10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________ 

FORM 10-Q/A

(Amendment No. 1)

_______________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 1-13317

_______________________________

DOT HILL SYSTEMS CORP.

(Exact name of registrant as specified in its charter)

_______________________________

Delaware	13-3460176
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1351 S. Sunset Street, Longmont, CO	80,501
(Address of principal executive offices)	(Zip Code)

(303) 845-3200

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

_______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    x   No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

The registrant had 58,210,542 shares of common stock, $0.001 par value, outstanding as of July 31, 2012.

Explanatory Note

The sole purpose of this Amendment No. 1 to Dot Hill Systems Corp.'s Quarterly Report on Form 10-Q (the “Form 10-Q”) for the period ended June 30, 2012, as filed with the Securities and Exchange Commission on August 8, 2012, is to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 provides the financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language).

No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Item 6. Exhibits

The following exhibits are included as part of this quarterly report on Form 10-Q:

2.1	Agreement and Plan of Merger and Reorganization dated as of January 4, 2010, among Dot Hill Systems Corp., Telluride Acquisition Sub, Inc., Cloverleaf Communications Inc., Cloverleaf Communications (Israel) Ltd., Cloverleaf Communications Corporation (BVI) and E. Shalev Management 2000 (1999) Ltd. (1)
3.1	Certificate of Incorporation of Dot Hill Systems Corp. (2)
3.2	Amended and Restated Bylaws of Dot Hill Systems Corp. (3)
4.1	Certificate of Incorporation of Dot Hill Systems Corp. (2)
4.2	Amended and Restated Bylaws of Dot Hill Systems Corp. (3)
4.3	Form of Common Stock Certificate. (4)
4.4	Certificate of Designation of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of Delaware on May 19, 2003. (5)
4.5	Form of Rights Certificate. (5)
4.6	Warrant to Purchase Shares of Common Stock dated January 4, 2008. (6)
10.1	Amendment to Lease Agreement by and between Dot Hill Systems Corp. and Circle Capital Longmont LLC as of April 12, 2007. (8)
10.2	Amendment Twelve to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company.* (8)
10.3	Third Amendment to Loan and Security Agreement dated June 22, 2012 by and between Dot Hill Systems Corp. and Silicon Valley Bank.(7)
31.1	Certification pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (8)
31.2	Certification pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (8)
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(8)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Confidential treatment has been granted by, or requested from, the SEC.

(1)	Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 5, 2010 and incorporated herein by reference.
(2)	Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 19, 2001 and incorporated herein by reference.
(3)	Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 26, 2007 and incorporated herein by reference.
(4)	Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 14, 2003 and incorporated herein by reference.
(5)	Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on May 19, 2003 and incorporated herein by reference.
(6)	Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 7, 2008 and incorporated herein by reference.
(7)	Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 27, 2012 and incorporated herein by reference.
(8)	Filed as an exhibit to our Quarterly Report on Form 10-Q filed with the SEC on August 8, 2012 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Dot Hill Systems Corp.
Date: September 6, 2012	By:	/s/ Hanif I. Jamal
		Hanif I. Jamal
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

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Restructuring (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended	3 Months Ended	18 Months Ended	3 Months Ended	6 Months Ended	34 Months Ended	18 Months Ended	3 Months Ended	6 Months Ended				3 Months Ended		1 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2010 2008 plan employee	Jun. 30, 2010 2010 plan employee	Sep. 30, 2011 2010 plan employee	Mar. 31, 2012 2012 plan employee	Jun. 30, 2012 2012 plan employee	Sep. 30, 2011 Contract Termination [Member] 2008 plan	Sep. 30, 2011 Contract Termination [Member] 2010 plan	Mar. 31, 2012 Contract Termination [Member] 2012 plan	Jun. 30, 2012 Severance and related costs 2012 plan	Jun. 30, 2012 Contract termination and other associated costs 2008 plan	Jun. 30, 2012 Contract termination and other associated costs 2010 plan	Jun. 30, 2012 Contract termination and other associated costs 2012 plan	Jun. 30, 2010 Employee severance 2010 plan	Mar. 31, 2012 Employee severance 2012 plan	Jul. 31, 2012 Subsequent event 2008 plan
Restructuring Cost and Reserve [Line Items]
Number of positions terminated					70		25		24
Severance-related costs					$ 1,500,000
Contract termination costs										3,800,000	300,000
Abated rent and other operating expenses																			200,000
Expected percentage reduction in workforce						10.00%
Expected number of positions terminated						26		32
Expected restructuring cost												400,000					400,000	400,000
Restructuring cost, obligation through 2013																100,000
Restructuring Reserve [Roll Forward]
Accrued restructuring balance, beginning of period								0	0				0	1,212,000	116,000	0
Restructuring plan expense	73,000	37,000	674,000	(4,000)					721,000				355,000	29,000	3,000	366,000
Adjustments to restructuring plan									150,000				0	(73,000)	(4,000)	150,000
Cash payments									(574,000)				(281,000)	(400,000)	(41,000)	(293,000)
Accrued restructuring balance, end of period									$ 297,000				$ 74,000	$ 768,000	$ 74,000	$ 223,000

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2012

Segment Reporting [Abstract]

Net revenue by geographic area

Net revenue is recorded in the geographic area in which the sale is originated. Information concerning principal geographic areas in which we operate is as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2012		2011		2012
Net revenue:
United States	$	52,594	$	47,402	$	100,665	$	101,529
Europe	14		4		59		9
Asia	571		363		1,629		975
	$	53,179	$	47,769	$	102,353	$	102,513

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Subsequent Events (Details) (Threatened litigation, Subsequent event, USD $) In Millions, unless otherwise specified	Jul. 31, 2012
Threatened litigation | Subsequent event
Subsequent Event
Estimate of potential exposure, minimum	$ 0
Estimate of potential exposure, maximum	$ 1.9

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Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible Assets

Identifiable intangible assets are as follows (in thousands):

		December 31, 2011
	Estimated Useful  Life	Gross		Accumulated Amortization			Net
RaidCore technology	4 years	$	4,256	$	(3,477	)	$	779
NAS technology	3 years	214		(214		)	—
Software	3 years	2,050		(228		)	1,822
Total intangible assets		$	6,520	$	(3,919	)	$	2,601

		June 30, 2012
	Estimated Useful  Life	Gross		Accumulated Amortization			Net
RaidCore technology	4 years	$	4,256	$	(4,011	)	245
Total intangible assets		$	4,256	$	(4,011	)	$	245

As of December 31, 2011, we recorded a $2.8 million impairment of our acquired internally developed software and $0.1 million impairment of our trade name (see Note 1). Effective with the February 6, 2012 announced restructuring plan, the AssuredUVS product family would no longer be marketed to customers and the underlying UVS technology would either be disposed of through a sale to a potential acquiror or, in the event a buyer could not be located, abandoned. Accordingly, the acquired software was temporarily idled, and no additional amortization expense incurred subsequent to the February 6, 2012 announcement of the 2012 restructuring plan. In accordance with ASC 350, we evaluated the software for impairment as of February 6, 2012. At the time of that evaluation we were actively marketing the software for sale and believed the cash flows from a potential sale would have recovered the recorded book value. We continued actively marketing the software through June 2012. However, we were unsuccessful and all efforts toward locating a potential acquirer ceased as of June 30, 2012. Accordingly, we recognized an impairment for the remaining $1.6 million of acquired software as a component of cost of goods sold as of June 30, 2012. Additionally, we expect to report the underlying business as discontinued operations commencing in the third quarter of 2012. Amortization expense related to intangible assets totaled $0.5 million, $0.3 million, $1.0 million and $0.7 million for the three and six months ended June 30, 2011 and 2012, respectively.

Estimated future amortization expense related to intangible assets as of June 30, 2012 is as follows (in thousands):

2012 (Remaining 3 months)	$	245
Thereafter	—
Total	$	245

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Net Loss Per Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2011	Jun. 30, 2012 Stock options	Jun. 30, 2011 Stock options	Jun. 30, 2012 Unvested stock awards	Jun. 30, 2011 Unvested stock awards	Jun. 30, 2012 Warrants	Jun. 30, 2011 Warrants	Dec. 31, 2011 Warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of equity awards not included in the calculation of diluted net loss per share				9,298,263	7,254,690	1,132,568	2,303,779	1,602,489	1,602,489
Range of exercise prices, lower limit (in dollars per share)				$ 0.47	$ 0.47
Range of exercise prices, upper limit (in dollars per share)				$ 16.36	$ 16.36
Exercise price (in dollars per share)								2.40		2.40
Shares excluded from computation	0	0	0

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Summary Of Significant Accounting Policies (Allowance for Doubtful Accounts) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance, beginning of the year	$ 203	$ 0
Additions to allowance	25	0
Balance, quarter ended	$ 228	$ 0

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Inventory Disclosure [Abstract]
Purchased parts and materials	$ 2,982	$ 3,994
Finished goods	1,674	1,257
Total inventory	$ 4,656	$ 5,251

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Intangible Assets (Details) (USD $)	3 Months Ended		6 Months Ended			6 Months Ended	12 Months Ended			0 Months Ended	3 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Jun. 30, 2012 RaidCore technology	Dec. 31, 2011 RaidCore technology	Dec. 31, 2011 NAS technology	Dec. 31, 2011 Software	Sep. 30, 2011 Cloverleaf Communications, Inc.	Jun. 30, 2012 Cloverleaf Communications, Inc. Cost of goods sold Software	Dec. 31, 2011 Cloverleaf Communications, Inc. Cost of goods sold Software	Dec. 31, 2011 Cloverleaf Communications, Inc. Cost of goods sold Trade name
Finite-Lived Intangible Assets
Estimated Useful Life						4 years	4 years	3 years	3 years
Gross	$ 4,256,000		$ 4,256,000		$ 6,520,000	$ 4,256,000	$ 4,256,000	$ 214,000	$ 2,050,000
Accumulated Amortization	(4,011,000)		(4,011,000)		(3,919,000)	(4,011,000)	(3,477,000)	(214,000)	(228,000)
Net	245,000		245,000		2,601,000	245,000	779,000	0	1,822,000
Impairment charges, intangible assets			1,647,000	0						2,900,000	1,600,000	2,800,000	100,000
Amortization expense, intangible assets	1,000,000	500,000	700,000	300,000
2012 (Remaining 3 months)	245,000		245,000
Thereafter	$ 0		$ 0

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Inventories

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Inventories

Inventories

The components of inventories consist of the following (in thousands):

	December 31, 2011		June 30, 2012
Purchased parts and materials	$	3,994	$	2,982
Finished goods	1,257		1,674
Total inventory	$	5,251	$	4,656

Inventories are valued at the lower of cost (first-in, first-out method) or market value. The valuation of production inventory requires us to estimate excess or obsolete inventory. The determination of excess or obsolete inventory requires us to estimate the future demand for our products. Our markets are volatile, subject to technological risks and price changes and inventory reduction programs by our customers. In addition, we are required to make last time buys of certain components on occasion. These factors result in a risk that we will forecast incorrectly and purchase excess inventories of particular products or have commitments to purchase excess inventory components from our suppliers. As a result, actual demand will differ from forecasts, and such a difference has in the past and may in the future have a material effect on our financial statements. Any write downs to inventory due to the existence of excess quantities, physical obsolescence, changes in pricing, damage, or other causes establish a new cost basis for the inventory. When we sell or dispose of reserved inventory the new cost basis is charged to cost of sales. Service inventory is amortized ratably over the estimated life of the related product series.

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Product Warranties (Details) (USD $)	3 Months Ended		6 Months Ended		0 Months Ended	3 Months Ended				6 Months Ended	9 Months Ended			12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Sep. 30, 2011 Power supply devices installment	Jun. 30, 2012 Power supply devices	Dec. 31, 2011 Power supply devices	Sep. 30, 2011 Power supply devices	Jun. 30, 2011 Power supply devices	Jun. 30, 2011 Power supply devices	Jun. 30, 2012 Power supply devices	Sep. 30, 2011 Other assets Power supply devices	Jun. 30, 2011 Other assets Power supply devices	Dec. 31, 2011 Cost of goods sold	Sep. 30, 2011 Cost of goods sold Power supply devices
Product Liability Contingency [Line Items]
Standard product warranty term			3 years
Reimbursements from suppliers										$ 1,000,000				$ 1,200,000
Previously recognized warranty liability							2,700,000		1,300,000
Estimated product warranty liability					1,500,000	3,500,000		1,500,000			3,500,000
Reimbursement receivable, warranty costs												500,000	1,300,000
Settlement agreement, cash consideration					1,200,000			1,200,000
Loss contingency, proceeds received											600,000
Potential reimbursement, warranty costs								500,000
Settlement amount expected to receive					600,000			600,000
Number of quarterly installments receivable					4
Commencement of installments, period from date of settlement agreement					P3M
Period of product rebates/price concessions under settlement agreement					39 months
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance, beginning of period	6,930,000	881,000	6,871,000	982,000			2,800,000				2,800,000				5,500,000
Charges to operations	48,000	1,781,000	416,000	2,265,000
Deductions for costs incurred	(2,199,000)	(506,000)	(2,508,000)	(1,091,000)		(2,000,000)
Balance, end of period	$ 4,779,000	$ 2,156,000	$ 4,779,000	$ 2,156,000	$ 2,800,000		$ 5,500,000	$ 2,800,000							$ 5,500,000

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 40,499	$ 46,168
Accounts receivable, net	27,085	31,697
Inventories	4,656	5,251
Prepaid expenses and other assets	4,681	7,896
Total current assets	76,921	91,012
Property and equipment, net	5,696	4,972
Intangible assets, net	245	2,601
Other assets	308	294
Total assets	83,170	98,879
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	23,045	31,434
Accrued compensation	4,840	5,049
Accrued expenses	7,889	10,860
Deferred revenue	1,480	883
Restructuring accrual	1,139	1,328
Current portion of long-term note payable	0	71
Total current liabilities	38,393	49,625
Other long-term liabilities	961	552
Total liabilities	39,354	50,177
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000 shares authorized, zero shares issued and outstanding at December 31, 2011 and June 30, 2012	0	0
Common stock, $.001 par value, 100,000 shares authorized, 57,699 and 58,245 shares issued and outstanding at December 31, 2011 and June 30, 2012, respectively	58	58
Additional paid-in capital	323,672	321,681
Accumulated other comprehensive loss	(3,623)	(3,662)
Accumulated deficit	(276,291)	(269,375)
Total stockholders' equity	43,816	48,702
Total liabilities and stockholders' equity	$ 83,170	$ 98,879

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Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation

The financial statements of Dot Hill Systems Corp. (referred to herein as Dot Hill, we, our or us) contained herein are unaudited and in the opinion of management contain all adjustments (consisting of normal recurring adjustments and certain write offs in the carrying value of our long-term assets) necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Securities and Exchange Commission, or SEC, Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and disclosures required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for future quarters or the year ending December 31, 2012.

Use of Accounting Estimates

The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition, inventory valuation, recurring and specific issue warranty obligations (see Note 5), the valuation and recognition of stock-based compensation expense, and the valuation of long-lived assets, goodwill and other intangibles, as well as any other assets and liabilities acquired and accounted for under the purchase method of accounting for business combinations. In addition, we have other accounting policies that involve estimates such as the determination of useful lives of long-lived assets, accruals for restructuring and valuation allowance for deferred tax assets. Actual results may differ from these estimates and such differences could be material.

Concentration of Customers and Suppliers

A majority of our net revenue is derived from a limited number of customers. We currently have two customers that accounts for more than 10% of our total net revenue: Hewlett Packard, or HP, and Tektronix, Inc., or Tektronix. Our agreements with our original equipment manufacturers, or OEM, partners do not contain any minimum purchase commitments, do not obligate our OEM partners to purchase their storage solutions exclusively from us and may be terminated at any time upon notice from the applicable partner.

Net revenue by major customer is as follows (as a percentage of total net revenue):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2012		2011		2012
HP	77	%	72	%	77	%	66	%
Tektronix	5		7		4		13
Other customers less than 10%	18		21		19		21
Total	100	%	100	%	100	%	100	%

HP continues to account for a significant percentage of our sales. If our relationship with HP were disrupted or declined significantly, we would lose a substantial portion of our anticipated net revenue and our business could be materially harmed. We cannot guarantee that our relationship with HP or our other customers will expand or not otherwise be disrupted.

We expect that the sale of our products to a limited number of customers will continue to account for a high percentage of net revenue for the foreseeable future. On October 31, 2011, we amended, or the Amendment, the Product Purchase Agreement originally entered into with HP on September 10, 2007. The Amendment extends the agreement with HP for a five year period through October 30, 2016. In addition, the Amendment provides that we will continue to comply with the contractually required cost reduction process and to support HP with respect to certain products or statements of work upon any assignment of the agreement for a specified period of time. The Amendment does not contain any minimum purchase commitments by HP. Simultaneously with the extension of the Product Purchase Agreement, we agreed to extend until October 30, 2016 the expiration date of the warrant previously issued to HP to purchase 1,602,489 shares of our common stock at the original exercise price of $2.40 per share.

We currently rely on a limited number of contract manufacturing partners to produce substantially all of our products. As a result, should any of our current manufacturing partners such as Foxconn Technology Group, or parts suppliers not produce and deliver inventory for us to sell on a timely basis, operating results may be adversely impacted.

Long-lived asset impairment

We periodically review the recoverability of the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. An impairment in the carrying value of an asset group is recognized whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

As of September 30, 2011, we identified a change in circumstances that indicated the carrying amount of our long-lived assets may not be recoverable, as our primary AssuredUVS customer informed us that the AssuredUVS software would no longer be a component of its business strategy, which would result in a significant decline in revenues for the Company. Our long-lived assets consist of the intangible assets associated with our acquisition of certain identified Cloverleaf Communications, Inc., or Cloverleaf, assets acquired in January 2010 with an original carrying value of $5.0 million and property and equipment of $1.2 million.

Since we did not have an immediate replacement for our AssuredUVS customer, management’s forecasted undiscounted cash flows indicated that the assets were potentially not recoverable, and proceeded to estimate the fair value of each long-lived asset. Property and equipment comprised mostly machinery and equipment used for testing and development of our AssuredUVS technology. Management determined that carrying value approximated fair value, as property was either acquired in the 2010 acquisition of Cloverleaf, had been purchased subsequently, or could be re-deployed, establishing recent evidence of fair value. It was depreciated over a 3 – 5 year estimated useful life.

Intangible assets consisted primarily of acquired software of $4.9 million and a trade name of $0.1 million. We determined the fair value of the acquired software by estimating the replacement cost of the software, taking into account both the software as acquired and subsequent development work, as well as the business alternatives we were considering and the corresponding value of the software in these alternative approaches. We estimated the value of the software based on the probabilities of each of the business alternatives. We determined the fair value of the trade name using an income approach and considered the fact that the software’s trade name at the time of acquisition was no longer being used. All estimates were based on management using appropriate assumptions and projections.

Our impairment analysis at September 30, 2011 identified $2.9 million of impaired long-lived assets, consisting entirely of intangible assets recognized as part of the Cloverleaf acquisition in 2010. Long-lived asset impairment charges are recorded consistent with our treatment of related amortization expense specific to each acquired intangible assets. We recorded $2.8 million of impaired acquired software and $0.1 million of impaired acquired trade name as a component of cost of goods sold for the year ended December 31, 2011.

In February 2012, our Board of Directors approved a plan to exit our AssuredUVS business and close down our Israel Technology Development Center (see Note 6). We evaluated the potential impact, if any, on our valuation of our acquired software and other long-lived assets maintained at our Israel Technology Development Center, and based on the facts and circumstances in existence at March 31, 2012, we believed that the valuations at that date were appropriate.

During the second quarter of 2012, we explored the potential sale of the AssuredUVS business but were unsuccessful in locating a buyer and ended efforts to sell the business or its component assets as of June 30, 2012. Accordingly, we recognized an impairment of $0.2 million of property, plant and equipment and $1.6 million for the remaining value of acquired software as a component of cost of goods sold as of June 30, 2012.

Valuation of Goodwill

We review goodwill for impairment on an annual basis at November 30 and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Our ITC reporting unit, which was developing our AssuredUVS software, is a component of the Standalone Storage Software reporting segment identified in the notes to our consolidated financial statements. During September 2011, our primary AssuredUVS customer became delinquent on the settlement of its payables to us and upon our investigation it became evident that its financial resources were limited. It also informed us that they were changing their strategy which would result in a significant decline in revenue for the Company, and we determined it was “more-likely-than-not” that the reporting unit was less than its carrying value.

Current accounting standards require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of our reporting unit to its carrying value. We determine the fair value of our reporting unit using a combination of the income approach and market capitalization approach. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired, and we are not required to perform further testing. If the carrying value of the net assets exceeds the fair value of the reporting unit, then we must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then we must record an impairment charge equal to the difference.

Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future discounted cash flows. Under the market capitalization approach, valuation multiples are calculated based on operating data from publicly traded companies within our industry. Multiples derived from companies within our industry provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are applied to the operating data for the reporting unit to arrive at an indicated fair value. Significant management judgment is required in the forecasts of future operating results that are used in the estimated future discounted cash flow method of valuation. The estimates we have used are consistent with the plans and estimates that we use to manage our business. We base our fair value estimates on forecasted revenue and operating costs along with business plans. Our forecasts consider the effect

of a number of factors including, but not limited to, the current future projected competitiveness and market acceptance of the product, technological risk, the ease of use and ease of implementation of the product, the likely outcome of sales and marketing efforts and projected costs associated with product development, customer support and selling, general and administrative costs. It is possible, however, that the plans may change and that actual results may differ significantly from our estimates. The valuation resulted in the recognition of an impairment charge to goodwill of $4.1 million during the year ended December 31, 2011. No additional goodwill remains on the balance sheet of the Company as of June 30, 2012.

Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts for accounts receivable amounts that may not be collectible. We determine the allowance for doubtful accounts based on the aging of our accounts receivable balances and an analysis of our historical experience of bad debt write-offs. Bad debt expense was $0.0 million and $0.0 million for the six months ended June 30, 2011 and 2012, respectively.

Balance sheet details are as follows, (in thousands):

	June 30, 2011		June 30, 2012
Balance, beginning of the year	$	—	$	203
Additions to allowance	—		25
Balance, quarter ended	$	—	$	228

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The pronouncement was issued to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of ASU 2011-04 resulted in additional required disclosures within the Notes to the Unaudited Condensed Consolidated Financial Statements, but did not have a material impact on our Unaudited Condensed Consolidated Financial Statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive IncomePresentation of Comprehensive Income. ASU 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The provisions of ASU 2011-12 indefinitely defer portions of ASU 2011-05 related to the presentation of reclassifications of items out of accumulated other comprehensive income. The adoption of ASU 2011-05 and ASU 2011-12 did not have a material impact on our Unaudited Condensed Consolidated Financial Statements.

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Fair Value Measurements (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 0	$ 0
Accounts receivable	0	0
Accounts payable	0	0
Notes payable		0
Contingent consideration due to Ciprico		0
Accounts payable	23,045,000	31,434,000
Estimate of fair value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Accounts receivable		31,697,000
Accounts payable		31,434,000
Notes payable		71,000
Contingent consideration due to Ciprico		100,000
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Accounts receivable	0	0
Accounts payable		0
Notes payable		0
Contingent consideration due to Ciprico		0
Accounts payable	0
Fair value, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Accounts receivable	27,085,000	31,697,000
Accounts payable	23,045,000	31,434,000
Notes payable		71,000
Contingent consideration due to Ciprico		100,000
Fair value, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Accounts receivable	0	0
Accounts payable		0
Notes payable		0
Contingent consideration due to Ciprico		0
Accounts payable	0
Fair value, measurements, recurring | Estimate of fair value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	40,499,000	46,168,000
Fair value, measurements, recurring | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	40,499,000	46,168,000
Fair value, measurements, recurring | Fair value, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	0	0
Fair value, measurements, recurring | Fair value, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 0	$ 0
Ciprico
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration, percentage	6.67%

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Product Warranties (Tables)

6 Months Ended

Jun. 30, 2012

Product Warranties Disclosures [Abstract]

Warranty Accrual and Cost Activity

Our warranty accrual and cost activity is as follows as of and for the three and six months ended June 30, (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2012			2011			2012
Balance, beginning of period	$	881		$	6,930		$	982		$	6,871
Charges to operations	1,781			48			2,265			416
Deductions for costs incurred	(506		)	(2,199		)	(1,091		)	(2,508		)
Balance, end of period	$	2,156		$	4,779		$	2,156		$	4,779

XML

Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 segment	Jun. 30, 2011
Segment Reporting [Abstract]
Number of reportable segments			1
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue	$ 47,769	$ 53,179	$ 102,513	$ 102,353
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue	47,402	52,594	101,529	100,665
Europe
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue	4	14	9	59
Asia
Revenues from External Customers and Long-Lived Assets [Line Items]
Net revenue	$ 363	$ 571	$ 975	$ 1,629

XML

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Assets Measured at Fair Value on a Recurring Basis

Assets Measured at Fair Value on a Recurring Basis

			Fair Value Measurements Using
Description	December 31, 2011		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
	(in thousands)
Cash and cash equivalents	$	46,168	$	46,168	—	—	—

			Fair Value Measurements Using
Description	June 30, 2012		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
	(in thousands)
Cash and cash equivalents	$	40,499	$	40,499	—	—	—

These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents at December 31, 2011 and June 30, 2012, respectively (in thousands).

		Fair Value Measurements Using
Description	December 31, 2011	Quoted Prices for Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
Accounts receivable	31,697	—	31,697	—	—
Accounts payable	31,434	—	31,434	—	—
Notes payable	71	—	71	—	—
Contingent consideration due to Ciprico	100	—	100	—	—

		Fair Value Measurements Using
Description	June 30, 2012	Quoted Prices for Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
Accounts receivable	27,085	—	27,085	—	—
Accounts payable	23,045	—	23,045	—	—

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Net Loss Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period and including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding warrants, stock options, share based compensation awards and other dilutive securities. No such items were included in the computation of diluted loss per share in the three and six months ended June 30, 2011 or 2012 because we incurred a net loss in each of these periods and the effect of inclusion would have been anti-dilutive.

Outstanding equity awards not included in the calculation of diluted net loss per share because their effect was anti-dilutive were as follows:

	June 30, 2011			June 30, 2012
	Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices
Stock options	7,254,690	$0.47 - $16.36		9,298,263	$0.47 - $16.36
Unvested stock awards	2,303,779	$	—	1,132,568	$	—
Warrants	1,602,489	$	2.40	1,602,489	$	2.40

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000	100,000
Common stock, shares issued	58,245	57,699
Common stock, shares outstanding	58,245	57,699

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Summary Of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The financial statements of Dot Hill Systems Corp. (referred to herein as Dot Hill, we, our or us) contained herein are unaudited and in the opinion of management contain all adjustments (consisting of normal recurring adjustments and certain write offs in the carrying value of our long-term assets) necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Securities and Exchange Commission, or SEC, Form 10-Q and Article 10 of SEC Regulation S-X. They do not include all of the information and disclosures required by GAAP for complete financial statements.

Use of Accounting Estimates

Use of Accounting Estimates

The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition, inventory valuation, recurring and specific issue warranty obligations (see Note 5), the valuation and recognition of stock-based compensation expense, and the valuation of long-lived assets, goodwill and other intangibles, as well as any other assets and liabilities acquired and accounted for under the purchase method of accounting for business combinations. In addition, we have other accounting policies that involve estimates such as the determination of useful lives of long-lived assets, accruals for restructuring and valuation allowance for deferred tax assets. Actual results may differ from these estimates and such differences could be material.

Long-lived asset impairment

Long-lived asset impairment

We periodically review the recoverability of the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. An impairment in the carrying value of an asset group is recognized whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

Valuation of Goodwill

Valuation of Goodwill

We review goodwill for impairment on an annual basis at November 30 and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Our ITC reporting unit, which was developing our AssuredUVS software, is a component of the Standalone Storage Software reporting segment identified in the notes to our consolidated financial statements. During September 2011, our primary AssuredUVS customer became delinquent on the settlement of its payables to us and upon our investigation it became evident that its financial resources were limited. It also informed us that they were changing their strategy which would result in a significant decline in revenue for the Company, and we determined it was “more-likely-than-not” that the reporting unit was less than its carrying value.

Current accounting standards require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of our reporting unit to its carrying value. We determine the fair value of our reporting unit using a combination of the income approach and market capitalization approach. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired, and we are not required to perform further testing. If the carrying value of the net assets exceeds the fair value of the reporting unit, then we must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then we must record an impairment charge equal to the difference.

Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future discounted cash flows. Under the market capitalization approach, valuation multiples are calculated based on operating data from publicly traded companies within our industry. Multiples derived from companies within our industry provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are applied to the operating data for the reporting unit to arrive at an indicated fair value. Significant management judgment is required in the forecasts of future operating results that are used in the estimated future discounted cash flow method of valuation. The estimates we have used are consistent with the plans and estimates that we use to manage our business. We base our fair value estimates on forecasted revenue and operating costs along with business plans. Our forecasts consider the effect

of a number of factors including, but not limited to, the current future projected competitiveness and market acceptance of the product, technological risk, the ease of use and ease of implementation of the product, the likely outcome of sales and marketing efforts and projected costs associated with product development, customer support and selling, general and administrative costs. It is possible, however, that the plans may change and that actual results may differ significantly from our estimates.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts for accounts receivable amounts that may not be collectible. We determine the allowance for doubtful accounts based on the aging of our accounts receivable balances and an analysis of our historical experience of bad debt write-offs.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The pronouncement was issued to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of ASU 2011-04 resulted in additional required disclosures within the Notes to the Unaudited Condensed Consolidated Financial Statements, but did not have a material impact on our Unaudited Condensed Consolidated Financial Statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive IncomePresentation of Comprehensive Income. ASU 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The provisions of ASU 2011-12 indefinitely defer portions of ASU 2011-05 related to the presentation of reclassifications of items out of accumulated other comprehensive income. The adoption of ASU 2011-05 and ASU 2011-12 did not have a material impact on our Unaudited Condensed Consolidated Financial Statements.

XML

Document And Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document And Entity Information [Abstract]
Entity Registrant Name	DOT HILL SYSTEMS CORP
Entity Central Index Key	0001042783
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		58,210,542

XML

Summary Of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Net revenue by major customer

Net revenue by major customer is as follows (as a percentage of total net revenue):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2012		2011		2012
HP	77	%	72	%	77	%	66	%
Tektronix	5		7		4		13
Other customers less than 10%	18		21		19		21
Total	100	%	100	%	100	%	100	%

Allowance for doubtful accounts

Balance sheet details are as follows, (in thousands):

	June 30, 2011		June 30, 2012
Balance, beginning of the year	$	—	$	203
Additions to allowance	—		25
Balance, quarter ended	$	—	$	228

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Condensed Consolidated Statements Of Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Statement [Abstract]
NET REVENUE	$ 47,768	$ 53,179	$ 102,512	$ 102,353
COST OF GOODS SOLD	36,813	39,984	76,383	77,056
GROSS PROFIT	10,955	13,195	26,129	25,297
OPERATING EXPENSES:
Research and development	9,677	8,946	19,619	16,932
Sales and marketing	3,380	3,649	6,913	6,682
General and administrative	2,473	2,437	5,541	4,778
Restructuring charge (recovery)	73	37	674	(4)
Total operating expenses	15,603	15,069	32,747	28,388
OPERATING LOSS	(4,648)	(1,874)	(6,618)	(3,091)
OTHER INCOME:
Interest expense, net	(7)	(5)	0	(11)
Other Income, net	7	(1)	11	1
Total other income (expense), net	0	(6)	11	(10)
LOSS BEFORE INCOME TAXES	(4,648)	(1,880)	(6,607)	(3,101)
INCOME TAX EXPENSE	400	65	309	115
NET LOSS	(5,048)	(1,945)	(6,916)	(3,216)
NET LOSS PER SHARE:
Basic and diluted (in usd per share)	$ (0.09)	$ (0.04)	$ (0.12)	$ (0.06)
WEIGHTED AVERAGE SHARES USED TO CALCULATE NET LOSS PER SHARE:
Basic and diluted (in shares)	56,934	54,737	56,484	54,536
COMPREHENSIVE LOSS:
Net loss	(5,048)	(1,945)	(6,916)	(3,216)
Foreign currency translation adjustment	(36)	(19)	39	(28)
Comprehensive loss	$ (5,084)	$ (1,964)	$ (6,877)	$ (3,244)

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Credit Facilities

6 Months Ended

Jun. 30, 2012

Line of Credit Facility [Abstract]

Credit Facilities

Credit Facilities

We maintain a credit facility with Silicon Valley Bank for cash advances and letters of credit of up to an aggregate of $30 million based upon an advance rate dependent on certain concentration limits within eligible accounts receivable. These limitations exclude certain eligible customer receivables if an individual customer account balance exceeds 25, 50 or 85 percent of the total eligible accounts receivable, depending on the customer, as defined by our Loan and Security Agreement with Silicon Valley Bank. Borrowings under the credit facility bear interest at the prime rate and are secured by substantially all of our accounts receivable, deposit and securities accounts. The agreement provides for a negative pledge on our inventory and intellectual property, subject to certain exceptions, and contains usual and customary covenants for an arrangement of its type, including an obligation that we maintain at all times a net worth, as defined in the agreement, of $50 million (subject to certain increases). The agreement also includes provisions to increase the financing facility by $20 million subject to our meeting certain requirements, including $40 million in borrowing base for the immediately preceding 90 days, and Silicon Valley Bank locating a lender willing to finance the additional facility. In addition, if our cash and cash equivalents net of the total amount outstanding under the credit facility fall below $20 million (measured on a rolling three-month basis), the interest rate will increase to prime plus 1% and additional restrictions will apply. Our credit facility also provides for a cash management services sublimit under the revolving credit line of up to $300,000.

During the second quarter of 2012, we amended our credit agreement with Silicon Valley Bank. The amendment extends the maturity date to July 21, 2015 and amended certain other terms of the credit agreement, which we do not believe materially impacts our financial position. As of June 30, 2012 we had no outstanding letters of credit and there were no amounts outstanding under the Silicon Valley Bank line of credit.

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Restructuring

6 Months Ended

Jun. 30, 2012

Restructuring and Related Activities [Abstract]

Restructuring

Restructuring

2008 Plan

In December 2008, our management approved, committed to, and initiated a restructuring plan, or the 2008 Plan, to improve efficiencies in our operations, which was largely driven by our plan to consolidate our facility in Carlsbad, California into the Longmont, Colorado facility. As a result of this relocation, we terminated approximately 70 California employees whose positions have been relocated to Colorado and incurred approximately $1.5 million in severance-related costs, all of which was recognized and paid as of December 31, 2010.

As part of the 2008 Plan, we also incurred contract termination costs of $3.8 million since the inception of the 2008 Plan through September 30, 2011. We record charges for contract termination and other associated costs as restructuring expense, which is presented as a separate component within operating expenses. Accrued contract termination and other associated costs are recorded in the restructuring accrual line on our consolidated balance sheets. We expect to pay these contract lease termination costs over the remainder of the lease term ending in April 2013. Based on our estimates, we do not expect to receive any material amounts of sublease income through the remainder of the lease term.

All of the 2008 Plan activity relates to our storage systems operating segment.

The following table summarizes our 2008 Plan activities (in thousands):

	Contract Termination and Other Associated Costs
Accrued restructuring balance, beginning of period	$	1,212
Restructuring plan expense	29
Adjustments to restructuring plan	(73		)
Cash payments	(400		)
Accrued restructuring balance, end of period	$	768

The adjustment to the 2008 Plan resulted from certain credits received in the first quarter 2012 for previously paid common area maintenance (CAM) charges relating to our lease of the Carlsbad, California facility. We recorded this benefit as a reduction of restructuring expense, which is presented as a separate component within operating expenses.

During July 2012, we signed an amendment to our lease of the Carlsbad facility abating approximately $0.2 million in rent and other operating expenses in lieu of allowing the landlord to use the facility for the remainder of the lease term.

2010 Plan

In the second quarter of 2010, our management approved, committed to, and initiated a restructuring and cost reduction plan, or the 2010 Plan, to better align our resources in order to lower our breakeven point. The 2010 Plan includes severance and related costs for the reduction of approximately 10% of our workforce, and fees associated with the acceleration of the closure of our Carlsbad, California facility. As a result of these actions, we intend to terminate approximately 26 employees located in the United States, of which 25 have been terminated as of September 30, 2011. We expect to incur approximately $0.4 million in severance-related costs, all of which were recognized as of December 31, 2010. Accrued severance-related costs are recorded in the restructuring accrual line on our consolidated balance sheets. The remainder of the severance and related restructuring costs attributable to our 2010 Plan were paid out in the third quarter of 2011.

As part of the 2010 Plan, we also incurred contract termination costs of $0.3 million since the inception of the 2010 Plan through September 30, 2011 for facility lease and other associated costs that we continue to incur without economic benefit, as we exited the remaining portion of our Carlsbad, California facility. We record charges for contract termination costs and other associated costs as restructuring expense, which is presented as a separate component within operating expenses. Accrued contract termination and other associated costs are recorded in the restructuring accrual line on our consolidated balance sheets. We expect to pay these contract lease termination costs over the remainder of the lease term ending in April 2013. Based on our estimates, we do not expect to receive any material amounts of sublease income through the remainder of the lease term.

The majority of the 2010 Plan activity relates to our storage systems operating segment.

	Contract Termination and Other Associated Costs
Accrued restructuring balance, beginning of period	$	116
Restructuring plan expense	3
Adjustments to restructuring plan	(4		)
Cash payments	(41		)
Accrued restructuring balance, end of period	$	74

The adjustment to the 2010 Plan resulted from certain credits received in the first quarter 2012, for previously paid CAM charges relating to our lease of the Carlsbad, California facility. We recorded this benefit as a reduction of restructuring expense, which is presented as a separate component within operating expenses.

2012 Plan

In the first quarter 2012, our management approved, committed to, and initiated a restructuring and cost reduction plan, or the 2012 Plan, that is associated with the closure of our Israel Technology Development Center. The 2012 Plan is designed to re-align our software investments to focus on accelerating the development of embedded software features, in order to launch a competitive set of mid-range storage array products in 2012, and to provide more differentiated entry-level products for both OEM and channel customers. As a result of these actions, we intend to terminate approximately 32 employees located in our Israel Technology Development Center, of which 24 have been terminated as of June 30, 2012. As part of our efforts to attract a potential buyer of the UVS technology, we retained through July 2012 certain of our key Israeli employees with expertise on designing, building and maintaining the UVS technology. We expect to incur a total of approximately $0.4 million in severance-related costs. Accrued severance-related costs are recorded in the restructuring accrual line on our unaudited consolidated balance sheets. The majority of severance related restructuring costs attributable to our 2012 plan were paid out in the second quarter of 2012, with the remainder expected to be fully paid in the third quarter of 2012. Substantially all of our 2012 Plan workforce reductions were completed by July 31, 2012.

As part of the 2012 Plan, we also expect to incur approximately $0.4 million in contract termination costs for facility lease and other associated costs that we continue to incur without economic benefit, as we exited our Petah Tivka, Israel facility. We record charges for contract termination costs and other associated costs as restructuring expense, which is presented as a separate component within operating expenses. Accrued contract termination and other associated costs are recorded in the restructuring accrual line on our consolidated balance sheets. We expect to pay the majority of the contract lease termination costs over the remainder of the facility lease term ending in December 2012. Based on our estimates, we do not expect to receive any material amounts of sublease income through the remainder of the lease term. Approximately $0.1 million of our contractual commitments are expected to remain obligations of the Company through December 2013.

The majority of the activities comprising the 2012 Plan are expected to be completed by the end of 2012.

The following table summarizes our 2012 Plan activities (in thousands):

	Severance and Related Costs			Contract Termination and Other Associated Costs			Total
Accrued restructuring balance, beginning of period	$	—		$	—		$	—
Restructuring plan charges	355			366			721
Reclass of customer deposits	—			150			150
Cash payments	(281		)	(293		)	(574		)
Accrued restructuring balance, end of period	$	74		$	223		$	297

As part of the 2012 Plan, the Company announced that it will no longer support the UVS product effective March 31, 2013. The adjustment to the 2012 Plan represents customer prepaid UVS maintenance agreements for terms covering periods after March 31, 2013, that we expect will require future refunds to those customers impacted by this decision. As these were previously recognized as a component of deferred revenue, there was no impact to earnings, but this adjustment reflects a reclass within the balance sheet as of June 30, 2012.

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Restructuring (Tables)

6 Months Ended

Jun. 30, 2012

Restructuring and Related Activities [Abstract]

Restructuring Activities

The following table summarizes our 2008 Plan activities (in thousands):

	Contract Termination and Other Associated Costs
Accrued restructuring balance, beginning of period	$	1,212
Restructuring plan expense	29
Adjustments to restructuring plan	(73		)
Cash payments	(400		)
Accrued restructuring balance, end of period	$	768

The majority of the 2010 Plan activity relates to our storage systems operating segment.

	Contract Termination and Other Associated Costs
Accrued restructuring balance, beginning of period	$	116
Restructuring plan expense	3
Adjustments to restructuring plan	(4		)
Cash payments	(41		)
Accrued restructuring balance, end of period	$	74

The following table summarizes our 2012 Plan activities (in thousands):

	Severance and Related Costs			Contract Termination and Other Associated Costs			Total
Accrued restructuring balance, beginning of period	$	—		$	—		$	—
Restructuring plan charges	355			366			721
Reclass of customer deposits	—			150			150
Cash payments	(281		)	(293		)	(574		)
Accrued restructuring balance, end of period	$	74		$	223		$	297

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Net Loss Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Outstanding equity awards not included in calculation of diluted net loss per share

Outstanding equity awards not included in the calculation of diluted net loss per share because their effect was anti-dilutive were as follows:

	June 30, 2011			June 30, 2012
	Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices
Stock options	7,254,690	$0.47 - $16.36		9,298,263	$0.47 - $16.36
Unvested stock awards	2,303,779	$	—	1,132,568	$	—
Warrants	1,602,489	$	2.40	1,602,489	$	2.40

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Segment Information

6 Months Ended

Jun. 30, 2012

Segment Reporting [Abstract]

Segment Information

Segment Information

Operating segments, as defined Accounting Standard Codification, or ASC, 280 Segment Reporting, are components of an enterprise for which separate financial information is available and is evaluated regularly by the Chief Operating Decision Maker, or CODM, in deciding how to allocate resources and in assessing performance. ASC 280 also requires disclosures about products and services, geographic areas and significant customers.

As a result of our decision to exit our AssuredUVS line of business, and close down our Israel Technology Development Center during the first quarter of 2012, our CODM now operates our business in one reportable operating segment. Prior year information has been recast to conform to current year presentation.

Geographic Revenues

Net revenue is recorded in the geographic area in which the sale is originated. Information concerning principal geographic areas in which we operate is as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2012		2011		2012
Net revenue:
United States	$	52,594	$	47,402	$	100,665	$	101,529
Europe	14		4		59		9
Asia	571		363		1,629		975
	$	53,179	$	47,769	$	102,353	$	102,513

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Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

			Fair Value Measurements Using
Description	December 31, 2011		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
	(in thousands)
Cash and cash equivalents	$	46,168	$	46,168	—	—	—

			Fair Value Measurements Using
Description	June 30, 2012		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
	(in thousands)
Cash and cash equivalents	$	40,499	$	40,499	—	—	—

The short-term nature of our all of our financial instruments expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market interest rates. There were no transfers between Level I and Level II inputs for any of our assets measured on a recurring basis during the reporting period.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, notes payable and certain other long-term liabilities. The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable, accounts payable, notes payable and contingent consideration due to Ciprico, Inc., or Ciprico, in connection with the acquisition of certain intangible assets, approximate their fair values due to their short maturities.

The following disclosures relate to financial instruments for which the ending balances at June 30, 2012 and December 31, 2011, are not carried at fair value in their entirety on the Unaudited Condensed Consolidated Balance Sheets (in thousands). These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents at December 31, 2011 and June 30, 2012, respectively (in thousands).

		Fair Value Measurements Using
Description	December 31, 2011	Quoted Prices for Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
Accounts receivable	31,697	—	31,697	—	—
Accounts payable	31,434	—	31,434	—	—
Notes payable	71	—	71	—	—
Contingent consideration due to Ciprico	100	—	100	—	—

		Fair Value Measurements Using
Description	June 30, 2012	Quoted Prices for Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total (Losses)
Accounts receivable	27,085	—	27,085	—	—
Accounts payable	23,045	—	23,045	—	—

The short-term nature of our all of our financial instruments expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market interest rates.

The note payable owed to the former owners of Ciprico was initially determined by discounting both principal and interest cash flows expected to be paid using a discount rate for similar instruments with adjustments we believe a market participant would consider in determining fair value. As the final installment of this note payable was settled in the first quarter 2012 the short-term nature is such that the carrying value approximates market value.

Our contingent consideration to the former owners of Ciprico included assumptions about estimated future sales of our AssuredVRA technology over the agreed-upon royalty term, of which approximately 6.67% was to be paid to Ciprico under the royalty agreement. This valuation is sensitive to changes in customer demand and forecasted sales of our AssuredVRA technology through March 31, 2012. The final installment of this obligation was settled in the second quarter of 2012 and the short-term nature is such that the carrying value approximates market-value. There were no transfers between Level I and Level II inputs for any of our assets measured on a recurring basis during the reporting period.

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Commitments And Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

Commitments and Contingencies

We are involved in certain legal actions and claims from time to time arising in the ordinary course of business. Management believes that the outcome of such litigation and claims could have a material effect on our financial statements. Historically the outcome of such litigation and claims has not had a material adverse effect on our financial condition or results of operations.

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Subsequent Events

6 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

In July 2012, a technology partner notified us of a dispute regarding royalties paid to it for the right to include their technology in certain products sold by us under an intellectual property licensing agreement. This claim relates to certain sales during the period from June 2006 to August 2011. We are reviewing this claim, but cannot at this stage in the process determine the likelihood of the outcome. Our initial estimate of our potential exposure ranges between $0.0 million and $1.9 million.

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Credit Facilities (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Silicon Valley Bank
Line of Credit Facility [Line Items]
Borrowing capacity	$ 30,000,000
Minimum required net worth	50,000,000
Potential increase in borrowing capacity	20,000,000
Borrowing base	40,000,000
Borrowing base, period	90 days
Cash and cash equivalents, net of amount outstanding under credit facility	20,000,000
Amount outstanding	0
Cash management services | Silicon Valley Bank
Line of Credit Facility [Line Items]
Borrowing capacity	300,000
Letter of credit | Silicon Valley Bank
Line of Credit Facility [Line Items]
Amount outstanding	$ 0
Prime rate | Silicon Valley Bank
Line of Credit Facility [Line Items]
Interest rate over prime	1.00%
Threshold one
Line of Credit Facility [Line Items]
Customer accounts receivable concentration limit	25.00%
Threshold two
Line of Credit Facility [Line Items]
Customer accounts receivable concentration limit	50.00%
Threshold three
Line of Credit Facility [Line Items]
Customer accounts receivable concentration limit	85.00%

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of identifiable intangible assets

Identifiable intangible assets are as follows (in thousands):

		December 31, 2011
	Estimated Useful  Life	Gross		Accumulated Amortization			Net
RaidCore technology	4 years	$	4,256	$	(3,477	)	$	779
NAS technology	3 years	214		(214		)	—
Software	3 years	2,050		(228		)	1,822
Total intangible assets		$	6,520	$	(3,919	)	$	2,601

		June 30, 2012
	Estimated Useful  Life	Gross		Accumulated Amortization			Net
RaidCore technology	4 years	$	4,256	$	(4,011	)	245
Total intangible assets		$	4,256	$	(4,011	)	$	245

Estimated future amortization expense related to intangible assets

Estimated future amortization expense related to intangible assets as of June 30, 2012 is as follows (in thousands):

2012 (Remaining 3 months)	$	245
Thereafter	—
Total	$	245

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Summary Of Significant Accounting Policies (Concentration of Customers and Suppliers) (Details)	3 Months Ended		6 Months Ended		0 Months Ended	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended
	Jun. 30, 2012 customer	Jun. 30, 2011	Jun. 30, 2012 customer	Jun. 30, 2011	Oct. 31, 2011 Hewlett Packard	Jun. 30, 2012 Net revenue Customer concentration risk Hewlett Packard	Jun. 30, 2011 Net revenue Customer concentration risk Hewlett Packard	Jun. 30, 2012 Net revenue Customer concentration risk Hewlett Packard	Jun. 30, 2011 Net revenue Customer concentration risk Hewlett Packard	Jun. 30, 2012 Net revenue Customer concentration risk Tektronix	Jun. 30, 2011 Net revenue Customer concentration risk Tektronix	Jun. 30, 2012 Net revenue Customer concentration risk Tektronix	Jun. 30, 2011 Net revenue Customer concentration risk Tektronix	Jun. 30, 2012 Net revenue Customer concentration risk Other customers less than 10%	Jun. 30, 2011 Net revenue Customer concentration risk Other customers less than 10%	Jun. 30, 2012 Net revenue Customer concentration risk Other customers less than 10%	Jun. 30, 2011 Net revenue Customer concentration risk Other customers less than 10%	Oct. 31, 2011 Common stock Hewlett Packard
Net revenue by major customer
Number of major customers, greater than 10% of total revenue	2		2
Concentration risk, percentage of total net revenues	100.00%	100.00%	100.00%	100.00%		72.00%	77.00%	66.00%	77.00%	7.00%	5.00%	13.00%	4.00%	21.00%	18.00%	21.00%	19.00%
Product purchase agreement, period					5 years
Warrants to purchase shares of our common stock																		1,602,489
Exercise price (in dollars per share)																		2.40

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Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash Flows From Operating Activities:
Net loss	$ (6,916)	$ (3,216)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	1,959	2,164
Provision for bad debt expense	25	0
Stock-based compensation expense	2,076	2,537
Write-off of intangible assets	1,647	0
Impairment, property, plant and equipment	244	0
Changes in operating assets and liabilities, net of effects of business acquisition:
Accounts receivable	4,582	4,298
Inventories	595	2,050
Prepaid expenses and other assets	3,194	(850)
Accounts payable	(9,162)	(5,305)
Accrued compensation and other expenses	(3,152)	1,254
Deferred revenue	602	23
Restructuring accrual	(189)	(481)
Other long-term liabilities	412	(355)
Net cash provided by (used in) operating activities	(4,083)	2,119
Cash Flows From Investing Activities:
Purchases of property and equipment	(1,425)	(1,578)
Net cash used in investing activities	(1,425)	(1,578)
Cash Flows From Financing Activities:
Principal payment of note payable	(71)	(136)
Shares withheld for tax purposes	(533)	(343)
Proceeds from sale of stock to employees	448	742
Net cash provided by (used in) financing activities	(156)	263
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(5)	(28)
Net Increase (Decrease) in Cash and Cash Equivalents	(5,669)	776
Cash and Cash Equivalents, beginning of period	46,168	45,732
Cash and Cash Equivalents, end of period	40,499	46,508
Supplemental Disclosures of Non-Cash Investing Activities:
Property and equipment acquired but not yet paid	$ 811	$ 164

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Product Warranties

6 Months Ended

Jun. 30, 2012

Product Warranties Disclosures [Abstract]

Product Warranties

Product Warranties

Our standard warranty provides that if our systems do not function to published specifications, we will repair or replace the defective component or system without charge generally for a period of approximately three years. We generally extend to our customers the warranties provided to us by our suppliers and, accordingly, the majority of our warranty obligations to customers are typically intended to be covered by corresponding supplier warranties. For warranty costs not covered by our suppliers, we provide for estimated warranty costs in the period the revenue is recognized. There can be no assurance that our suppliers will continue to provide such warranties to us in the future or that our warranty obligations to our customers will be covered by corresponding warranties from our suppliers, the absence of which could have a material effect on our financial statements. Estimated liabilities for product warranties are included in accrued expenses.

In October 2009, we discovered a quality issue associated with certain power supply devices provided by a long-term component supplier, which resulted in a higher than expected level of power supply failures to us and our customers. While we were able to promptly identify and resolve the cause of the failures, we are required to provide replacement products or make repairs to the affected power supply units that had been sold between March and October 2009. Through June 30, 2011, our component supplier had repaired all of the faulty power supplies at no cost to us, and reimbursed us for our out-of-pocket costs which has constituted a reimbursement to customers for certain out-of-pocket costs they incurred in connection with these power supply failures. The total amount reimbursed to us by our component supplier approximated $1.0 million through June 30, 2011.

In the second and third quarters of 2011, a material customer provided us with a framework estimating the potential claims precipitated by the power supply failures. As previously disclosed, the customer’s preliminary framework of potential claims provided to us included additional costs related to the customer’s internal overhead for other internal indirect costs, in addition to third-party direct costs. Based on preliminary discussions for settlement and our analysis of the framework provided by the customer, including future potential claims through the warranty period, we estimated that we had incurred a probable loss of approximately $2.8 million. Consequently, in addition to the $1.3 million previously recognized as of June 30, 2011, we recorded an estimated liability of $1.5 million as of September 30, 2011 within “Accrued expenses” on our condensed consolidated balance sheet.

Negotiations continued with our customer throughout the fourth quarter of 2011 into the first half of 2012. Based on the results of ongoing negotiations with the material customer, we increased our estimated liability at December 31, 2011 to $5.5 million, resulting in a charge of $2.7 million during the fourth quarter of 2011 within “Accrued expenses” on our condensed consolidated balance sheet, and are reported gross of any third-party recoveries.

A final settlement with this material customer was reached during the second quarter of 2012. The terms of the agreement required an immediate payment of $2.0 million, and an estimated remaining liability of approximately $3.5 million as of June 30, 2012 related to a combination of future price concessions and rebates to be paid quarterly based on sales volumes through December 31, 2012. While our estimated liability relating to failed power supply units is subject to some uncertainty until final settlement, based on our current expectation of sales volumes with this material customer, we do not believe the incurrence of an additional loss is either probable or reasonably possible at this time.

During the second quarter of 2011, based on the advice of legal counsel, we established that our component supplier is contractually obligated to reimburse us for fair and reasonable costs we incur with our customers associated with these power supply failures. Our component supplier had continued to re-work and distribute to our customer the affected population of power supplies at no cost to us. In addition, at the time, our collection experience with similar amounts already reimbursed to us by our supplier and our belief that our component supplier and its parent companies had the financial ability to continue to reimburse us for any additional costs we may incur, we recorded a current asset within “Prepaid expenses and other assets” on our consolidated balance sheet of $1.3 million as of June 30, 2011.

During the third quarter of 2011, as the claims from our customer became clearer, we commenced negotiations with our component supplier for fair and reasonable costs that we have and are likely to incur through the warranty period associated with this component failure. Originally we determined that the supplier was unlikely to make an up-front cash payment for the original settlement amount of $1.3 million, but it indicated a willingness to provide some form of reimbursement for costs incurred, in the form of cash and/or note receivable of $0.5 million plus future product rebates. Based on our judgment at the time, we reduced the previously recorded current asset of $1.3 million within “Prepaid expenses and other assets” to $0.5 million as of September 30, 2011. We continued to negotiate this settlement with our supplier and during the second quarter of 2012, the supplier signed a final settlement agreement providing for additional reimbursements above what was recognized as of September 30, 2011. Pursuant to the settlement, the supplier agreed to cash consideration of $1.2 million, of which we received $0.6 million upon the subsequent signing of the settlement agreement, with the remaining $0.6 million to be received in four quarterly installments commencing three months from the date of the signed settlement agreement. Additionally, our supplier committed to product rebates and/or price concessions on product orders for a period of 39 months from the execution of the settlement agreement, in return for our agreement to release our supplier from all obligations relating to the power supply failures known by us to date. This agreement is not subject to any required future purchases.

In addition, we have commenced discussions with our General Liability and Errors and Omissions Insurance and underwriters and will continue to pursue our rights to cover any damages we incur and that are not reimbursed by our supplier. The insurance company has issued a reservation of rights letter to us and at this time, it is not possible to estimate to what extent the residual amounts, if any, we will be covered by our carrier. As of June 30, 2012 we have not assumed or recorded any insurance reimbursement.

To the extent our settlement agreements with our customer and our component supplier are not on mutually beneficial terms, or our component supplier does not continue to reimburse us for the expenses incurred by us or our customers, and we are unsuccessful in recovering such expenses from our insurance provider, we could incur additional expenses which could potentially have a material effect on our financial statements and liquidity.

Our warranty accrual and cost activity is as follows as of and for the three and six months ended June 30, (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2012			2011			2012
Balance, beginning of period	$	881		$	6,930		$	982		$	6,871
Charges to operations	1,781			48			2,265			416
Deductions for costs incurred	(506		)	(2,199		)	(1,091		)	(2,508		)
Balance, end of period	$	2,156		$	4,779		$	2,156		$	4,779

The table above includes $5.5 million of charges recorded to cost of sales in the second, third and fourth quarters of 2011 related to the liability established for certain third-party material and service costs incurred by our customer related to replacing failed power supplies. The table above does not include the corresponding $1.2 million benefit recorded within cost of sales in 2011 related to the current asset established for the recovery of such costs incurred by our customer which are to be reimbursed to us by our component supplier. There were no additional charges recorded during the first or second quarters of 2012 related to the liability established for certain third-party material and service costs incurred by our customer related to replacing failed power supplies. We paid $2.0 million to our material customer as part of the settlement agreement entered into during the second quarter of 2012.

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Summary Of Significant Accounting Policies (Long Lived Assets) (Details) (USD $)	6 Months Ended		12 Months Ended	0 Months Ended						3 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Jan. 31, 2010 Minimum	Jan. 31, 2010 Maximum	Sep. 30, 2011 Cloverleaf Communications, Inc.	Jan. 31, 2010 Cloverleaf Communications, Inc.	Jan. 31, 2010 Cloverleaf Communications, Inc. Software	Jan. 31, 2010 Cloverleaf Communications, Inc. Trade name	Dec. 31, 2011 Cost of goods sold Cloverleaf Communications, Inc. Trade name
Finite-Lived Intangible Assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangibles							$ 5,000,000	$ 4,900,000	$ 100,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment							1,200,000
Property and equipment, net	5,696,000		4,972,000
Property, plant and equipment, useful life				3 years	5 years
Impairment charges, intangible assets	1,647,000	0				2,900,000				100,000
Impairment, property, plant and equipment	244,000	0
Impairment charge, goodwill			4,100,000
Goodwill	$ 0

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Inventories (Tables)

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Components of inventories

The components of inventories consist of the following (in thousands):

	December 31, 2011		June 30, 2012
Purchased parts and materials	$	3,994	$	2,982
Finished goods	1,257		1,674
Total inventory	$	5,251	$	4,656