) may terminate their commitments to make further revolving loans and declare the outstanding revolving loans and all accrued and unpaid interest under the revolving line of credit to be immediately due and payable. The events of default under the revolving line of credit include, among others, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults, ERISA defaults, judgment defaults, a change of control default, and a material adverse effect default.



Under the terms of the revolving line of credit, we are required to maintain the following minimum financial covenants on a consolidated basis:

A ratio of current assets to the sum of (i) current liabilities plus,

without duplication, (ii) the aggregate amount of outstanding revolving

loans and undrawn or unreimbursed letters of credit under the revolving

line of credit, of at least 2.00 to 1.00.



A tangible net worth of at least the sum of (i) $200 million, plus (ii) an

amount equal to 50% of net income earned in each fiscal quarter ending

after March 30, 2013, plus (ii) an amount equal to 25% of the aggregate

increases in shareholders' equity resulting from certain specified

transactions.

As of December 31, 2013, we were in compliance with all covenants.

-26-



--------------------------------------------------------------------------------

Table of Contents

Future Capital Requirements

Our future capital requirements will depend on many factors, including our rate of revenue growth, possible acquisitions of, or investments in, businesses, technologies, or other assets, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts, and the expansion into new territories, the timing of new product introductions, the building of infrastructure to support our growth, the continued market acceptance of our products, and strategic investments in businesses. We believe that our cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. Although we are not currently a party to any material agreement or letter of intent regarding potential investments in, or acquisitions of, complementary businesses, applications, or technologies, we may enter into these types of arrangements, which could require us to seek additional equity or debt financing. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and these securities might have rights, preferences, and privileges senior to those of our current stockholders. We cannot assure you that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.



Off Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.



Indemnification

We have agreed to indemnify our officers and directors for certain events or occurrences, while the officer or director is or was serving at our request in such capacity. The maximum amount of potential future indemnification is unlimited; however, we have a director and officer insurance policy that provides corporate reimbursement coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We are unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, we had no liabilities recorded for these agreements as of June 30, 2013 and December 31, 2013. Many of our agreements with customers and channel partners, including OEMs and resellers, generally include certain provisions for indemnifying the channel partners and customers against liabilities if our products infringe a third party's intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification provisions and have not accrued any liabilities related to such obligations in our condensed consolidated financial statements.



Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. These estimates and assumptions are often based on judgments that we believe to be reasonable under the circumstances at the time made, but all such estimates and assumptions are inherently uncertain and unpredictable. Actual results may differ from those estimates and assumptions, and it is possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support alternative estimates and assumptions that would result in material changes to our operating results and financial condition. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.



Our critical accounting policies and estimates are detailed in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2013. None of our critical accounting policies and estimates have been significantly changed since the filing of our most recent Form 10-K.

Recently Issued and Adopted Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 1 "Description of Business and Summary of Significant Accounting Policies - Recently Issued and Adopted Accounting Pronouncements" in the notes to our condensed consolidated financial statements.



Segments

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in

-27-



--------------------------------------------------------------------------------

Table of Contents

order to make operating and resource allocation decisions. We have concluded that we operate in one business segment, which is the development, marketing, and sale of storage class memory products. Substantially all of our revenue for all periods presented in the accompanying condensed consolidated statements of operations has been from sales of the ioMemory product lines and related customer support services.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools