Dot Hill Systems Corp. (HILL) filed Annual Report for the period ended 2011-12-31.

Dot Hill Sys Cp has a market cap of $71.1 million; its shares were traded at around $1.4 with and P/S ratio of 0.3. Dot Hill Sys Cp had an annual average earning growth of 14.3% over the past 5 years.

Highlight of Business Operations:

The increase in net revenue for the year ended December 31, 2010 was primarily due to an increase in sales to HP. Sales to HP totaled $144.7 million for the year ended December 31, 2010 compared to $120.5 million for the for the year ended December 31, 2009. The increase in HP net revenue is due to the successful launch and market acceptance of the HP MSA 2000 products, which includes our Series 2000 products and the launch by HP of its third generation product line, now called the P2000 product line, in February 2010, which includes our Series 3000 products. Although our Series 2000 products are in the decline phase of the product life cycle, demand for these products continues to be significant. We released our next generation Series 3000 products in the first quarter of 2010 and sales of these products have increased significantly during each quarter of 2010.

In addition, sales to NetApp increased during the year ended December 31, 2010 compared to the year ended December 31, 2009 based on the success of NetApp’s FAS 2000 product line. Sales to NetApp totaled $65.6 million for the year ended December 31, 2010 compared to $58.0 million for the year ended December 31, 2009. However, under our agreement with NetApp, NetApp had the right to manufacture and sell, on a royalty and royalty-free basis, up to certain specified percentages of the products we previously manufactured and sold to NetApp. In the fourth quarter of 2010, we decided to exit our low margin business with NetApp and amended our agreement with NetApp to allow NetApp to manufacture and sell on a royalty-free basis all of the products we previously manufactured and sold to NetApp beginning on or about December 1, 2010.

These increases were partially offset by a decrease in net revenue from Oracle, FTS, Sepaton and other smaller customers. Oracle sales decreased to $0.5 million for the year ended December 31, 2010 compared to $10.3 million for the year ended December 31, 2009. The decline in Oracle net revenue is due to the products we sell to Oracle reaching the end of their product life cycle. FTS sales decreased to $2.8 million for the year ended December 31, 2010 compared to $11.4 million for the year ended December 31, 2009. The decrease in net

Research and development expense increased $3.5 million to $31.6 million for the year ended December 31, 2010 compared to $28.1 million for the year ended December 31, 2009. This increase was primarily due to an increase in salaries and payroll related expenses of $2.7 million, an increase in consulting costs of $1.1 million, an increase in depreciation expense of $0.4 million, and increases in various other items such as facilities and common expenses and travel, which approximated $0.1 million. In addition, in 2009 and 2010, we determined it was probable that the amount of contingent consideration due to Ciprico would be lower based on lower actual and projected sales of products eligible for the contingent consideration through the end of the contingent consideration period. Accordingly, we reduced the contingent consideration liability and research and development expense in the statement of operations to reflect the reduction in estimated contingent consideration liability. The reduction to research and development expense approximated $0.1 million for the year ended December 31, 2010 and $0.6 million for the year ended December 31, 2009, or a change of $0.5 million. These increases were partially offset by a decrease in Ciprico intangible asset amortization expense of $1.1 million and a decrease in engineering materials expense of $0.2 million.

The adjustments to reconcile net loss to net cash used in operating activities for the year ended December 31, 2011 that did not affect cash consisted of depreciation and amortization of $4.8 million, stock-based compensation expense of $5.4 million, goodwill and long-lived asset impairment charges of $7.1 million, issuance of warrants of $1.0 million and a bad debt charge of $0.2 million. Cash flows from operations reflects the positive impact of $3.3 million related to a decrease in accounts receivable, which was primarily due to a decrease in net revenue in 2011. However, this was offset somewhat by an increase in our days sales outstanding which increased to 62 days for the three-months ended December 31, 2011 compared with 49 days for the three months ended December 31, 2010 primarily due to the timing of intra-quarter sales. Cash flows from operations also reflects the positive impact of $2.1 million related to an overall decrease in inventories at December 31, 2011, as a larger portion of our inventory in 2011 was purchased directly from vendors by our contract manufacturers as opposed to in 2010 where we more often acted as a middleman in these transactions.

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