UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended January 31, 2016

OR

¨ 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: 001- 36069

VIOLIN MEMORY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-3940944
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
4555 Great America Parkway, Santa Clara, California	95054
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 396-1500

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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  ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

The aggregate market value of voting stock held by non-affiliates of the registrant on July 31, 2015, based on the closing price of $2.36 for shares of the registrant’s common stock as reported by the New York Stock Exchange, was approximately $228,918,011. Shares of common stock held by each executive officer, director, and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 31, 2016, 99,169,243 shares of the registrant’s common stock were outstanding.

Violin Memory, Inc.

Form 10-K

Table of Contents

		Page
	PART I
Item 1.	Business		3
Item 1A.	Risk Factors		18
Item 1B.	Unresolved Staff Comments		44
Item 2.	Properties		44
Item 3.	Legal Proceedings		44
Item 4.	Mine Safety Disclosures		45
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		45
Item 6.	Selected Financial Data		47
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		49
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		67
Item 8.	Financial Statements and Supplementary Data		69
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		104
Item 9A.	Controls and Procedures		104
Item 9B.	Other Information		105
	PART III
Item 10.	Directors, Executive Officers, and Corporate Governance		105
Item 11.	Executive Compensation		106
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		106
Item 13.	Certain Relationships and Related Transactions and Director Independence		106
Item 14.	Principal Accountant Fees and Services		106
	PART IV
Item 15.	Exhibits and Financial Statement Schedules		107

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Special Note Regarding Forward-Looking Statements

The information in this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Annual Report on Form 10-K in the section titled “Risk Factors” and the risks discussed in our other filings with the Securities and Exchange Commission, or the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

• our financial performance, including our revenue, cost of revenue and operating expenses;

• our ability to effectively manage our growth;

• our ability to attract and retain customers;

• anticipated trends and challenges in our business and the competition that we face; and

• our liquidity and working capital requirements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Any forward-looking statement made by us in this Annual Report on Form 10-K speaks only as of the date on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this Annual Report on Form 10-K to confirm these statements to actual results or revised expectations.

PART I

Item 1. Business

Overview

We pioneered a new class of persistent flash-based storage solutions designed to bring storage performance in line with high-speed applications, servers and networks. Our Flash Storage Platform™ is specifically designed at each level of the system architecture to leverage the inherent capabilities of flash memory and meet the sustained high-performance requirements of business-critical applications, virtualized environments and Big Data - data sets that are so large or complex that traditional processing applications are inadequate - solutions in the cloud and in enterprise data centers. Our solutions enable customers to realize significant capital expenditure and operational cost savings by simplifying their data center environments.

In February 2015, we introduced the Flash Storage Platform, the industry’s first vertically integrated design of software, firmware and hardware that delivers the highest performance, resiliency and availability at the same cost as legacy enterprise-class primary storage. The Flash Storage Platform runs our Concerto™ OS 7, a single operating system with integrated data protection, in-line block de-duplication and compression, stretch metro cluster and LUN mirroring as well as our suite of other Enterprise Data Services. With our Flash Storage Platform, all active data (Tiers 0, 1, and 2) can be consolidated onto a single tier, simplifying storage administration. Additionally, with our release of Symphony™ Management Suite Version 3.0, the entire software

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functionality can all be controlled in 1, 2 or 3 clicks, with management of the entire storage estate through a single pane of glass.

We believe our relationship with Toshiba Corporation, or Toshiba, a leading provider of flash memory and one of our principal stockholders, allows us to design our storage systems to unlock the inherent performance capabilities of flash technology and provides us with knowledge of future generations of flash. A key component of our close relationship with Toshiba is frequent direct technical interactions between our respective engineering teams.

As of January 31, 2016, our products have been purchased by more than 350 enterprises in diverse end markets, including financial services, health care, Internet, government, media and entertainment and telecommunications. We primarily sell our products and services through our direct sales force and global channels network to provide a high level of end-customer engagement. We had total revenue of $50.9 million, $79.0 million and $107.7 million in fiscal years 2016, 2015 and 2014, respectively. We had a net loss of $99.1 million, $108.9 million and $149.8 million in fiscal years 2016, 2015 and 2014, respectively.

Industry Background

A number of important IT trends are highlighting the widening performance gap between storage and other data center technologies. These trends include the acceleration of server and network technologies, widespread adoption of virtualization technologies, proliferation of public and private cloud-based environments, explosive data growth and demand for high-frequency, real-time access, the increasing strategic importance of in-memory computing, a focus on reducing data center complexity, and lowering total cost of ownership. Organizations seek to address this performance gap and optimize the utilization of both their enterprise data center and cloud environments. We believe that traditional disk-based storage solutions provided by incumbent primary storage vendors, such as Dell, EMC Corporation, or EMC, Hewlett-Packard (3PAR), or HP, Hitachi Data Systems Corporation, or Hitachi, International Business Machines, or IBM, and NetApp, Inc., or NetApp, have been unable to adequately scale performance to address this widening gap due to the inherent limitations of hard disk drives. There has been an accelerating shift towards the use of flash-based solutions. We believe other flash-based solutions provided by legacy vendors, while offering greater performance than disk-based storage solutions, have nevertheless been unable to adequately address this bottleneck while providing the data services, resilience, reliability density and availability required by enterprise applications.

Key IT Trends Impacting the Data Center

There are a number of important IT trends that are having a transformational impact on the design, performance and efficiency of storage in the data center:

• Improving performance of server and network technologies. Server performance, driven by microprocessor advancements, multi-core processors and threading technology, has progressed at a rapid pace. We believe performance of server microprocessor units, or MPU, will continue to scale in line with the increasing number of cores per processing unit. Data center network performance has also significantly increased as networks have become faster, less intricate and more efficient.

• Widespread adoption of virtualization technologies. The broad adoption of server and desktop virtualization technologies as well as the associated increase in the number of virtual machines per physical server are placing a greater burden on storage systems within existing data center environments. This trend is driving a significant need for high Input/Output Operations per Second, or IOPS, to support highly unpredictable traffic patterns and the increasing mix of random I/O operations.

• Proliferation of cloud-based architectures. The rapid proliferation of private and public cloud-based architectures is driving an increasing demand in storage infrastructure and data management solutions. Enterprises are acknowledging the importance of transitioning to the cloud with significant investments in storage hardware and software capabilities to better access, manage, and protect business-critical data and

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applications. Similarly, the emergence of cloud service providers is a key driver of storage consumption in providing access to large quantities of real-time content.

• Explosive data growth and demand for high-frequency, real-time access. The number of applications used and volume of data generated by enterprises and individuals continue to grow rapidly. In addition, the need for real-time access is being driven by the rapid proliferation of mobile devices.

• Increasing strategic importance of in-memory computing. In-memory computing is gaining increasing strategic importance in both enterprise data center and cloud environments as organizations look to IT as an enabler of growth and differentiation in their businesses. The growing use of in-memory computing is being driven by its inclusion in traditional products and cloud services, the growing need for faster performance and greater scalability requirements by high-performance applications such as Big Data analytics and the declining cost of flash memory.

• Focus on reducing data center complexity and lowering total cost of ownership. Organizations continue to deploy an increasing amount of storage to address the rapid growth in data and the rising performance requirements of applications and users. Typically, this compels IT departments to add more storage to support greater workloads, or over-provision, in an attempt to achieve the required I/O throughput levels. This over-provisioning has resulted in an overly complex infrastructure that is underutilized and increasingly expensive to manage. Consequently, organizations have become increasingly focused on efficiently scaling capacity and consolidating data center resources to lower operating costs.

These trends have placed a great strain on the performance and efficiency of data centers, highlighting the widening performance gap between storage and other data center technologies. Disk-based storage providers have been unable to adequately scale performance to address this gap due to the inherent limitations of hard disk drives. Organizations are increasingly seeking alternatives to traditional disk-based storage to address this performance gap and optimize the utilization of both their enterprise data center and cloud environments. We believe there is a continuing opportunity for disruptive solutions to capture the I/O intensive storage market as well as a meaningful portion of the primary storage market historically served, albeit poorly, by disk-based capacity-optimized and performance-optimized systems.

Attempts to Address the Widening Performance Gap in Data Center Environments

Traditional disk-based storage solutions exhibit significant delays in accessing data, or latency, which limit the overall performance of data center environments. Latency associated with accessing the data stored on array-based hard disk drives, or HDDs, is caused by the physics of rotating media where the data retrieval process is sequential. As application workloads increase, each I/O request is placed in a queue, resulting in a significant increase in disk response time, creating an I/O bottleneck and the more the response time deteriorates, the more severe the bottleneck. A common approach to address the I/O bottleneck involves over-provisioning of disk-based storage resources and only storing data on the faster outer tracks of the drive. This practice is called “short stroking.” However, over-provisioning and short stroking results in a structural underutilization of storage capacity and IT capital.

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Relative Latency of HDD arrays and Flash Storage Platforms

Storage technology	Latency
HDD-based arrays		2 to 20 ms
Flash Storage Platforms		0.2 to 1 ms

As data center technologies have improved, we believe it has become increasingly clear that disk-based storage solutions are not sufficient to meet the requirements of today’s I/O intensive data center environments. In an effort to overcome the limited performance capabilities of disk-based storage solutions, vendors have begun incorporating flash technology in their storage systems as an alternative. This has been facilitated by the decrease in the price of flash components over time.

Flash-based storage solutions designed for enterprise applications are generally deployed in array-based configurations, which enable storage resources to be shared across data center networks. Solutions are found in three configurations:

• Arrays built using off-the-shelf controllers and Solid State Drives (SSDs);

• A hybrid of both HDDs and SSDs; or

• Specifically designed all flash arrays.

Flash-based solutions using off-the-shelf components and SSDs deliver improved performance relative to disk-based storage solutions. However, their ability to optimize flash technology is severely limited by factors, which include the utilization of off-the-shelf flash memory chips, commodity controllers, commercially available data protection algorithms and management software originally designed for HDDs.

Flash is a medium that becomes progressively slower and more error-prone as data is repeatedly written, read and erased. We believe that the implementation of purpose-built intelligent software and controller technologies that are tightly integrated with flash-based solutions are necessary to address the challenges of the underlying flash technology and to deliver sustained high performance and endurance. Without the implementation of technologies specifically designed for flash, the performance, sustainability, and endurance of flash-based storage solutions that use off-the-shelf components remain significantly limited.

The key limitations of HDD- and SSD-based storage solutions include:

• Slow response times of disk-based storage solutions. Disk-based storage solutions are unable to deliver the low latency required by today’s high-performance applications. While over-provisioning and short-stroking with more HDDs modestly increases I/O throughput, this approach cannot reduce I/O response time due to the physics of rotating media and the architecture of disk-based storage solutions.

• Limited ability to provide scalable and sustained performance under peak workloads. While SSD-based storage solutions that use off-the-shelf drives can provide improved performance over disk-based storage solutions, they suffer from the “Write Cliff” issue, a phenomenon that refers to a significant spike in latency and slower I/O response times experienced by SSDs during erase cycles. This prevents SSD-based storage solutions from delivering predictable and sustainable performance during periods of peak workloads.

• High cost per transaction and overall cost of ownership. Disk-based storage solutions are not typically optimized to reduce the cost of storage associated with the execution of individual transactions of high- speed applications, which we refer to as cost per transaction. In addition, the current approach of over- provisioning and short-stroking HDD arrays to address the performance gap increases facilities costs, management overhead and energy consumption. Today’s disk-based infrastructures have multiple performance tiers of storage, requiring the expensive management of data and workloads within this infrastructure, which adds to the overall cost of ownership.

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• Not optimized for real-time application workloads. Disk-based storage solutions were not originally designed to serve the dynamic requirements of real-time application workloads. For example, disk-based storage solutions are designed for sequential workloads, not the random I/O patterns inherent in virtualized and cloud-based environments. Similarly, disk-based storage solutions are not designed to deliver the high-performance and high scalability requirements of Big Data analytics applications.

Limitations of Disk-Based Storage Solutions in Addressing Real-time Application Workloads

As a result of these limitations, we believe there is a pressing need for a fundamentally new approach to provide sustained high-performance storage that offers low latency, high bandwidth and extensive capacity as well as enterprise-class data services, reliability, availability and serviceability. In addition, these solutions must enable enterprises to realize capital expenditure and operational cost savings by simplifying their data center environments.

Our Solution

We pioneered a new class of flash-based storage solutions designed to bring storage performance in line with high-speed applications, servers and networks. Our Flash Storage Platforms are specifically designed at each level of the system architecture starting with raw flash and optimized through the array to leverage the technologies inherent capabilities and meet the sustained high-performance requirements of business-critical applications, virtualized environments and Big Data solutions in enterprise data centers. Our Flash Storage Platforms integrate enterprise-class software and hardware technologies to address the limitations cost-effectively of both disk-based and SSD-based storage solutions that use off-the-shelf components. Our systems are based on a four-layer hardware architecture that enables sustained performance during periods of peak workload as well as high reliability and availability through our intelligent, fail-in-place and hot-swappable modules, which we refer to as Violin^® Intelligent Memory Modules, or VIMMs. Our module design enables the delivery of sustained high performance and uninterrupted data access should a VIMM need to be replaced. Our storage systems are tightly integrated with our Concerto OS 7 software stack. It includes our proprietary hardware-accelerated vRAID data protection technology, data protection, in-line block de-duplication and compression, stretch metro cluster and LUN mirroring as well as our suite of other Enterprise Data Services.

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Our Flash Storage Platforms address fundamental challenges in the data center and deliver critical benefits to enterprises, including:

• Low latency and fast response times. Our flash-based storage solutions significantly reduce latency and enable fast response times across multiple write and read processes. Our solutions provide lower predictable latency when compared to disk-based solutions as a result of our parallel system and proprietary hardware-accelerated management algorithms. This allows servers to process more data efficiently and quickly, thereby eliminating disruption from peak workloads and accelerating application performance. For example, a single 7000 Series Flash Storage Platform can generate one million IOPS at sustained response times of under a millisecond, performance levels that are orders of magnitude faster than those delivered by comparable disk-based storage solutions.

• Sustained and scalable high performance. Our Flash Storage platforms provide enterprises with the sustained high performance required to run business-critical applications in today’s random I/O workload environments. Our Flash Storage Platforms overcome the Write Cliff issues experienced by SSD-based storage solutions that use off-the-shelf components to increase throughput, reduce latency and provide sustained performance through the use of proprietary hardware-accelerated data protection and management algorithms. Further, we believe our Concerto OS 7 software stack enables our Flash Storage Platforms to scale performance more effectively than disk-based and competing flash-based storage solutions on a sustained basis. For example, a single SSD utilized consistently over an 11-hour period can undergo a 50% drop in performance over the first 45 minutes which can persist throughout the entire period of use, while our 6000 Series All Flash Array used over a similar 11-hour period typically experiences no performance degradation or increase in latency.

• Significantly lower overall total cost of ownership. At the same price as legacy enterprise-class primary storage, our flash-based storage solutions can generate significant savings and provide greater return on investment to enterprises. A single Flash Storage Platform delivers sufficient IOPS per rack unit, or performance density, to replace multiple racks of disk-based storage solutions. Accordingly, our Flash Storage Platforms can potentially provide improvements of up to 75% less power and 80% less cooling requirements compared to a competitive disk-based storage solution. With the Flash Storage Platform for primary storage, all active data (Tiers 0, 1, and 2) can be consolidated onto a single tier, eliminating the need to manage data and workloads across the tiers. And, with our release of Symphony Management Suite Version 3.0, the entire software functionality can all be controlled in 1, 2 or 3 clicks, with management of the entire storage estate through a single pane of glass; thereby saving significant storage administrative resources. Finally, with the ability to scale-up to 1.3 petabytes in 24 rack units, the Flash Storage Platform offers significant opportunities for infrastructure consolidation, which reduces both capital and operating expenses necessary to manage data center assets.

• Optimized for real-time application workloads. Our Flash Storage Platforms are specifically designed to deliver the sustainable and scalable performance required by a broad range of real-time application workloads. Our systems are optimized for random I/O workloads generated in virtualized and cloud-based environments and enable the consolidation of thousands of virtual servers to share a common storage infrastructure while significantly increasing host CPU utilization. Additionally, our Flash Storage Platforms are highly interoperable with existing virtualization infrastructures, allowing IT managers to leverage existing data center networking and operating systems in both virtual and cloud-based environments without making changes to management software. Our solutions deliver high-performance that scales to petabytes of data and enables the acceleration of Big Data analytics applications.

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Our Solution is Optimized for the Demanding Requirements of Real-time Application Workloads

Our Strategy

Our objective is to be the leading supplier of purpose-built flash-based storage solutions for primary storage, business-critical applications, virtualized environments and Big Data environments. Key elements of our strategy include:

• Continue to pursue technology and product innovation to bring storage capabilities in line with advancements in server and network technologies. We intend to continue to innovate and invest in new products designed to leverage the capabilities of future generations of flash technology to cost-effectively provide greater levels of enterprise-grade data protection and sustained sub-millisecond performance. For example, our Flash Storage Platform tightly integrates our latest hardware design with firmware and software to deliver the highest performance, resiliency and availability at the same cost as legacy enterprise-class primary storage, which we believe re-establishes price leadership in the all-flash-array market. Our Concerto OS7 operating software provides a single operating system with integrated data protection, in-line block de-duplication and compression, stretch metro cluster and LUN mirroring as well as our suite of other Enterprise Data Services. We intend to continue to integrate software hardware and firmware to build leadership end-to-end Flash Storage Platforms that further enhances analytics capabilities and other embedded applications.

• Maintain high levels of customer engagement to drive sales. We intend to drive further penetration and deployment of flash-based storage solutions within our existing base of end-customers globally. Many of our customers initially deploy our solutions on a limited scale, tiered with disk-based storage solutions, which provides us with significant opportunities to sell more of our products as their storage performance and capacity requirements increase. We believe we are well positioned from a technology perspective to benefit as our customers expand their investments in high-performance storage offerings to include primary storage workloads, and we intend to continue to maintain our high levels of engagement with our existing customers. In addition, our close relationships and frequent dialogues with our customers contribute to our development activities and enable us to introduce future products that anticipate specific customer needs.

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• Invest in our global distribution channel to expand our presence. We intend to leverage and expand our relationships with our resellers, distributors and system integrators to penetrate existing and new markets more effectively. Our solutions are already sold in more than 15 countries, but we believe that international markets represent a significant opportunity for further growth. We intend to continue to grow our operations in select countries in Europe and Asia and further expand our geographic reach by developing relationships with select technology partners with broad go-to-market capabilities.

• Opportunistically pursue strategic acquisitions and investments. We intend to evaluate complementary businesses and discrete hardware and software technologies to accelerate our go-to-market strategy and extend our technology leadership position. In addition, we may opportunistically pursue acquisitions of companies with innovative technologies that will broaden the features and capabilities of our solutions, extend our product portfolio, increase our geographic presence or expand our market share.

Technology

Our flash-based storage solutions integrate enterprise-class hardware and software technologies to cost-effectively address shortcomings found in both HDD-based and SSD-based storage solutions that use off-the-shelf components. Our flash solutions’ differentiated hardware incorporates a four layer architecture that enables low, predictable latency with sustained high performance under peak workloads, as well as high reliability and availability through intelligent fail-in-place and hot-swappable modules.

Integrated with our hardware architecture is our powerful operating system Concerto OS 7, which is engineered to optimize the management of flash, ensure interoperability with existing data center operating systems and a full suite of enterprise-class data management services.

Violin Symphony is a comprehensive storage management platform that enables centralized administration of all Violin arrays and Flash Storage Platforms, real-time SLA-based health monitoring, customizable dashboards and comprehensive reporting, which can all be controlled in 1, 2 or 3 clicks through a single pane of glass.

Additionally, we have a technology and supply relationship with Toshiba, a leading supplier of flash memory and one of our principal stockholders. Through our relationship, we have developed a fundamental understanding of Toshiba’s flash specifications at the chip level, which we believe allows us to optimize our hardware and software technologies to unlock the inherent performance capabilities of flash. Additionally, our frequent interaction with Toshiba’s engineering teams provides us with insights into Toshiba’s product development roadmap for flash memory. This enables us to engineer our products for future generations of memory technology.

Overcoming Flash Management Challenges

Flash arrays become progressively slower and more error-prone as data is repeatedly written, read and erased. We believe that without the implementation of intelligent software and controller technologies that have been purpose-built to address the technical challenges of flash, the sustainable performance and endurance of flash-based storage solutions can be severely limited.

Our proprietary, hardware-accelerated vRAID technology, which is a key component of our Concerto OS 7 operating system software, solves several key challenges that prevent sustained performance and consistent low latency for enterprise application workloads on raw flash during memory erase cycles. Although a flash memory block can be read very quickly, it takes significantly more time for that block to be written or programmed; in addition, once a flash memory block is full, it cannot be modified without first being erased, which takes much longer than reading or writing. This asymmetry creates problems when the individual blocks that comprise a flash device become full, requiring empty space to be recovered to allow more writes. The recovery process, also known as grooming or garbage collection, requires that currently accessed data be gathered and placed into a free

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block so that the targeted block can be erased. In flash-based storage solutions that use off-the-shelf SSDs, grooming activities are performed in software using the server processor, reducing computing bandwidth and potentially impacting performance in demanding data center and cloud environments. Such degradation in performance, commonly referred to as the Write Cliff, results in a significant decrease in throughput and large spikes in latency. We believe our system-level approach, hardware-accelerated vRAID implementation and deep software integration expertise enable us to handle the Write Cliff phenomenon more efficiently than flash-based storage solutions that use off-the-shelf components.

Violin’s Flash Fabric Archiecture™

Key components of our differentiated four-layer Flash Fabric Architecture include:

• Custom-designed distributed flash controllers. Our proprietary distributed flash controllers are tightly integrated with individual raw flash components and provide the foundation for the three higher layers of our system architecture. Active communication with higher system layers enables the controller to intelligently schedule reads, writes and erases to minimize latency and maximize performance of application workloads.

• Intelligent memory modules. Our system architecture aggregates flash components into hot-swappable intelligent memory modules, which we refer to as VIMMs. Each VIMM contains a hardware-accelerated translation layer that provides essential process and correction functions, such as wear-leveling and error/fault management. Our module design enables the delivery of sustained performance and uninterrupted data access in the event of a failure of one or more flash memory chips within a VIMM. In addition, our architecture optimizes the data grooming process by allowing it to be performed intelligently across individual VIMMs without consuming CPU or system resources, unlike other flash-based storage solutions.

• Violin vXM switched memory tightly integrated with vRAID. Our Violin Switched Memory Controller, or vXM, delivers high resiliency and performance scaling across a network of flash memory modules. vXM incorporates each VIMM into a reliable, switched fabric of flash components and provides fault isolation, instantaneous re-routing of data traffic and automated re-striping of data in the event of a complete failure of one or more VIMMs. Our vXM design enables hot-swapping and in-place replacement of VIMMs, flash controllers and other system controller elements for uninterrupted operation. Unlike other memory interconnects, vXM was custom-designed to support large topologies and fault tolerance while enabling multiple memory types. In conjunction with our proprietary vRAID data distribution and protection method, vXM provides the core fabric for delivering reliable data persistence and scalable performance in our Flash Storage Platforms.

• Array controller. Our array controller is a low latency system controller that provides network connectivity to flash capacity through various standards-based storage protocols. The array controller orchestrates memory virtualization, logical capacity management, and load-balancing functions of our Flash Storage Platforms.

Our Flash Fabric Architecture is designed not only to meet the latency and throughput needs of today’s enterprise applications, such as databases, ERP, CRM and virtual servers, but also to scale to address the high-performance demands of cloud applications.

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Concerto OS 7 Software Stack

Our Concerto OS 7 software stack is specifically designed to optimize the storage and management of data on flash. Concerto OS 7 is a broad suite of management capabilities that provides data protection, systems management, capacity management and load balancing of data storage on flash memory. The key components of our Concerto OS 7 software stack include:

• Data management functionality. Concerto OS 7 integrates Violin’s system-level raw flash management and one of the broadest sets of data management services into a single operating system. Concerto OS 7 delivers simplicity, flexibility and control by allowing control of enterprise-grade data services such as inline, block-level deduplication and compression, synchronous replication, application consistent snapshots, thin provisioning, data protection, consistency groups, clones, backup integration and WAN security and optimization with a simple one, two, or three clicks, application by application or LUN by LUN.

• Hardware accelerated flash optimization and data protection with vRAID. Our proprietary Flash vRAID methods provide hardware-accelerated RAID data protection and a fundamentally more efficient and higher performance solution than existing RAID implementations that are not designed for flash memory. Our vRAID technology manages RAID groups and flash maintenance across the All Flash Array’s vRAID groups, where any vRAID group can access any VIMM. VIMMs are combined in groups of five to comprise one vRAID group. Our vRAID algorithm significantly lowers latency by enabling massively parallel data striping for high throughput and IOPS. Further, vRAID enables fail-in-place support of VIMMs and fast rebuilds that have minimal impact on application performance.

• Integrated clustering for high availability. Our Concerto OS 7 software stack provides high availability clustering while enabling integrated management of multiple memory arrays using Symphony’s web-based management console.

Products

7300 Flash Storage Platform

Violin’s 7300 Flash Storage Platform combines comprehensive data protection and reduction services with high performance, high resiliency all-flash solutions that are designed to deliver a better customer experience at the cost of existing disk drive-based products. Enterprise and cloud data centers based on Violin Memory Flash Storage Platforms for their primary storage needs can be easier to manage, consume less space and power and transform data center economics.

The Violin 7300 Flash Storage Platform powered by Concerto OS 7 delivers a rich suite of Enterprise Data Services for a comprehensive solution that is designed to deliver the performance and capabilities enterprise-class primary storage requires. The Violin 7300 Flash Storage Platform consists of high performance storage with embedded enterprise-grade data services including business continuity, data protection, data scalability, and data efficiency. Violin’s Enterprise Data Services deliver several benefits:

• Data reduction including advanced switchable inline data deduplication and compression for savings up to 10:1 for suitable applications;

• Flexible and powerful business continuity with asynchronous replication;

• Clones and mirroring protect valuable enterprise data;

• Data scaling is simple with pay-as-you-grow capacity licensing for low risk, non-disruptive growth;

• Configuration choice as a stand-alone storage array, or as a shelf in the 7700 Flash Storage Platform; and

• Performance that is transformative with capabilities built for demanding enterprise environments enabling high levels of data center consolidation.

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7300E Flash Storage Platform

The Violin 7300E Flash Storage Platform provides the same capabilities and features as the 7300 Flash Storage Platform, but at an entry-point as low as 34TB effective. With our industry-leading “Pay-As-You-Grow” capacity licensing model, the 7300E can be expanded seamlessly and without any additional hardware upgrades up to 125TB effective in a compact and cost effective three rack unit foot print.

7600 Flash Storage Platform

The Violin 7600 Flash Storage Platform is an extension of the Violin 7000 Series Flash Storage Platform that addresses the needs of primary and high performance storage. Violin’s 7600 Flash Storage Platform brings industry leadership in high-performance all flash arrays. The Violin 7600 Flash Storage Platform offers extremely low latency with high I/O density, while setting a new industry bar for storage consolidation by delivering 140TB of raw flash in three-rack units.

• Performance leadership: The Violin 7600 Flash Storage Platform delivers 1.1 million IOPS under 500-microsecond latency, reducing the latency by half, as compared to current all flash arrays in the market, while simultaneously driving up its high I/O density. This allows customers to consolidate mixed and multiple workloads in the lowest footprint possible.

• Density leadership: The Violin 7600 Flash Storage Platform ships with new 2.2TB VIMMs yielding 140TB of raw storage in a three-rack unit. This delivers industry leadership in flash density by doubling power and space savings.

The Violin 7600 Flash Storage Platform comes with industry-leading enterprise data services such as asynchronous replication, snapshots, clones, synchronous mirroring and stretch clustering with zero recovery point objective and zero recovery time objective under the Violin 7700 Flash Storage Platform, and other data protection services.

The Violin 7600 Flash Storage Platform is available with raw capacities of between 35TB and 140TB. It is offered with Violin’s flexible “Pay As You Grow” capacity-based pricing model, which allows customers to align their storage investment with their changing capacity needs.

7700 Flash Storage Platform

The Violin 7700 Flash Storage Platform is the latest generation of our high-end modular array line up, engineered for maximum performance, scalability and the only all-flash platform in the industry that natively delivers a zero data loss architecture. The Violin 7700 Flash Storage Platform is targeted at large, multi-petabyte and multi-site deployments for customers that look for ultimate scale, availability and flexibility.

Powered by Concerto OS 7, the Violin 7700 Flash Storage Platform provides over 1.3 petabytes of effective capacity or serves 20,000 persistent virtual desktops across six shelves, and adds synchronous replication and stretch cluster capabilities to the menu of data protection services.

The Violin 7700 Flash Storage Platform also provides an excellent investment protection path for existing Violin 6000 series and 7000 series all flash array customers, because these all flash arrays can now upgrade to a Violin 7700 Flash Storage Platform, and may take advantage of the Concerto OS 7 industry-leading feature set and Symphony 3 revolutionary storage management experience.

6000 Series All Flash Array

Our 6000 Series all flash array consists of an integrated highly available, fault-tolerant system. The 6000 Series All Flash Array is available based on either SLC or MLC flash technology. Systems based on SLC can support

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up to 17 terabytes per array with performance of up to one million IOPS. Systems based on MLC can support up to 70 terabytes per array with performance of up to 750,000 IOPS. We offer different all flash array solutions within our 6000 Series all flash array, which are designed to meet various customer requirements, including a variety of capacity features, performance criteria and price points.

Symphony™ System Management Software

Symphony is a system management software solution that enables centralized management of Violin Flash Storage Platforms. Symphony provides a single pane of glass view into our Violin infrastructure and reduces operational complexity with customized dashboards, in-depth performance and health monitoring, automated operations and a consolidated management interface across hundreds of Flash Storage Platforms.

Customer Care

Violin offers customers a portfolio of professional services and support services that enable our customers to plan, build, and operate their Violin infrastructure. These services are intended to enable our customers to meet their business and technical objectives through Violin innovation.

We offer customers professional services to provide flash expertise and best practices for customers to leverage in deploying Violin products and technologies. We collaborate with the customer team to install Violin arrays with high availability, migrate data to their Violin Flash Storage Platform, tune performance for databases and deploy stretch cluster for business continuity.

We offer a variety of support services and programs designed to meet customers’ business objectives. We provide technical support (24 hours a day, 7 days a week, 365 days of the year) in a follow the sun model. Beyond our standard product and software warranties, we provide two levels of support – Gold and Silver. Our Silver support offering provides for technical support at varying response times depending on the customer support issue, delivery of replacements parts and software and firmware maintenance updates. Our Gold support offering includes all of the items included in our Silver support offering together with faster target response times for technical support matters and delivery of replacement parts within four hours of a customer’s request. We use Decision One, our third party hardware maintenance provider, to provide on-site parts replacement globally as part of Violin delivered support services. Our service contracts typically have terms of either one or three years.

In some circumstances, we rely on authorized service providers in international locations to deliver on-site customer support, system maintenance and parts replacement. These authorized service providers are typically our resellers or distributors, and they have contracts for providing support for our customers. We work closely with these authorized service providers to train and certify them to provide support for our products.

Violin supports our customers proactively through our callhome monitoring system. We also offer customers personalized engagement through Support Account Manager and Resident Support Engineer.

Sales and Marketing

We sell our products to end-customers either directly or through resellers and distributors. We also work with technology partners or system integrators to integrate and market our products with their solutions. We refer to our network of resellers, distributors, technology partners or system integrators as our channel partners.

In our direct sales efforts, our sales team directly engages with customers to understand customer requirements and to assist customers in determining which of our products best satisfies those requirements. For large customers, we establish an account team that manages the relationship with the customer. An account team may include members of our sales staff, service and support professionals and technical resources. Our sales process often involves installing trial deployments of our products, which allows customers to experience the operation

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of our products and appreciate the value of our products. Generally, our large customers to date have relied on an existing vendor relationship for sourcing their IT equipment. Consequently, we transact most of our sales through resellers even though we maintain a direct selling and support relationship with the customer. By using these sourcing vendors as our resellers, we eliminate the time that would otherwise be spent on negotiating the terms and conditions directly with the end-customer and potentially decrease the length of the sales cycle. In fiscal years 2016, 2015 and 2014, the substantial majority of our revenue resulted from our direct sales team’s engagement with target end-customers.

We also sell to technology partners and system integrators, which integrate our product into a broader enterprise solution offered by them. We then work with our technology and systems integrator partners to co-market our solutions and typically offer service and support to the customer together with our partner. Historically, we have had limited success with this route to market.

We work closely with our channel partners to promote and sell our products. As of January 31, 2016, we had over 100 channel partners, including Arrow, Commtech Innovative Solutions, ePlus, Fujitsu, OnX and Mainline Information Systems, covering over 30 countries. We may seek to selectively add new channel partners, particularly in additional regions outside North America to complement or expand our business.

Our marketing efforts are focused on building brand awareness and qualifying sales leads for new and existing customers. A key element of our efforts to grow our business will be increasing awareness of our brand and technological capabilities through digital and other marketing activities. We employ an international team of marketing professionals and utilize our resellers and distributors for additional marketing efforts. In addition to our marketing employees, we engage outside marketing professionals to augment our marketing capabilities and expand our international marketing reach. Our marketing team is responsible for branding, product marketing and managing our channel marketing programs. We rely on a variety of marketing vehicles, including advertising and ad words, trade shows, public relations, industry research and our website. We spent $6.3 million, $5.5 million and $4.6 million in fiscal years 2016, 2015 and 2014, respectively, on such activities.

We maintain sales office in the United States as well as in China, Japan, Singapore, South Korea and the United Kingdom. As of January 31, 2016, we had 118 sales and marketing employees worldwide.

Customers

Our products are used in a variety of markets, such as financial services, government, healthcare, industrial, Internet, media and entertainment, retail and telecommunications. In most cases, we have sold our products to through resellers or distributors. When we sell through resellers or distributors, we establish direct communications with the end-customers who make the decision to purchase our products. End-customers that have purchased our products either directly from us or through resellers include: Bank of America, Equinix, Ferrell Gas, Toshiba, Verizon Wireless, a Top 10 global retailer and a Top 5 US cable company.

Our top five customers accounted for 26% of our revenue for fiscal year 2016, 30% for fiscal year 2015 and 35% for fiscal year 2014. We released our 6000 Series All Flash Arrays in January 2012, which represented approximately 41% of our product revenue for fiscal 2016, 83% for fiscal 2015 and 84% for fiscal year 2014. We released our 7000 Series All Flash Arrays in February 2015, which represented approximately 58% of our product revenue for fiscal year 2016 and 9% for fiscal year 2015. We derived 63% of our total revenue from sales to customers located in the United States for fiscal year 2016. This compares to 61% for fiscal year 2015 and 62% for fiscal year 2014.

Research and Development

We believe continued investment in research and development is critical to our business. We work closely with our customers to understand their current and future needs and have designed a product development process that integrates our customers’ feedback as a key component.

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As of January 31, 2016, we had 127 employees in our research and development organization, including approximately 94 employees in software development. Substantially all of these employees are located at our headquarters in Santa Clara, California. We plan to continue to dedicate significant resources to our research and development efforts. Our research and development expenses were $41.7 million in fiscal year 2016, $52.1 million in fiscal year 2015 and $73.7 million in fiscal year 2014.

Manufacturing

We rely on a single contract manufacturer, Flex, to manufacture all of our products, manage our supply chain and, alone or together with us, negotiate component costs. We place orders with our contract manufacturer on a purchase order basis, and in general, we engage our contract manufacturer to manufacture products to meet our forecasted demand or when our inventories drop below certain levels. Our contract manufacturer works closely with us to improve the manufacturability and quality of our products.

We believe that our manufacturing and logistics arrangements allow us to preserve our working capital, reduce manufacturing and logistics costs and optimize fulfillment while maintaining product quality and flexibility. Our operations group oversees the manufacturing process and maintains relationships with our manufacturer and its component suppliers. Historically, we have not experienced significant delays in fulfilling customers’ orders and we maintain a good record of on-time delivery. In addition, we have not experienced any significant manufacturing capacity or material constraints. In the future, we may need to add manufacturing partners to satisfy our production needs.

We source the components included in our products from various suppliers and consign certain components to Flextronics for final assembly. We have not historically had any material issues procuring desired quantities of components necessary for production. We have an agreement with Toshiba, our sole supplier for flash components, although there is no guarantee of supply or fixed pricing in our agreement. We rely on a limited number of suppliers, and in some cases single-source suppliers, for several key components of our products. Neither we nor our contract manufacturer have entered into agreements for the long-term purchase of these components.

Competition

We compete with companies that sell products using various traditional datacenter architectures, including high-performance array-based storage solutions. These may include the traditional data storage providers, including storage array vendors such as Dell, EMC, Hitachi, HP, IBM, NetApp and Pure Storage, which typically sell centralized storage products as well as high-performance storage solutions utilizing SSDs. We also compete with vertically integrated appliance vendors such as Oracle. A number of privately-held and newly public companies are currently attempting to enter our market, some of which may become significant competitors in the future.

We believe that the principal competitive factors in our market are as follows:

• sustainable performance, low latency and high bandwidth;

• serviceability, reliability and availability;

• enterprise-class data management services;

• in-line, block deduplication and compression;

• non-disruptive software upgrades;

• flexibility and interoperability with existing data center infrastructure;

• ease of management;

• depth of technology collaboration with leading memory suppliers;

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• the ability to provide an integrated hardware and software solution;

• lowering cost per transaction and total cost of ownership, including space and energy efficiency; and

• the ability to be bundled with system and technology vendors as solutions.

We believe that we compete favorably with our competitors on the basis of these factors. However, the market for data storage products is highly competitive, and we expect competition to intensify in the future. Many of our current competitors have, and some of our potential competitors may have, longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we have. Furthermore, as the cloud infrastructures and hyper-converge solutions become more prevalent, we will face competition from these alternative solutions to the traditional data center.

Intellectual Property

We have 45 issued patents and 50 provisional and nonprovisional patent applications in the United States and 65 issued or allowed patents and 38 corresponding patent applications in foreign jurisdictions, including Patent Cooperation Treaty applications, as of January 31, 2016 relating to solid-state storage, solid-state memory, software acceleration, and related technologies. We own a registered trademark for “Violin” in the United States, the European Union (Community Trade Mark Registration), China, India and Japan. As of January 31, 2016, we also owned seven additional U.S. and foreign registered trademarks.

Our core intellectual property relates to our all flash arrays. Our hardware and software technologies are not materially dependent on any third-party technology. We protect our intellectual property primarily with patents and by generally requiring our employees and independent contractors with knowledge of our proprietary information to execute nondisclosure and assignment of intellectual property agreements. However, the steps we have taken to protect our technology may not be successful in preventing misuse by unauthorized parties in the future. In addition, if any of our products, patents or patent applications is found to conflict with any patents held by third parties, we could be prevented from selling our products, our patents may be declared invalid or our patent applications may not result in issued patents.

Insurance

From time to time, our products may malfunction or have undetected errors or security vulnerabilities. We have purchased insurance to protect against certain specific claims that are related to the use of our products. Our insurance, subject to the terms and conditions of our policies, provides coverage for network and information security liability, technology errors and omissions liability, and manufacturer’s errors and omissions liability.

Employees

As of January 31, 2016, we had 318 employees, including 118 employees in sales and marketing, 127 employees in research and development, 38 employees in customer support, 28 employees in general and administrative and 7 employees in operations. None of our employees are represented by labor organizations or are a party to any collective bargaining arrangements. We have never had a work stoppage, and we consider our relationship with our employees to be good.

Financial Information about Segments and Geographic Areas

We operate our business as one segment. The segment and geographic information required herein is contained in Note 11 “Segment Information,” in the notes to our consolidated financial statements.

Backlog

Product backlog includes orders confirmed for products generally scheduled to be shipped to customers within two weeks. We believe that our product backlog, as of any particular date, is not necessarily indicative of actual

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product revenue for any future period because a substantial portion of our products is sold on the basis of standard purchase orders that are cancellable prior to shipment without penalty. Orders for services for multiple years are billed upfront shortly after their receipt and are included in deferred revenue until such time revenue recognition obligations are satisfied. Timing of revenue recognition for services may vary depending on the contractual service period or when the services are rendered.

Corporate Information

Our website address is www.vmem.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are filed with the U.S. Securities and Exchange Commission (SEC) and such reports and other information filed by the Company with the SEC are available free of charge on our website at investor.vmem.com when such reports are available.

The public may read and copy any materials filed by Violin Memory^®, Inc. with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.

The contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, before making a decision to invest in our common stock. The description below includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2015, and our Form 10-Q for the third quarter of fiscal year 2016. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business

Our limited operating history makes it difficult to evaluate our current business and future prospects, and may increase the risk of your investment.

We were incorporated in March 2005. We introduced our all flash arrays in May 2010. Our limited operating history makes it difficult for you to evaluate our business and our future prospects, as well as for us to plan for and model future growth. For example, our revenue for our fourth quarter of fiscal year 2015 and for the first three quarters of fiscal year 2016 were below the guidance we had provided. In addition, we have limited experience from which to formulate an accurate expectation of our product lifecycles, which could make it more difficult for us to plan our product development timelines to meet customer and market demands. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including the risks described in this annual report. If we do not address these risks successfully, our business and operating results may continue to be adversely affected.

We have a history of losses and may not be able to achieve or maintain profitability.

We have incurred recurring operating losses and negative cash flows from operating activities since inception through January 31, 2016, and we have an accumulated deficit of $560.6 million as of January 31, 2016. We

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expect to incur net losses for at least the next twelve months even though we continue to restructure and reduce our expenses to be more in line with our current revenue. Through January 31, 2016, we have not generated any cash from operations and have relied primarily on the proceeds from equity offerings, debt financing and credit facilities to fund our operations. If our revenue does not increase substantially, we will not be profitable. Even if we achieve profitability, we may not be able to sustain it. Our ability to continue as a going concern is dependent upon us successfully addressing viability concerns by our customers and achieving profitability or obtaining the necessary financing to fund our operations.

We may elect to raise or might require additional capital to support business growth, and this capital might not be available on acceptable terms, or at all.

Our continuing investments to support our business may cause or require us to seek additional funds to respond to business challenges, including development of new products and enhancement of our existing products and operating infrastructure. We also may seek to acquire complementary businesses and technologies. If we are not able to finance our expected future operations from existing cash and cash flow from operations, and if our existing lines of credit are not available to us when needed, we may need to raise additional capital through equity markets, debt markets or other financing arrangements that may or may not be available.

If we issue additional equity or convertible debt securities, our stockholders could suffer additional significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. For example, if we issue preferred stock to raise capital, the holders of preferred stock may have liquidation rights senior to our holders of common stock, which would allow them to receive proceeds from a sale of our Company at a preferred rate over our common holders. Any additional debt financing could involve restrictive covenants, which may restrict our flexibility in operating our business and make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business, operating results, financial condition and prospects, including our ability to continue as a going concern, could be adversely affected.

The public announcement of our engagement of a financial advisor to assist us in exploring strategic alternatives and the conclusion of that process whereby there were no buyers of the Company has and could continue to adversely affect our business, financial condition and results of operations.

Our public announcement that we have retained a financial advisor to assist us in exploring strategic alternatives has and could further disrupt our business and create uncertainty about our prospects as a stand-alone entity. Furthermore, our announcement that this process did not yield any buyers for the Company could continue to adversely affect our business. Such disruption or uncertainty has and could further have a material adverse effect on our business, financial condition and results of operations. The risks to our business include:

• diversion of substantial management time and resources to address note holder and stockholder concerns;

• difficulties in developing and maintaining relationships with customers and business partners;

• our inability to conclude any of the go-to-market and technology relationship opportunities that we are pursuing; and

• impairment of our ability to attract and retain key managers and other employees.

We have been notified by the New York Stock Exchange (the “NYSE”) that we are not in compliance with an NYSE continued listing requirement. Our disclosure of the notice of non-compliance could have a material, adverse effect on our business and operating results.

We disclosed publicly that, on January 8, 2016, we received a notice from the NYSE that we are not in compliance with an NYSE continued listing standard because the average closing price of our common stock was

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less than $1.00 per share over the consecutive 30-day trading period ended January 6, 2016. Our non-compliance could adversely affect our relationships with our business partners and suppliers and customers’ and potential customers’ decisions to purchase our products and services and could have a material, adverse impact on our business and operating results.

If we do not return to compliance with the NYSE’s continued listing standard, our common stock will be subject to the NYSE’s suspension and delisting procedures. The suspension of trading in or the delisting of our common stock would have a material, adverse effect on our business, operating results, financial condition, prospects and common stock.

We have six months following the receipt of the NYSE’s non-compliance notice to cure the deficiency and regain compliance and, if we fail to do so, our common stock will be subject to the NYSE’s suspension and delisting procedures. We can regain compliance at any time during the six-month cure period if our common stock has a closing price of at least $1.00 per share on the last trading day of any calendar month during the six-month cure period and an average closing price of at least $1.00 per share over the 30 trading-day period ending on the last trading day of that month. We also may determine to remedy the non-compliance by taking action that will require stockholder approval, such as a reverse stock split, in which case our common stock will continue to be listed pending stockholder approval no later than our next annual meeting of stockholders and the prompt implementation of such action thereafter. However, there can be no assurance that we will be able to regain compliance by means of a reverse stock split or otherwise.

In addition, the NYSE’s continued listing standards provide that a listed company will be considered to be below compliance if its average global market capitalization over a consecutive thirty trading-day period is less than $50 million and, at the same time, stockholders’ equity is less than $50 million. As of January 31, 2016, our stockholders’ equity was a deficit of $54.9 million and our average global market capitalization over the thirty trading-day period ended March 31, 2016 was $59.6 million. Pursuant to the NYSE’s continued listing requirements, if the NYSE determines that we are below the market capitalization listing standard, it would notify us within ten business days. Following our receipt of the notification, we would have 45 days to submit a plan advising the NYSE of definitive action we have taken, or are taking, which would bring us into conformity with the continued listing standard within 18 months of receipt of the notice, and including in the plan such information as the NYSE requires or may request. Within 45 days of its receipt of a plan, the NYSE would make a determination as to whether we have made a reasonable demonstration in the plan of an ability to come into conformity with the relevant listing standard within 18 months. If the NYSE determined not to accept a plan, it promptly would initiate procedures to suspend trading in and delist our common stock.

If our average global market capitalization over a consecutive thirty trading-day period is less than $15 million, the NYSE will promptly initiate suspension and delisting procedures and, under the NYSE’s continued listing standards, we will not have any opportunity to regain compliance.

A suspension or delisting could adversely affect our relationships with our business partners and suppliers and customers’ and potential customers’ decisions to purchase our products and services, and could have a material, adverse impact on our business and operating results. In addition, a suspension or delisting could impair our ability to raise additional capital through equity or debt financing and our ability to attract and retain employees by means of equity compensation.

In the event of a delisting or suspension, our common stock could be traded on the over-the-counter bulletin board, or in the so-called “pink sheets.” In the event of such trading, it is likely that there would be: significantly less liquidity in the trading of our common stock; decreases in institutional and other investor demand for our common stock, coverage by securities analysts, market making activity and information available concerning trading prices and volume; and fewer broker-dealers willing to execute trades in our common stock. The occurrence of any of these events could result in a further decline in the market price of our common stock. The occurrence of any of these events could impair our ability to retain and attract employees and members of management.

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A suspension or delisting of our common stock could result in a default of our obligations under our existing credit facilities and the indenture governing our Convertible Senior Notes (“Notes”).

A suspension or delisting of our common stock could result in an event of default under the credit agreement governing our existing credit facilities with Silicon Valley Bank, or SVB. In the event of a default, SVB would be able, among other things, to terminate the credit agreement, in which case the principal amounts of all loans plus interest would be immediately due and payable. In that event, we might not be able to repay the amounts due, in which case our lender has one or more remedies available to it under the credit agreement, including collateralizing any cash we have on deposit with SVB.

A suspension or delisting of our common stock also could result in a demand by the holders of our Notes that we repurchase the Notes pursuant to the terms and conditions of the indenture. In that event, we may not be able to repurchase our Notes, which could result in a default under the indenture. In the event of a default, our Notes would become immediately due and payable. If we are unable to pay our Notes, the holders, among other things, could pursue legal action against us. In addition, a default under the indenture could constitute a default under the credit facility.

A default under the credit agreement likely would have a material adverse impact upon our business, operating results, and financial condition and prospects, and likely would adversely affect our ability to continue as a going concern.

Our prior revenue growth rate may not recur and is not indicative of our future performance.

Our revenue and our revenue growth rates achieved in prior periods may not be indicative of our future revenue or revenue growth rates. While we experienced significant revenue growth rates in the years ended January 31, 2013 and 2014, we did not achieve similar revenue growth rate for the year ended January 31, 2015 and 2016. For example, our revenue for the first quarter of fiscal years 2016 and 2015 declined by approximately $8.4 million and $9.9 million, respectively, as compared to the fourth quarter of fiscal years 2015 and 2014, respectively. Our revenue for any prior quarterly or annual periods may not be indicative of our future revenue or revenue growth.

Our future operating results will depend upon our ability to increase our revenue.

To increase our revenue, we believe we must effectively, among other things:

• maintain and extend our leadership in the development of the all flash array market;

• compete effectively in the primary storage market with our Flash Storage Platform, including our Concerto OS 7 operating system software;

• maintain our direct sales force as well as grow and expand our relationships with key customers, systems vendors and technology partners;

• expand our channel relationships and successfully execute our channel strategy;

• forecast and control expenses;

• recruit, hire, train and manage additional research and development, and sales and marketing personnel;

• expand our customer support capabilities on a global basis;

• enhance and expand our distribution and supply chain infrastructure;

• manage inventory levels, including trial deployments of systems;

• enhance and expand our international operations; and

• implement and improve our administrative, financial and operational systems, procedures and controls.

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We expect that our efforts to increase revenue will continue to place a significant strain on our managerial, administrative, operational, financial and other resources. If we are unable to increase revenue, our business, operating results, financial condition and prospects, and our ability to continue as a going concern will be adversely affected.

Our customers’ and potential customer’s decisions to purchase our products and services may be influenced by our financial results.

Our customers and potential customers may consider our financial results in deciding whether to purchase our products and services. To the extent that customers and potential customers view our financial results negatively, they may decide not to purchase our products and services, or to purchase less, or to delay their purchases, or to demand terms that are not favorable to us, any of which would adversely affect our business and operating results.

We compete with large data storage providers and expect competition to intensify in the future from established companies and new market entrants.

The market for primary data storage products is highly competitive, and we expect competition to continue to intensify in the future. Our products compete with various high-performance array-based storage approaches employed by next-generation datacenters. Our competitors include incumbent primary storage vendors, such as EMC, HP, Hitachi, IBM and NetApp, which typically sell centralized storage products as well as high-performance storage approaches utilizing solid state drives, or SSDs, as well as vertically integrated appliance vendors such as Oracle. In addition, a number of privately-held and newly public companies are attempting to enter our market, some of which may become significant competitors in the future.

Many of our current competitors have, and some of our potential competitors could have, longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we have. Potential customers may prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. New start-up companies continue to innovate and may invent similar or superior products and technologies that may compete with our products and technology. Some of our competitors have made and are continuing to make acquisitions of other competitors and other businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered. In addition, some of our competitors, including our systems vendor customers, may develop competing technologies and sell at zero or negative margins, through product bundling, closed technology platforms or otherwise, to gain business. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties. In addition, consolidations among systems vendors, which can occur unexpectedly, can significantly impact our sales efforts to systems vendors. As a result, there can be no assurance that our products will compete favorably, and any failure to do so could seriously harm our business, operating results and financial condition. Our competitors may attempt to use certain information, such as the pending securities litigation and changes in our management, against us, which could delay or prevent future business.

Competitive factors could make it more difficult for us to sell our products, resulting in increased pricing pressure, reduced gross margins, increased sales and marketing expenses, longer customer sales cycles and failure to increase, or the loss of, market share, any of which could seriously harm our business, operating results and financial condition. Any failure to meet and address competitive challenges could seriously harm our business and operating results.

If our Flash Storage Platform products are not successful, our business could be materially and adversely affected.

Our ability to compete effectively in the primary storage market is dependent upon the success of a single line of products — our Flash Storage Platform 7300, 7300E, 7600 and 7700 products. If our Flash Storage Platform

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products are not successful, it will be difficult for us to compete in the primary storage market with our current products at margins that enable us to achieve and maintain profitability. We have faced and could continue to face increased pricing pressure, reduced gross margins, increased sales and marketing expenses, longer customer sales cycles and the loss of market share. In addition, if we have to compete in the primary storage market with our 6000 Series products, we could be forced to modify substantially our cost structure and business strategy, which could have a material adverse effect on our business and operating results.

We expect large and concentrated purchases by a limited number of customers to continue to represent a majority of our product revenue, and any loss of, or delay or reduction in purchases by a small number of customers could adversely affect our operating results.

Historically, large purchases by a relatively limited number of customers have accounted for a majority of our product revenue, and the composition of the group of our largest customers has changed from period to period. These concentrated purchases are made on a purchase order basis rather than pursuant to long-term contracts. Total revenue from our five largest customers for the years ended January 31, 2016, 2015 and 2014 were 26%, 30% and 35%, respectively. As a consequence of our limited number of customers, the concentrated nature of their purchases and the timing of purchases from these large customers, our quarterly revenue and operating results may fluctuate from quarter to quarter and are difficult to estimate. Any acceleration or delay in anticipated product purchases or the acceptance of shipped products by our larger customers could materially impact our revenue and operating results in any quarterly period. For example, in the fourth quarter of fiscal year 2015, two large customers decided to evaluate our Flash Storage Platform instead of continuing with their purchases of our 6000 Series products. Consequently, our revenue for the period was below our guidance and declined slightly as compared to the third quarter of fiscal year 2015. We cannot provide any assurance that we will be able to offset the discontinuation or reduction of concentrated purchases by our larger customers with purchases by other new or existing customers. We expect that sales of our products to a limited number of customers will continue to contribute materially to our revenue for the foreseeable future. The loss of, or a significant delay or reduction in purchases by, a small number of customers could materially harm our business and operating results.

Toshiba is our sole supplier for flash memory. Any disruption in our relationship with Toshiba could have a material adverse effect on our business.

The most significant component that we use in our products is flash memory. Although we have an agreement with Toshiba, the sole supplier of our flash memory components, we may experience a shortage of flash memory if Toshiba is not able to meet our demand. Toshiba may not be able to meet our demand for a variety of reasons, including our inability to forecast our future needs accurately to Toshiba or a shortfall in production by Toshiba for reasons unrelated to us. In addition, our agreement with Toshiba does not provide us with fixed pricing for flash memory, which subjects us to fluctuations in pricing. Our agreement with Toshiba also requires us to purchase 70% of our annual requirement for flash memory from Toshiba, subject to specified conditions, and to design our products to be substantially compatible with Toshiba flash memory. If Toshiba increases the price of its flash memory, we may not be able to implement a corresponding increase in the price of our products and our revenue and gross margins would be materially adversely affected. In addition, if the flash memory we purchase from Toshiba is not competitive with the performance of other flash memory in the market, the competitiveness of our products may be adversely affected and our business could suffer. For example, the introduction of three dimensional, or 3D, flash memory allows for improved economics. We will need to find supply in a timely manner in order to develop future generations of product. We do not currently have any agreement in place with other flash memory providers in the event that Toshiba cannot meet our demand or we are unable to renew our contract with Toshiba. If we cannot obtain sufficient supply of flash memory at an acceptable price to us, our ability to respond to our customer demand and grow our business could be significantly harmed.

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Our products are highly technical and may contain undetected defects, which could cause data unavailability, loss or corruption that might, in turn, result in liability to our customers and harm to our reputation and business.

Our all flash array products, including our Flash Storage Platform and Concerto OS 7 operating system software, and related software are highly technical and complex and are often used to store information critical to our end-customers’ business operations. Our products may contain undetected errors, defects or security vulnerabilities that could result in data unavailability, loss or corruption or other harm to our end-customers. Some errors in our products may only be discovered after they have been installed and used by end-customers. Any errors, defects or security vulnerabilities discovered in our products after commercial release, or any perception of the same in the marketplace, could result in a loss of revenue or delay in revenue recognition, injury to our reputation, a loss of end-customers or increased service and warranty costs, any of which could adversely affect our business. In addition, we could face claims for product liability, tort or breach of warranty. Many of our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may be difficult to enforce. Defending a lawsuit, regardless of its merit, would be costly and might divert management’s attention and adversely affect the market’s perception of us and our products. In addition, our business liability insurance coverage could prove inadequate or could be subject to coverage exclusions or deductibles with respect to a claim and future coverage may be unavailable on acceptable terms or at all. These product-related issues could result in claims against us and our business could be adversely impacted.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal amount of, to pay interest on or to refinance our indebtedness, including our Notes, depends upon our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and other fixed charges, fund working capital needs, and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

We may not have the ability to raise the funds necessary to pay interest on our Notes, to repurchase the Notes upon a fundamental change or to settle conversions of the Notes in cash.

Our Notes bear interest semi-annually at a rate of 4.25% per year. In addition, in certain circumstances, we are obligated to pay additional interest or special interest on the Notes. If a “fundamental change” occurs, holders of the Notes may require us to repurchase all or a portion of their Notes in cash. Furthermore, if we obtain stockholder approval, upon conversion of any Notes, unless we elect to deliver solely shares of our common stock to settle the conversion (excluding cash in lieu of delivering fractional shares of our common stock), we must make cash payments in respect of the Notes. Any of the cash payments described above could be significant, and we may not have enough available cash or be able to obtain financing so that we can make such payments when due or to repay the indebtedness under our then outstanding credit facilities in order to be permitted to make such cash payments. Our existing credit agreement prohibits us from making any optional prepayments with respect to the Notes, which may potentially restrict our ability to make any cash payments upon conversion, and the events that would trigger a fundamental change would be default under the credit agreement, which could prohibit us from repurchasing the Notes. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. If we fail to pay interest on the Notes, repurchase the Notes when required or deliver the consideration due upon conversion, we will be in default under the indenture. A default under the indenture would be a default under our credit agreement and could lead also to a default under the agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any

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applicable grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversion of the Notes. Our inability to do so could result in a default on our debt obligations.

Our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below expectations.

Our operating results have fluctuated and may continue to fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. If our revenue or operating results fall below expectations, the price of our common stock would likely decline.

Factors that are difficult to predict and that could cause our operating results to fluctuate include:

• the timing and magnitude of orders, shipments and acceptance of our products in any quarter, including orders from large customers;

• a postponement or cancellation of significant orders;

• cost and timing of trial deployments;

• product mix;

• mix of sales between end-customers and channel partners;

• availability of, and our ability to control the costs of, the components we use in our hardware products, specifically flash memory;

• reductions in customers’ budgets for information technology purchases;

• additional restrictions on our ability to export our products;

• delays in end-customers’ purchasing cycles or deferments of end-customers’ product purchases in anticipation of new products or product enhancements from us or our competitors;

• any change in the competitive dynamics of our markets, including actions by large storage providers who may discount product prices or bundle storage products to provide lower overall systems costs;

• fluctuations in demand and prices for our products;

• changes in standards in the data storage industry;

• our ability to develop, introduce and ship in a timely manner new products and product enhancements that meet end-customer requirements;

• our ability to control costs, including our operating expenses; and

• future accounting pronouncements and changes in accounting policies.

The occurrence of any one of these risks could negatively affect our operating results in any particular quarter and cause the price of our common stock to decline.

Our success depends upon our ability to effectively plan and manage our resources and restructure our business in response to changing market conditions and market demand for our products, and such actions may have an adverse effect on our financial and operating results.

Our ability to successfully offer our products and services in a rapidly evolving market requires an effective planning, forecasting and management process to enable us to effectively scale and adjust our business in response to fluctuating market opportunities and conditions.

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In response to changes in market conditions and market demand for our products, we have in the past undertaken cost savings initiatives. For example, in March 2016, we announced a restructuring plan focused on aligning our expense structure with revenue expectations. In connection with the restructuring plan, we reduced headcount by approximately 25% from that as of October 31, 2015. We may in the future undertake initiatives that may include restructuring, disposing of, and/or otherwise discontinuing certain products, or a combination of these actions. Rapid changes in the size, alignment or organization of our workforce, including sales account coverage, could adversely affect our ability to develop, sell and deliver products and services as planned or impair our ability to realize our current or future business and financial objectives. Any decision to take these actions may result in charges to earnings associated with, among other things, inventory or other asset reductions (including, without limitation, impairment charges) and workforce and facility reductions. Charges associated with these activities would harm our operating results. In addition to the costs associated with these activities, we may not realize any of the anticipated benefits of the underlying restructuring activities.

Our sales cycles can be long and unpredictable, particularly with respect to large orders and establishing technology and systems integrator relationships that require considerable time and expense. As a result, it can be difficult for us to predict when, if ever, a particular customer will choose to purchase our products, which may cause our operating results to fluctuate significantly.

Our sales efforts include convincing end-customers of our products’ reliability and interoperability with their existing network infrastructure. Customers often undertake a trial deployment to evaluate and test our products, which can result in a lengthy sales cycle. We spend substantial time and resources on our sales efforts without any assurance that our efforts will produce any sales. In addition, product purchases are frequently subject to budget constraints, vendor certification, multiple approvals and unplanned administrative, processing and other delays. Additionally, a significant portion of our sales personnel have been with us for less than a year, which could further extend the sales cycle as these new personnel typically require a significant amount of training and experience until they are productive. These factors, among others, result in long and unpredictable sales cycles, particularly with respect to large orders and the establishment of technology and systems integrator relationships. Further, we may invest significant management attention and expense in building relationships that do not ultimately result in successful sales.

We also sell to technology and systems integrators that incorporate our products into their solutions, which can require an extended evaluation and testing process before our product is approved for inclusion in one of their solutions. We also may be required to customize our product to interoperate with an integrator’s solution, which could further lengthen the sales cycle for sales to them. The length of our sales cycle makes us susceptible to the risk of delays or termination of orders if end-customers decide to delay or withdraw funding for datacenter projects, which could occur for various reasons, including global economic cycles and capital market fluctuations. In addition, as a result of the lengthy and uncertain sales cycles of our products, it is difficult for us to predict when customers may purchase products from us and as a result, our operating results may vary significantly and be adversely affected.

Ineffective management of product transitions or our inventory levels, including inventory used in trial deployments, could adversely affect our operating results.

If we are unable to properly forecast, monitor, control and manage our inventory and maintain appropriate inventory levels and mix of products to support our customers’ needs, we may incur increased and unexpected costs. Sales of our products are generally made through individual purchase orders and some of our customers place large orders with short lead times, which make it difficult to predict demand for our products and the level of inventory that we need to maintain in order to satisfy customer demand. If we build our inventory in anticipation of future demand that does not materialize, or if a customer cancels or postpones outstanding orders, we could experience an unanticipated increase in the inventory level of our finished products which would cause us to incur manufacturing costs in a period that are not offset by sales of finished products. In addition, our inability to manage inventory levels in connection with future product transitions may harm our operating results.

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For example, in the fourth quarter of fiscal year 2015, we incurred a provision for excess and obsolete inventory of $17.6 million and an increase in accrued liabilities of $2.3 million for non-cancellable purchase orders when we transitioned from our 6000 Series All Flash Array to our Flash Storage Platform. Alternatively, we could carry insufficient inventory, and we may not be able to satisfy demand, which could have a material adverse effect on our customer relationships or cause us to lose potential sales.

We typically provide trial deployments to potential customers and maintain the classification of these products in the field as inventory. We may not be able to convert these trial deployments into sales, which could lead to higher levels of inventory, lost or damaged units, risk of obsolescence and excessive wear making them unsaleable or saleable only at low margin or at a loss. Although our sales contracts typically provide that we are not obligated to accept product returns, except for warranty claims, for purchased products, in limited circumstances, we may determine that it is in our best interest to accept returns or exchange products in order to maintain good relationships with customers. Product returns or exchanges would increase our inventory and reduce our revenue. If we are unable to sell our inventory in a timely manner, we could incur additional carrying costs, reduced inventory turns and potential write-downs due to obsolescence, particularly in periods of product transition.

The occurrence of any of these risks related to inventory could adversely affect our business, operating results and financial condition.

Our gross profit may vary and such variation may make it more difficult to forecast our earnings.

Our gross profit has been and may continue to be affected by a variety of factors, including:

• demand for our products and related services;

• discount levels and price competition;

• average order size and customer mix;

• product mix;

• the provision for excess or obsolete inventory;

• the cost and availability of components;

• an increase in warranty expense or part replacement;

• level of costs for providing customer support;

• the mix of services or software as a percentage of revenue;

• new product introductions and enhancements; and

• geographic sales mix.

Any of these factors could adversely affect our gross profit and operating results compared to prior periods or future expectations from us or analysts who have issued research reports about us.

The use of flash memory in storage products is rapidly evolving, which makes it difficult to forecast customer adoption rates and demand for our products.

The market for flash memory in storage products is rapidly evolving. Accordingly, our future financial performance will depend in large part on growth in this market and on our ability to adapt to trends in this market as they develop and evolve. Sales of our products are dependent in large part upon our ability to penetrate the primary storage market in addition to markets that require high-performance data storage solutions, such as business-critical applications, virtualization and Big Data. It is difficult to predict with any precision customer

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adoption rates, end-customer demand for our products or the future growth rate and size of our market. The rapidly evolving nature of the technology in the data storage products market, as well as other factors that are beyond our control, reduce our ability to accurately predict our future performance. Our products may never gain broad adoption, and changes or advances in technologies could adversely affect the demand for our products. Further, although flash-based data storage products have a number of advantages compared to other data storage alternatives, flash-based storage devices have certain disadvantages as well, including increased utilization of host system resources than traditional storage, and in some circumstances may require end-customers to modify or replace network systems originally installed for traditional storage media. A reduction in demand for flash-based data storage caused by lack of end-customer acceptance, technological challenges, competing technologies and products or otherwise would result in a lower revenue growth rate or decreased revenue, either of which would negatively impact our business and operating results.

We have derived substantially all of our revenue from a single line of products, and a decline in demand for these products would cause our revenue to grow more slowly or to decline.

Our all flash array product line has accounted for substantially all of our revenue and is expected to comprise a significant portion of our revenue for the foreseeable future. As a result, our revenue could be reduced by:

• the failure of our Flash Storage Platform products to achieve broad market acceptance;

• any decline or fluctuation in demand for our products, whether as a result of product obsolescence, technological change, customer budgetary constraints or other factors;

• any constraint on our ability to meet demand for our products, whether as a result of component supply constraint or the inability or unwillingness of our contract manufacturer to timely deliver products;

• pricing pressures;

• the introduction of products and technologies by competitors that serve as a replacement or substitute for, or represent an improvement over, these products;

• an order resulting from a judgment of patent infringement or otherwise, that restricts our ability to market and sell our products; and

• our inability to release enhanced versions of our products, including any related software or future generations of products, on a timely basis.

If we fail to develop and introduce new or enhanced products on a timely basis, our ability to attract and retain customers could be impaired and our competitive position would be harmed.

We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully, we must design, develop, market and sell new or enhanced products that provide increasingly higher levels of performance, capacity and reliability and meet the cost expectations of our customers. The introduction of new products by our competitors, the market acceptance of products based on new or alternative technologies, or the emergence of new industry standards could render our existing or future products obsolete. Our failure to anticipate or timely develop new or enhanced products or technologies in response to technological shifts could result in decreased revenue and harm our business. If we fail to introduce new or enhanced products that meet the needs of our customers or penetrate new markets in a timely fashion, we will lose market share and our operating results will be adversely affected.

In order to maintain or increase our gross margins, we need to continue to create valuable software solutions to be integrated with our products. Any new feature or application that we develop or acquire may not be introduced in a timely or cost-effective manner and may not achieve the broad market acceptance necessary to increase our overall gross margins. If we are unable to successfully develop or acquire, and then market and sell future generations of our products, our ability to increase our revenue and gross margin will be adversely affected.

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Our products must interoperate with network interfaces, such as operating systems, software applications and hardware developed by others, and if we are unable to ensure that our products interoperate with such software and hardware, we may fail to increase, or we may lose, market share and we may experience reduced demand for our products.

Our storage products comprise only a part of a datacenter’s infrastructure. Accordingly, our products must interoperate with our end-customers’ existing infrastructure, specifically their networks, servers, software and operating systems, which are typically manufactured by a wide variety of systems vendors. When new or updated versions of these software operating systems or applications are introduced, we must sometimes develop updated versions of our software so that our products interoperate properly. We may not accomplish these development efforts quickly, cost-effectively or at all. These development efforts require capital investment and the devotion of engineering resources. If we fail to maintain compatibility with these applications, our end-customers may not be able to adequately utilize the data stored on our products, and we may, among other consequences, fail to increase, or we may lose, market share and experience reduced demand for our products, which would adversely affect our business, operating results and financial condition.

We rely on our key engineering, technical, sales and management employees to grow our business, and the loss of one or more key employees or the inability to attract and retain qualified personnel could harm our business.

Our success and future growth depend to a significant degree on the skills and continued services of many of our engineering, technical, sales and management employees. In addition, we are highly dependent on the services of our CEO, Kevin A. DeNuccio. We also are very dependent on the services of our senior vice presidents. We could experience difficulty in integrating and retaining members of our senior management team. We do not have “key person” life insurance policies that cover any of our officers or other key employees. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our products, and negatively impact our business, prospects and operating results.

In the longer term, we expect to hire personnel in all areas of our business, particularly in sales and research and development. Competition for these types of personnel is intense. There can be no assurance that we will be able to successfully attract or retain qualified personnel. Our inability to attract and retain the necessary personnel could adversely affect our business, operating results and financial condition.

Our research and development efforts may not produce successful products that result in significant revenue in the near future, if at all.

Developing our products and related enhancements is expensive. Our investments in research and development may not result in marketable products or may result in products that are more expensive than anticipated, take longer to generate revenue or generate less revenue, if at all, than we anticipate. Our future plans include significant investments in research and development and related product opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not receive significant revenue from these investments in the near future, if at all, which could adversely affect our business and operating results.

Developments or improvements in storage system technologies may materially adversely affect the demand for our products.

Significant developments in data storage systems, such as advances in solid state storage drives or improvements in non-volatile memory, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, improvements in existing data storage technologies, such as a significant increase in the speed of traditional interfaces for transferring data between storage and a server or the speed of traditional embedded controllers, could emerge as preferred alternatives to our products, especially if they are

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sold at lower prices. This could be the case even if such advances do not deliver all of the benefits of our products. Any failure on our part to demonstrate the benefits of our products would result in lost sales. In addition, any failure by us to develop new or enhanced technologies or processes, or to react to changes or advances in existing technologies, including the development of the new 3D flash memory technology, could materially delay our development and introduction of new products, which could result in the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors.

Our ability to sell our products is highly dependent on the quality of our customer support and services, and any failure to offer high-quality support and services would harm our business, operating results and financial condition.

Once our products are deployed, our customers depend on our support organization to resolve any issues relating to our products. Our products provide business-critical services to our customers and a high level of customer support is necessary to maintain our customer relationships. We rely on authorized service providers in certain locations in the United States to install our products and deliver initial levels of on-site customer support and services. While we attempt to carefully identify, train and certify our authorized service providers, we may not be successful in ensuring the proper delivery and installation of our products or the quality or responsiveness of the support and services being provided.

As we grow our business, our ability to provide effective customer support and services will be largely dependent on our ability to attract, train and retain qualified direct customer service personnel and our ability to maintain and grow our network of authorized service providers. Additionally, as we continue to expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English, as well as identifying, training and certifying international authorized service providers to support products we may deploy in geographical areas in which we may not currently have authorized service providers.

Any failure to maintain high-quality customer support and services, or a market perception that we do not maintain high-quality customer support and services, could harm our reputation, adversely affect our ability to sell our products to existing and prospective customers, and could harm our business, operating results and financial condition.

In certain markets, we rely on resellers and distributors to sell our products in markets where we do not have a direct sales force, and on authorized service providers to service and support our products in markets where we do not have direct customer service personnel. Any disruptions to, or failure to develop and manage, our relationships with resellers, distributors and authorized service providers could have an adverse effect on our customer relationships and on our ability to increase revenue.

Our future success is highly dependent upon our ability to establish and maintain successful relationships with a variety of resellers, distributors and authorized service providers in markets where we do not have a direct sales force or direct customer service personnel. We currently have sales personnel in over 15 countries. In other markets, we rely and expect to continue to rely on establishing relationships with systems vendors, resellers and authorized service providers. Our ability to maintain or grow our international revenue will depend, in part, on our ability to carefully select, manage and expand our network of resellers, distributors and authorized service providers. We also have agreements with authorized service providers that deliver and install our products, as well as provide post-sale customer service and support, on our behalf in their local markets. In markets where we rely on resellers, distributors and authorized service providers, we have less contact with our customers and less control over the sales process and their responsiveness. As a result, it may be more difficult for us to ensure the proper delivery and installation of our products or the quality or responsiveness of the support and services being offered. Any failure on our part to effectively identify and train our systems vendor partners, resellers and authorized service providers and to monitor their sales activity as well as the customer support and services being provided to our customers in their local markets could harm our business, operating results and financial condition.

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Identifying, training, and retaining qualified resellers and authorized service providers require significant time and resources. In order to maintain and expand our network of resellers, distributors and authorized service providers, we must continue to scale and improve the systems, processes and procedures that support them, which will require continuing investment in our information technology infrastructure and dedication of significant training resources. As we grow our business and support organization, these systems, processes and procedures may become increasingly complex, difficult and expensive to manage, particularly as the geographic scope of our customer base expands globally.

We typically enter into non-exclusive agreements with our resellers, distributors and authorized service providers. These agreements generally have a one-year, self-renewing term, have no minimum sales commitment and do not prohibit our resellers, distributors and authorized service providers from offering products and services that compete with ours. Accordingly, our resellers, distributors and authorized service providers may choose to discontinue offering our products and services or may not devote sufficient attention and resources toward selling our products and services. Additionally, our competitors may provide incentives to our existing and potential resellers, distributors and authorized service providers to use, purchase or offer their products and services, which may prevent or reduce sales of our products and services. The occurrence of any of these events could harm our business, operating results and financial condition.

If our third-party hardware repair service fails to timely and correctly resolve hardware failures experienced by our end-customers, our reputation will suffer, our competitive position will be impaired and our expenses could increase.

We and our authorized service providers rely upon third-party hardware maintenance providers, which specialize in providing vendor-neutral support of storage equipment, network devices and peripherals, to provide repair services to our end-customers. If our third-party repair service fails to timely and correctly resolve hardware failures, our reputation will suffer, our competitive position will be impaired and our expenses could increase. In April 2015, we entered into a three-year agreement with DecisionOne Corporation for our call center support and onsite maintenance services. Either party may terminate the agreement for any reason by providing the other party 120-day notice of termination. In addition, either party may immediately terminate the agreement for a material default by the other party that is not cured within 30 days. If our relationship with our third-party repair service were to end, we would have to engage a new third party provider of hardware support, and the transition could result in delays in effecting repairs and damage our reputation and competitive position as well as increase our operating expenses.

We rely on a single contract manufacturer to manufacture our products, and our failure to accurately forecast demand for our products or successfully manage our relationship with our contract manufacturer could negatively impact our ability to sell our products.

We rely on Flextronics International Ltd. (“Flex”) to manufacture all of our products, manage our supply chain and, alone or together with us, negotiate component costs. We purchase our flash components directly from a single-source supplier and consign these components to Flex. Our reliance on our contract manufacturer reduces our control over the assembly process, quality assurance, production costs and product supply. If we fail to manage our relationship with our contract manufacturer or if our contract manufacturer experiences delays, disruptions, capacity constraints or quality control problems in its operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed. If we or our contract manufacturer are unable to negotiate with suppliers for reduced component costs, our operating results could be harmed.

If we are required to change to a new contract manufacturer, qualify an additional contract manufacturer or assume internal manufacturing operations for any reason, including financial problems of our contract manufacturer, reduction of manufacturing output made available to us, or the termination of our contract, we may lose revenue, incur increased costs and damage our customer relationships. Our contract manufacturer may

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terminate our agreement with them with prior notice to us or for reasons such as we fail to perform a material obligation under our agreements with them. Qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming.

We are required to provide forecasts to our contract manufacturer regarding product demand and production levels. We provide our contract manufacturer with purchase orders for products they manufacture for us, and these orders may only be rescheduled or cancelled under certain limited conditions. If we inaccurately forecast demand for our products, we may have excess or inadequate inventory or incur cancellation charges or penalties, which could adversely impact our operating results.

We intend to introduce new products and product enhancements, which could require us to achieve volume production rapidly by coordinating with our contract manufacturer and component suppliers. We may need to increase our component purchases, contract manufacturing capacity and internal test and quality functions if we experience increased demand for our products. Our orders may represent a relatively small percentage of the overall orders received by our contract manufacturer from their customers. As a result, fulfilling our orders may not be considered a priority in the event our contract manufacturer is constrained in its ability to fulfill all of its customer obligations in a timely manner. If our contract manufacturer is unable to provide us with adequate supplies of high-quality products, or if we or our contract manufacturer is unable to obtain adequate quantities of components, it could cause a delay in our order fulfillment, in which case our business, operating results and financial condition could be adversely affected.

We rely on a limited number of suppliers, and in some cases single-source suppliers, and any disruption or termination of these supply arrangements could delay shipments of our products and could materially and adversely affect our relationships with current and prospective customers.

We rely on a limited number of suppliers, and in some cases single-source suppliers, for several key components of our products, and neither our contract manufacturer nor we have entered into agreements for the long-term purchase of these components. This reliance on a limited number of suppliers and the lack of any guaranteed sources of supply exposes us to several risks, including:

• the inability to obtain an adequate supply of key components in a timely manner, including flash memory and field programmable gate arrays;

• price volatility for the components of our products;

• failure of a supplier to meet our quality, yield or production requirements;

• failure of a key supplier to remain in business or adjust to market conditions; and

• consolidation among suppliers, resulting in some suppliers exiting the industry or discontinuing the manufacture of components.

If our supply of certain components is disrupted or delayed, or if we need to replace one or more of our existing suppliers, there can be no assurance that additional supplies or components will be available when required or that supplies will be available on terms that are favorable to us, which could extend our lead times, increase the costs of our components and materially adversely affect our business, operating results and financial condition. If we are successful in growing our business, we may not be able to continue to procure components at acceptable prices, which would require us to enter into longer term contracts with component suppliers to obtain these components at competitive prices. In addition, errors or defects may arise in some of our components supplied by third parties that are beyond our detection or control, which could lead to additional customer returns or product warranty claims. If any of these were to occur, our costs would increase and our gross margins would decrease, harming our operating results.

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Our products incorporate components that are subject to supply and pricing volatility, and, as a result, our ability to respond in a timely manner to customer demand and our cost structure are sensitive to such volatility in the supply and market prices for these components.

We do not enter into long-term supply contracts for the components we use in our products, but instead generally we, or our contract manufacturer on our behalf, purchase these components pursuant to individual purchase orders. In addition, it is common in the storage and networking industries for component vendors to discontinue the manufacture of certain types of components from time to time due to evolving technologies and changes in the market. If we are required to make significant “last time” purchases of components that are being discontinued and do not purchase enough components, we may experience delayed shipments, order cancellations or otherwise be required to purchase more expensive components to meet customer demand, which could negatively impact our revenue, gross margins and operating results. If we purchase too many such components, we could be subject to inventory write-offs adversely affecting our operating results.

A portion of our expenses are directly related to the pricing of components utilized in the manufacture of our products, such as field programmable gate arrays, memory chips and central processing units, or CPUs. In some cases, our contract manufacturer purchases these components in a competitive-bid purchase order environment with suppliers or on the open market at spot prices. As a result, our cost structure is affected by price volatility in the marketplace for these components, especially for field programmable gate arrays, memory chips and CPUs. This volatility makes it difficult to predict expense levels and operating results, and may cause our expense levels and operating results to fluctuate significantly. Furthermore, these components can be subject to limits on supply or other supply volatility, which may negatively impact our ability to obtain quantities necessary at reasonable prices to grow our business and respond to customer demand for our products.

Third-party claims that we are infringing the intellectual property rights of others, whether successful or not, could subject us to costly and time-consuming litigation, require us to acquire expensive licenses, prohibit us from selling products and harm our business.

The storage and networking industries are characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have in the past received and may in the future receive inquiries from other intellectual property holders and may become subject to claims that we infringe their intellectual property rights, particularly as we expand our presence in the market and face increasing competition. The costs associated with any actual, pending or threatened litigation could negatively impact our operating results regardless of outcome.

We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify and hold harmless our customers, suppliers and channel partners from damages and costs which may arise from the infringement by our products of third-party patents, trademarks or other proprietary rights. The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees. Our insurance may not cover intellectual property infringement claims. A claim that our products infringe a third party’s intellectual property rights could harm our relationships with our customers, may deter future customers from purchasing our products and could expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation between a customer and a third party relating to infringement by our products, an adverse outcome in any such litigation could make it more difficult for us to defend our products against intellectual property infringement claims in any subsequent litigation in which we are a named party. Any of these results could harm our brand and operating results.

Any intellectual property rights claim against us or our customers, suppliers and channel partners, with or without merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty payments. Further, a party making such a claim, if successful, could secure a judgment that requires us to pay

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substantial damages. An adverse determination also could invalidate our intellectual property rights and prevent us from offering our products to our customers and may require that we procure or develop substitute products that do not infringe, which could require significant effort and expense. We may have to seek a license for the technology, which may not be available on reasonable terms or at all, may significantly increase our operating expenses or require us to restrict our business activities in one or more respects. Any of these events could seriously harm our business, operating results and financial condition. In addition, parties to intellectual property litigation often announce the results of hearings, motions or other interim developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

The success of our business depends in part on our ability to protect and enforce our intellectual property rights.

We rely on a combination of patent, copyright, service mark, trademark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. There can be no assurance that any patents will issue with respect to our pending patent applications in a manner that gives us the protection that we seek, if at all, or that any patents issued to us will not be challenged, invalidated or circumvented. Our issued patents and any patents that may be issued in the future with respect to pending or future patent applications may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. Because of various reasons, we may not be able to enforce or maintain our intellectual property rights. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology or reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive with ours or that design around our intellectual property. Although we endeavor to sign confidentiality agreements with our employees and others who may have access to our trade secrets, we cannot guarantee that we have entered into these agreements with all such parties, nor that the agreements we have entered will not be breached.

Protecting against the unauthorized use of our intellectual property, products and other proprietary rights is expensive and difficult. Litigation may be necessary in the future to enforce or defend our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could result in substantial costs and diversion of management resources, either of which could materially and adversely affect our business, operating results and financial condition. In addition, many of our current and potential competitors have the ability to dedicate substantially greater resources to defending intellectual property infringement claims and to enforcing their intellectual property rights than we have. As a result, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our products are available.

An inability to adequately protect and enforce our intellectual property and other proprietary rights could seriously harm our business, operating results and financial condition.

Adverse economic conditions and reduced information technology spending could have an adverse impact on our revenue, revenue growth rates and operating results.

Our business depends on the overall demand for information technology, and in particular for storage infrastructure, and on the capital spending budgets and financial health of our current and prospective customers. The purchase of our products is often discretionary and may require our customers to make significant initial commitments of capital. A general economic downturn, such as the slowdown that began in 2008, could dramatically reduce business spending on technology infrastructure. In response to a global economic slowdown, including a deterioration in their own financial condition, or an inability to obtain financing for capital investments, our customers and customer prospects could reduce or defer their spending on storage infrastructure, which could result in lost opportunities, declines in bookings and revenue, order cancellations or indefinite shipping delays.

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We expect to face numerous challenges as we attempt to grow our operations, channel partner relationships and end-customer base internationally.

Our business has developed internationally. Through January 31, 2016, we had 118 sales and marketing employees worldwide as well as over 100 channel partners in over 30 countries. Although we expect a portion of our future revenue growth will be from channel partners and end-customers located outside of the United States, we may not be able to increase international market demand for our products.

We expect to face numerous challenges as we attempt to grow our operations, channel partner relationships and end-customer base internationally, including attracting and retaining distributors and resellers with international capabilities or distributors and resellers located in international markets. Our revenue and expenses could be adversely affected by a variety of factors associated with international operations, some of which are beyond our control, including:

• difficulties of managing and staffing international offices, and the increased travel, infrastructure and legal compliance costs associated with international locations;

• difficulty in collecting accounts receivable and longer collection periods;

• difficulty in contract enforcement;

• regulatory, political or economic conditions in a specific country or region;

• compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations;

• compliance with local privacy laws and regulations and unanticipated changes as country or region-specific privacy laws and regulations are enacted or expanded;

• export and import controls, trade protection measures, FCPA compliance and other regulatory requirements;

• economic sanctions enacted by the United States against certain countries, companies, and individuals, including those sanctions enacted in 2014 against entities located in Russia and Ukraine;

• effects of changes in currency exchange rates;

• potentially adverse tax consequences;

• service provider and government spending patterns;

• reduced protection of our intellectual property and other assets in some countries;

• greater difficulty documenting and testing our internal controls;

• differing employment practices and labor issues; and

• acts of terrorism and international conflicts.

We are exposed to the credit risk of some of our customers and to credit exposure in weakened markets, which could result in material losses.

Most of our sales are on an open credit basis, which subjects us to the risk of loss resulting in nonpayment or nonperformance by our customers. Although we have programs in place that are designed to monitor and mitigate our customers’ credit risks, we cannot assure you these programs will be effective in reducing our credit risks, especially as we expand our business internationally. If we are unable to adequately control these risks, our business, operating results and financial condition could be harmed.

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Our use of open source and third-party software could impose unanticipated conditions or restrictions on our ability to commercialize our products.

We incorporate open source software into our products. Although we monitor our use of open source software closely, we cannot guarantee that we are aware of all the open source software included in our products. Moreover, the terms of many open source licenses have not been interpreted by courts in or outside of the United States, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our products. In this event, we could be required to seek licenses from third parties in order to continue offering our products, to make generally available, in source code form, proprietary code that links to certain open source modules, to re-engineer our products, or to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, any of which could adversely affect our business, operating results and financial condition.

We also incorporate proprietary third-party technologies, including software programs, into our products. We rely on license agreements to gain access to these third-party technologies and may need to enter into additional license agreements in the future. However, licenses to relevant third-party technology may not be or remain available to us on commercially reasonable terms, or at all. Therefore, we could face delays in product releases until equivalent technology can be identified, licensed or developed, and integrated into our current products. These delays, if they occur, could materially adversely affect our business, operating results and financial condition.

The accounting method for convertible notes that may be settled in cash if stockholder approval is obtained, could have a material effect on our reported financial results.

In May 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20. ASC 470-20 requires an entity to separately account for the liability and equity components of convertible debt instruments whose conversion may be settled entirely or partially in cash (such as our Notes if we obtain stockholder approval) in a manner that reflects the issuer’s economic interest cost for non-convertible debt. The liability component of the Notes would initially be valued at the fair value of a similar debt instrument that does not have an associated equity component and would be reflected as a liability in our consolidated balance sheet. The equity component of the Notes would be included in the additional paid-in capital section of our stockholders’ equity on our consolidated balance sheet, and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component. This original issue discount would be amortized to non-cash expense over the term of the Notes, and we would record a greater amount of non-cash interest expense in current periods as a result of this amortization. Accordingly, we would report lower net income in our financial results because ASC 470-20 would require the interest expense associated with the Notes to include both the then current period’s amortization of the debt discount and the Notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Notes.

In addition, under certain circumstances, convertible debt instruments whose conversion may be settled entirely or partly in cash (such as our Notes if we obtain stockholder approval) are currently accounted for using the treasury stock method. Under this method, the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share unless the conversion value of the Notes exceeds their principal amount, then, for diluted earnings per share purposes, the Notes are accounted for as if the number of shares of common stock that would be necessary to settle the excess, if we elected to settle the excess in shares, are issued. The accounting standards in the future may not continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares, if any, issuable upon conversion of the Notes, then our diluted earnings per share could be adversely affected.

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If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on the internal control over financial reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting are effective, or if our independent registered public accounting firm, when required, is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

We may acquire or make investments in other companies, each of which may divert our management’s attention, and result in additional dilution to our stockholders and consumption of resources that are necessary to sustain and grow our business.

Our business strategy may, from time to time, include acquiring other complementary products, technologies or businesses. We also may enter into strategic relationships with other businesses in order to expand our product offerings, which could involve preferred or exclusive licenses, additional channels of distribution or discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may be subject to third-party or governmental approvals. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close. Acquisitions or investments may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired business choose not to work for us, and we may have difficulty retaining the customers of any acquired business. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for development of our business. Any acquisition or investment could also expose us to unknown liabilities.

Moreover, we cannot assure you that we would realize the anticipated benefits of any acquisition or investment. In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur significant charges or substantial liabilities, encounter difficulties integrating diverse business cultures, and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. These challenges related to acquisitions or investments could adversely affect our business, operating results and financial condition.

Our business is subject to the risks of earthquakes and other natural catastrophic events, and to interruption by man-made problems such as computer viruses or terrorism.

Our sales headquarters, corporate headquarters and our current contract manufacturer are located in the San Francisco Bay area, which has a heightened risk of earthquakes. We may not have adequate business interruption insurance to compensate us for losses that may occur from a significant natural disaster, such as an earthquake, which could have a material adverse impact on our business, operating results and financial condition. In addition, acts of terrorism or malicious computer viruses could cause disruptions in our or our customers’

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businesses or the economy as a whole. To the extent that these disruptions result in delays or cancellations of customer orders or the deployment of our products, our business, operating results and financial condition would be adversely affected.

Our results of operations could be affected by natural catastrophes in locations in which our customers, suppliers or contract manufacturers operate.

Several of our customers, suppliers and our contract manufacturer have operations in locations that are subject to natural disasters, such as severe weather and geological events, which could disrupt the operations of those customers, suppliers and our contract manufacturer. Some of our customers and suppliers, including our sole flash memory supplier, Toshiba, are located in Japan and they have experienced, and may experience in the future, shutdowns as a result of these events, and their operations may be negatively impacted by these events. Our customers affected by a natural disaster could postpone or cancel orders of our products, which would negatively impact our business. In addition, a natural disaster could delay or prevent our contract manufacturer in the manufacture of our products, and we may need to qualify a replacement manufacturer. Moreover, should any of our key suppliers fail to deliver components to us as a result of a natural disaster, we may be unable to purchase these components in the necessary quantities or may be forced to purchase components in the open market at significantly higher costs. We may also be forced to purchase components in advance of our normal supply chain demand to avoid potential market shortages. In addition, if we are required to obtain one or more new suppliers for components or use alternative components in our solutions, we may need to conduct additional testing of our solutions to ensure those components meet our quality and performance standards, all of which could delay shipments to our customers and adversely affect our financial condition and results of operations.

The conditional conversion feature of our Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of our Notes is triggered, holders of the notes will be entitled to convert the Notes at any time during specified periods at their option. Even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this periodic report, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below market expectations, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, inventory valuation, product warranty, stock-based compensation, and deferred income tax valuation allowances.

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Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. Our existing NOLs may be subject to substantial limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code. Our net operating losses may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs.

Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could materially and adversely affect our operating results, financial condition and cash flows.

Our provision for income taxes is subject to volatility and could be adversely affected by the following:

• changes in the valuation of our deferred tax assets and liabilities;

• expiration of, or lapses in, the research and development tax credits;

• transfer pricing adjustments;

• tax effects of nondeductible compensation;

• tax costs related to intercompany realignments;

• changes in accounting principles;

• changes in tax laws and regulations, including possible changes to the taxation of earnings in the United States of our foreign subsidiaries, and the deductibility of expenses attributable to foreign income, or the foreign tax credit rules; or

• earnings that are lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates.

Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. The outcomes from these examinations may have a material adverse effect on our operating results, financial condition and cash flows.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in foreign markets.

Because we incorporate encryption technology into our products, our products are subject to United States export controls and may be exported outside the United States only with the required level of export license or through an export license exception. In addition, various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to introduce products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies affected by such regulations, could result in decreased use of our products by, or an inability to export or sell our products to,

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existing or prospective customers with international operations and harm our business. In addition, any failure by us to comply with these rules and regulations could subject us to significant fines and penalties.

Failure to comply with governmental laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

We are subject to environmental, health and safety laws and regulations pursuant to which we may incur substantial costs or liabilities, which could harm our business, operating results or financial condition.

We are subject to various state, federal, local and international laws and regulations relating to the environment or human health and safety, including those governing the presence of certain substances in electronic products and making producers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. These laws and regulations have been enacted in several jurisdictions in which we sell our products, including the European Union, or EU, and certain of its member countries. For example, the EU has enacted the Restriction on Hazardous Substances, or RoHS, and Waste Electrical and Electronic Equipment, or WEEE, directives. RoHS prohibits the use of certain substances, including lead, in certain products, including hard drives, sold after July 1, 2006. The WEEE directive obligates parties that sell electrical and electronic equipment in the EU to put a clearly identifiable mark on the equipment, register with and report to EU member countries regarding distribution of the equipment and provide a mechanism to take back and properly dispose of the equipment. There is still some uncertainty in certain EU countries as to which party involved in the manufacture, distribution and sale of electronic equipment will be ultimately responsible for registration, reporting and disposal. Similar legislation may be enacted in other locations where we sell our products. We will need to ensure that we comply with these laws and regulations as they are enacted, and that our component suppliers also comply with these laws and regulations. If we or our component suppliers fail to comply with the legislation, our customers may refuse or be unable to purchase our products, which could harm our business, operating results and financial condition.

Pursuant to such laws and regulations, we could incur substantial costs and be subject to disruptions to our operations and logistics or other liabilities. For example, if we were found to be in violation of these laws or regulations, we could be subject to governmental fines or other sanctions and liability to our customers. In addition, we have to make significant expenditures to comply with such laws and regulations. Any such costs or liabilities pursuant to environmental, health or safety laws or regulations could have a material adverse effect on our business, operating results or financial condition.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

While our international revenue has typically been denominated in U.S. dollars, fluctuations in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country, leading to a reduction in revenue or profitability from sales in that country. We currently do not enter into hedging arrangements to minimize the impact of foreign currency fluctuations. Our exposure to foreign currency fluctuation may change over time as our business practices evolve and could have a material adverse

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impact on our financial condition and results of operations. Gains and losses on the conversion to U.S. dollars of accounts receivable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in operating results.

If our security measures are breached or unauthorized access to our data is otherwise obtained, our products may be perceived as not being secure, customers may reduce the use of or stop using our solutions and we may incur significant liabilities.

Security breaches could result in the loss of information, litigation, indemnity obligations and other liability. While we have security measures in place, our systems and networks are subject to ongoing threats and therefore these security measures may be breached as a result of third-party action, including cyber attacks or other intentional misconduct by computer hackers, employee error, malfeasance or otherwise. This could result in one or more third parties obtaining unauthorized access to our data, including intellectual property and other confidential business information. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Third parties may also attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data, including intellectual property and other confidential business information. If an actual or perceived breach of our security occurs, the market perception of the security of our products could be harmed, we could lose potential sales and existing customers or we could incur other liability.

We have been and may continue to be the subject of actions taken by so-called “activist” stockholders, which may cause us to incur substantial costs which could harm our business and which could adversely affect our operating results and financial condition.

We have been and may continue to be the subject of actions taken by so-called “activist” stockholders. Future actions may include, but are not limited to, making public demands that we consider certain strategic alternatives for the Company, engaging in public campaigns to attempt to influence our corporate governance and/or our management, and commencing proxy contests to attempt to elect the activists’ representatives or others to our board of directors. Such actions may cause us to incur substantial costs, including legal and other professional fees and expenses, may materially harm our relationships with current and potential customers, current and potential investors, current and potential lenders, and others, may otherwise materially harm our business, and may adversely affect our operating results and financial condition.

Additional Risks Related to Our Common Stock

Our stock price may be volatile. Further, you may not be able to resell shares of our common stock at or above the price you paid.

Our common stock is currently traded on the NYSE, but we can provide no assurance that there will be active trading on that market or any other market in the future, especially in the event there is a suspension of trading in or a delisting of our common stock or a default under our credit facilities or the indenture governing our Notes. If there is not an active trading market or if the volume of trading is limited, the price of our common stock could decline and holders of our common stock may have difficulty selling their shares. In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. For example, since our shares were sold in our IPO in September 2013 at $9.00 per share, our stock price has ranged from $0.42 to $7.98 per share through March 31, 2016. Some of the factors affecting our volatility include:

• actual or anticipated variation in our and our competitors’ results of operations;

• announcements by us or our competitors of new products, new or terminated significant contracts, commercial relationships or capital commitments;

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• issuance of new securities analysts’ reports or changed recommendations for our stock;

• developments or disputes concerning our intellectual property or other proprietary rights;

• commencement of, or our involvement in litigation;

• announced or completed acquisitions of businesses or technologies by us or our competitors;

• any major change in our management; and

• general economic conditions and slow or negative growth of our markets.

In addition, the stock market in general, and the market for technology companies in particular, has experienced and may continue to experience extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock during the period following our recently completed public offering. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

We have been named as a defendant in a putative securities class action law suit. This, and other litigation, could cause us to incur substantial costs and divert our attention and resources.

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Companies such as ours in the high technology industry are particularly vulnerable to this kind of litigation due to the high volatility of their stock prices. We and a number of our current and former officers and directors and others are defendants in putative class and derivative action litigation, which is discussed below in the Section entitled “Legal Proceedings.” Any litigation to which we are a party may result in the diversion of management attention and resources from our business and business goals. In addition, any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal and that may require us to make payments of substantial monetary damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, which could adversely affect our business, financial condition or results of operations.

If securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts or the content and opinions included in their reports. The price of our common stock has declined and could decline again when one or more equity analysts downgrade our common stock or when those analysts issue other unfavorable commentary or cease publishing reports about us or our business. If one or more equity research analyst ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. Further, securities analysts may elect not to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock.

The issuance of our Notes could affect the market price of our common stock.

The market price of our common stock could be adversely affected by possible sales of common stock by investors who view our Notes as an attractive means of equity participation in us and by hedging or arbitrage activity involving our common stock.

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Conversion of our Notes may affect the market price of our common stock.

If we do not obtain stockholder approval and satisfy our conversion obligation by delivering shares of common stock, or if we obtain stockholder approval and elect to satisfy our conversion obligation by paying cash and delivering shares of common stock, the issuance of additional shares will dilute the ownership of stockholders. In addition, any sales in the public market of shares of common stock that we issue upon conversion could adversely affect the price of our common stock.

Certain provisions in the indenture governing our Notes could delay or prevent an otherwise beneficial takeover or other takeover attempt of us.

Certain provisions in our Notes and the indenture could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change, holders of the Notes will have the right to require us to repurchase their notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their notes in connection with such takeover. In either case, and in other cases, our obligations under the Notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

Anti-takeover provisions in our charter documents and under Delaware law could discourage, delay or prevent a change in control and may affect the trading price of our common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

• authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock;

• require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

• specify that special meetings of our stockholders can be called only by our board of directors or the chief executive officer;

• establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

• establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered terms;

• provide that our directors may be removed only for cause;

• provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

• specify that no stockholder is permitted to cumulate votes at any election of directors; and

• require a super-majority of votes to amend certain of the above-mentioned provisions.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. Section 203 generally prohibits us from engaging in a business combination with an interested stockholder subject to certain exceptions.

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We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

We have not paid cash dividends on any of our classes of capital stock to date, have contractual restrictions against paying cash dividends, and currently intend to retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock would be the sole source of gain for the foreseeable future.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our headquarters occupy approximately 66,000 square feet in Santa Clara, California under a lease that expires in February 2017. In addition, we have offices in New York, North Carolina, China, Japan, Singapore, South Korea and the United Kingdom. We believe that our current facilities are adequate to meet our ongoing needs and if we require additional space, we will be able to obtain additional facilities on commercially reasonable terms.

Item 3. Legal Proceedings

Beginning on November 26, 2013, four putative class action lawsuits were filed in the United States District Court for the Northern District of California naming us and a number of our present or former directors and officers, and the underwriters of our September 27, 2013 initial public offering (the “IPO”). The four complaints were consolidated into a single, putative class action, and on March 28, 2014, the plaintiffs filed a consolidated complaint purporting to assert claims under the federal securities laws, based upon seven categories of alleged omissions, on behalf of purchasers of our common stock issued in the IPO.

The parties have reached a settlement that, if approved by the Court, will fully resolve the claims brought by plaintiffs on behalf of the class they seek to represent. The proposed settlement establishes a settlement fund of $7.5 million in return for a release of all claims in this matter. The settlement fund will be paid by our insurance carrier and will not result in any additional expense us.

On March 16, 2016, the Court granted plaintiffs’ Motion for Preliminary Approval of Class Action Settlement and set a Final Approval Hearing for July 26, 2016. Pursuant to the Court’s Preliminary Approval Order, notice and claim forms will be mailed to class members and class members will have an opportunity to submit claims, to opt-out of the settlement, and/or object to the settlement. At the final approval hearing, the Court will consider the notice process and results, any objections and other relevant information. The Court will then decide whether to finally approve the class settlement. If the settlement is approved, the settlement funds will be disbursed as provided in the settlement agreement and the Court’s orders.

A putative stockholder derivative action is pending before the same court as the putative class action. In the derivative action, the plaintiffs allege that certain of our current and former officers and directors breached their fiduciary duties to us by violating the federal securities laws and exposing us to possible financial liability. The parties agreed to stay the derivative action pending further developments in the putative class action. The parties have reached a settlement in principle of the derivative action, which is in the process of being documented and presented for the Court’s approval.

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Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information for Common Stock

Our common stock began trading publicly on the New York Stock Exchange under the ticker symbol “VMEM” on September 27, 2013. The following table sets forth, for the period indicated, the high and low sale prices of our common stock as reported by the New York Stock Exchange.

	High		Low
Fiscal Year Ended January 31, 2016:
First Quarter	$	4.36	$	3.07
Second Quarter	$	3.50	$	2.01
Third Quarter	$	2.43	$	1.38
Fourth Quarter	$	1.76	$	0.65
Fiscal Year Ended January 31, 2015:
First Quarter	$	5.15	$	3.49
Second Quarter	$	4.58	$	3.07
Third Quarter	$	5.32	$	3.61
Fourth Quarter	$	5.38	$	3.84

Holders of Record

As of January 31, 2016, there were approximately 205 holders of record of our common stock. This figure does not include a substantially greater number of “street name” holders or beneficial holders of our common stock whose shares are held of record by banks, brokers and other financial institutions.

Dividend Policy

We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. In addition, the terms of our loan and security agreement with a financial institution currently prohibits us from paying cash dividends on our common stock. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and compliance with certain covenants under our loan and security agreement with the financial institution, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

Equity Plan Information

Our equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this annual report on Form 10-K.

Stock Performance Graph

This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Violin Memory, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.

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The following graph shows a comparison from September 27, 2013 (the date our common stock commenced trading on the New York Stock Exchange) through January 31, 2016 of the cumulative total return for our common stock, the Standard & Poor’s 500 Stock Index (S&P 500 Index) and the NYSE Composite Index. The graph assumes that $100 was invested on September 27, 2013 in the common stock of Violin Memory, Inc., the S&P 500 Index and the NYSE Composite Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

Sale of Unregistered Securities and Use of Proceeds

Sale of Unregistered Securities

None.

Use of Proceeds from Public Offering of Common Stock

Our IPO was made pursuant to a registration statement on Form S-1 (File No. 333-190823), which the SEC declared effective on September 26, 2013. As a result of the offering, we raised approximately $145.8 million in proceeds, net of underwriting discounts, commissions and offering expenses. We have invested a portion of the net proceeds in short-term, interest bearing obligations and investment grade instruments, and repaid all of our outstanding debt obligations shortly after the IPO. We used a portion of the net proceeds for working capital and general corporate purposes, including further expansion of our sales and marketing efforts, continued investments in research and development and for capital expenditures. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) on September 27, 2013.

Purchases of Equity Securities by the Issuer

None.

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Trading Plans

Our Insider Trading Policy permits directors, officers and other employees covered under the policy to establish, subject to certain conditions and limitations set forth in the policy, written trading plans which are intended to comply with Rule 10b5-1 under the Securities Exchange Act, which permits automatic trading of common stock of Violin Memory, Inc. or trading of common stock by an independent person (such as a stockbroker) who is not aware of material, nonpublic information at the time of the trade.

Item 6. Selected Financial Data

The following tables present selected historical financial data for our business. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

We derived the consolidated statements of operations data for the years ended January 31, 2016, 2015 and 2014 and the consolidated balance sheets data as of January 31, 2016 and 2015 from our audited consolidated financial statements included elsewhere in this report. We derived the consolidated statements of operations data for the years ended January 31, 2013 and 2012 and the consolidated balance sheets data as of January 31, 2014, 2013 and 2012 from our consolidated financial statements that are not included in this report. Our historical results are not necessarily indicative of our results in any future period.

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	Year Ended January 31,
	2016			2015			2014			2013			2012
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue:
Product revenue	$	27,342		$	58,378		$	88,321		$	69,584		$	52,541
Service revenue		23,525			20,597			19,335			4,214			1,347
Total revenue		50,867			78,975			107,656			73,798			53,888
Cost of revenue:
Cost of product revenue (1)		17,177			30,450			47,773			38,180			38,110
Inventory provision due to product transition		—			19,928			9,154			—			—
Cost of service revenue (1)		11,404			8,389			7,846			4,474			1,156
Total cost of revenue		28,581			58,767			64,773			42,654			39,266
Gross profit		22,286			20,208			42,883			31,144			14,622
Operating expenses:
Sales and marketing (1)		55,623			61,871			81,104			61,094			21,493
Research and development (1)		41,696			52,091			73,743			57,840			26,641
General and administrative (1)		17,165			20,645			29,622			21,105			6,222
Gain on sale of PCIe product line		—			(17,448	)		—			—			—
Restructuring charges		—			3,062			4,869			—			—
Litigation settlement		—			652			350			—			2,100
Total operating expenses		114,484			120,873			189,688			140,039			56,456
Loss from operations		(92,198	)		(100,665	)		(146,805	)		(108,895	)		(41,834	)
Other income (expense), net		(11	)		(4,910	)		(1,389	)		(79	)		89
Interest and other financing expense		(6,716	)		(3,205	)		(1,539	)		(31	)		(3,033	)
Loss before provision for income taxes		(98,925	)		(108,780	)		(149,733	)		(109,005	)		(44,778	)
Provision for income taxes		142			123			76			97			7
Net loss	$	(99,067	)	$	(108,903	)	$	(149,809	)	$	(109,102	)	$	(44,785	)
Net loss per share of common stock, basic and diluted (2)	$	(1.02	)	$	(1.20	)	$	(3.88	)	$	(8.01	)	$	(4.77	)
Shares used to compute net loss per share of common stock, basic and diluted (2)		97,008			90,959			38,591			13,624			9,396
(1)    Includes stock-based compensation expense as follows:
Cost of product revenue	$	1,155		$	718		$	100		$	150		$	15
Cost of service revenue		1,702			658			889			474			4
Sales and marketing		4,744			4,792			10,344			4,061			299
Research and development		7,183			9,570			6,900			3,228			236
General and administrative		6,577			7,228			18,166			10,010			492
	$	21,361		$	22,966		$	36,399		$	17,923		$	1,046

(2) See Note 12 of the consolidated financial statements for an explanation of the calculations of basic and diluted net loss per share available to common stock holders.

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	As of January 31,
	2016			2015 (1)			2014 (1)			2013 (1)			2012 (1)
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments	$	65,979		$	153,915		$	99,379		$	17,378		$	22,604
Working capital		53,737			132,842			97,057			32,175			37,689
Total assets		112,847			204,203			184,663			88,150			73,285
Convertible notes		117,464			115,968			—			—			682
Total liabilities		167,699			182,797			80,939			43,426			29,134
Additional paid-in-capital		505,274			482,674			456,223			247,531			137,938
Accumulated deficit		(560,592	)		(461,525	)		(352,622	)		(202,813	)		(93,711	)
Total stockholders’ equity (deficit)		(54,852	)		21,406			103,724			44,724			44,151

(1) Prior year amounts have been retrospectively adjusted upon our adoption of Accounting Standards Update (“ASU”) No. 2015-03 – Simplifying the Presentation of Debt Issuance Costs.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, “Risk Factors.”

Overview

We were incorporated in 2005 with the goal of bringing storage performance in line with advancements in server and network technologies. Since our inception, we have focused on persistent memory-based technology as the key to solving the performance limitations of traditional storage solutions in the data center environment. We have invested significantly in our research and development efforts to design hardware and software at each level of the system architecture starting with memory and optimized through the array level to capitalize on the benefits of flash technology. We were recapitalized in 2009. In 2009, we transitioned to build an enterprise-class all-flash storage solution serving diverse end markets and applications. In May 2010, we introduced our 3000 Series All Flash Array to accelerate business-critical applications.

In March 2010, we established a relationship with Toshiba, one of the two largest providers of flash memory. Through this relationship, we have developed a fundamental understanding of Toshiba’s flash specifications at the chip level, which allows us to optimize our hardware and software technologies to unlock the inherent performance capabilities of flash memory.

In September 2011, we expanded our product offering with the introduction of our 6000 Series All Flash Arrays, which is based on our four-layer architecture that significantly improves performance density, or IOPS per rack unit.

In February 2015, we introduced the Flash Storage Platform, the industry’s first vertically integrated design of software, firmware and hardware that delivers the highest performance, resiliency and availability at the same cost as legacy enterprise-class primary storage. The Flash Storage Platform runs our Concerto OS 7, a single operating system with integrated data protection, in-line block de-duplication and compression, stretch metro cluster and LUN mirroring as well as our suite of other Enterprise Data Services. With our Flash Storage Platform, all active data (Tiers 0, 1, and 2) can be consolidated onto a single tier, simplifying storage administration. Additionally, with our release of Symphony Management Suite Version 3.0, the entire software functionality can all be controlled in 1, 2 or 3 clicks, with management of the entire storage estate, through a single pane of glass.

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We market and sell our products directly to end-customers and through channel partners, including systems vendors, technology partners and resellers. As of January 31, 2016, we had 118 sales and marketing employees worldwide as well as over 100 channel partners in over 30 countries. As of January 31, 2016, we believe our All Flash Arrays have been deployed by over 350 end-customers. We and our authorized service providers also sell support services to our end-customers.

An initial sale by us to an end-customer typically requires three to nine months of selling effort because we devote time to educating the prospective end-customer about the technical merits, potential cost savings and other benefits of our products in contrast to our competitors’ products. In addition, our sales process typically includes a trial deployment of our systems in the end-customer’s data center. We currently derive and expect to continue to derive a significant portion of our revenue from existing end-customers. The selling effort required for repeat orders from end-customers is usually less time-consuming than that required for initial orders. We maintain a close relationship with our end-customers through our client teams consisting of sales, service and support and technical personnel.

A limited number of customers have accounted for a substantial majority of our revenue, and the composition of the group of our largest customers has changed from period to period. Some of our end-customers make periodic purchases of our system solutions in large quantities to complete or upgrade specific large-scale storage installations. Purchases are typically made on a purchase order basis rather than pursuant to long-term contract. Revenue from our five largest customers was 26%, 30% and 35% for fiscal year 2016, 2015 and 2014, respectively. As a consequence of these concentrated purchases by a shifting customer base, we believe that revenue may fluctuate in future periods, and period-to-period comparisons of revenue and operating results are not necessarily meaningful and should not be relied upon as an indication of future performance.

Our sales are principally denominated in U.S. dollars. Revenue from customers with a bill-to location in the United States accounted for 63%, 61% and 62% of total revenue for fiscal years 2016, 2015 and 2014, respectively.

We outsource the manufacturing of our hardware products to a single contract manufacturer, Flextronics. We believe this arrangement makes our operations more efficient and flexible. We procure the flash memory components used in our products directly from Toshiba. Our manufacturer procures, on our behalf, the remaining components used in our products. To date, we have not experienced a material shortage of supply of any components. However, because we only have one manufacturer qualified to manufacture our products and some of our components, such as flash memory, are procured from a single-source supplier, we could face product shortages and component shortages, which could prevent us from fulfilling customer orders.

We had total revenue of $50.9 million, $79.0 million and $107.7 million for fiscal years 2016, 2015 and 2014, respectively. Our headcount decreased to 318 as of January 31, 2016 from 329 employees as of January 31, 2015. We had a net loss of $99.1 million, $108.9 million and $149.8 million for fiscal years 2016, 2015 and 2014, respectively. We have experienced significant losses as we have continued to invest in our product development, customer service and sales and marketing organizations. We have funded our activities primarily through debt and equity financings. As of January 31, 2016, we had an accumulated deficit of $560.6 million.

In December 2015, we announced a plan to review our strategic alternatives and hired an investment banker, Jefferies LLC, to assist with the process. In March 2016, we announced that the review of strategic alternatives did not result in an acquisition of Violin, but identified a few global technology companies that were interested in pursuing technology and go-to-market collaboration.

In March 2016, we also announced a restructuring plan focused on aligning our expense structure with current revenue expectations. In connection with the restructuring plan, we reduced headcount by approximately 25% from the end of the third quarter of fiscal year 2016. We anticipate these actions to result in a reduction of

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quarterly operating expenses of approximately 33% and that our cash burn rate will be less than $10 million per quarter beginning with the second quarter of fiscal year 2017.

Initial public offering

On October 2, 2013, we closed our IPO of 18,000,000 shares of common stock. The public offering price of the shares sold in the IPO was $9.00 per share. The total gross proceeds to us from the IPO were $162 million. After deducting underwriting discounts and commissions and IPO expenses, the aggregate net proceeds to us totaled $145.8 million.

Components of Consolidated Statements of Operations

Revenue

We derive revenue primarily from the sale of our All Flash Array products, software and related support and services. We sell our products on a purchase order basis directly to end-customers and through channel partners, including distributors and resellers. Our mix of sales between end-customers and channel partners impacts the average selling price of our products. We derive support services revenue from the sale of our premium support services. These support services are provided pursuant to support terms that generally are for either one- or three-year durations. Support services are typically billed in advance on an annual basis or at the inception of a multiple year support contract, and revenue is recognized ratably over the support period.

Cost of Revenue

Cost of revenue consists primarily of component costs, amounts paid to our contract manufacturer to assemble our products, provisions for excess and obsolete inventory, shipping and logistics costs and estimated warranty obligations. The largest portion of our cost of revenue consists of the cost of flash memory components. Neither our contract manufacturer nor we enter into supply contracts with fixed pricing for our product components, including our flash memory, which can cause our cost of revenue to fluctuate from quarter to quarter. We may not be able to pass flash or component cost increases to our customers immediately or at all resulting in lower gross margins. Cost of revenue is recorded when the related product revenue is recognized. Cost of revenue also includes personnel expenses related to customer support.

Operating Expenses

Operating expenses consist primarily of sales and marketing, research and development and general and administrative expenses. The largest component of our operating expenses is personnel costs, consisting of salaries, benefits and incentive compensation for our employees, including stock-based compensation.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs, incentive compensation, marketing programs, travel-related expenses, consulting expenses associated with sales and marketing activities and allocated facilities costs. Our sales personnel are typically not immediately productive, and therefore, the increase in sales and marketing expenses is not immediately offset by increased revenue and may not result in increased revenue over the long-term. The timing of our hiring of new sales personnel and the rate at which they generate incremental revenue could cause our future period-to-period financial performance to fluctuate. We have generated a larger percentage of our sales from direct sales or through resellers with whom we will be directly involved in the sales process with the end-customer. We are focused on improving the productivity of our direct sales teams. In addition, we continue to develop go-to-market capabilities through channel partners. To the extent we are successful, these activities will provide incremental sales leverage to our existing direct selling efforts.

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Research and Development

Research and development expenses consist primarily of personnel costs, prototype expenses, software tools, consulting services and allocated facilities costs. Consulting services generally consist of contracted engineering consulting for specific projects on an as-required basis. We recognize research and development expense as incurred. We expect to continue to devote substantial resources to the development of our products including the development of new software capabilities. We believe that these investments are necessary to maintain and improve our competitive position. In particular, our recent hiring has been focused on software engineers. We believe our current level of personnel is sufficient to develop our products in the near term.

General and Administrative

General and administrative expenses consist primarily of personnel costs, legal expenses, consulting and professional services, insurance and allocated facilities costs for our executive, finance, human resources and legal organizations. While we expect personnel costs to be the primary component of general and administrative expenses, we also incur significant legal and accounting costs related to compliance with rules and regulations implemented by the SEC and the NYSE, as well as additional insurance, investor relations and other costs associated with being a public company.

Other Operating Expenses

Other operating expenses consist of the gain on the sale of our PCIe product line, costs associated with the restructuring activities and expenses for a legal settlement.

Other Expense, Net

Other expense, net generally consists of impairment losses on cost method investments, interest income and foreign currency gains and losses.

Interest and Other Financing Expense

Interest and other financing expense consists of interest related to convertible notes and debt as well as amortization of deferred debt issuance costs associated with the securities. Also included in interest and other financing expense is a loss on extinguishment of debt and the costs associated with the reduction of the revolving credit facility.

Provision for Income Taxes

From inception through January 31, 2016, we incurred operating losses and, accordingly, have not recorded a provision for U.S. federal income taxes but have recorded provisions for foreign income and state taxes. As of January 31, 2016, we had approximately $319.0 million and $103.2 million of net operating loss carry forwards available to offset future taxable income for both Federal and State purposes, respectively. If not utilized, these carry forward losses will expire in various amounts for Federal and State tax purposes beginning in 2025 and 2015, respectively.

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Results of Operations

The following table summarizes our consolidated statements of operations data for the periods shown (in thousands, except per share data):

	Year Ended January 31,
	2016			2015			2014
Revenue:
Product revenue	$	27,342		$	58,378		$	88,321
Service revenue		23,525			20,597			19,335
Total revenue		50,867			78,975			107,656
Cost of revenue:
Cost of product revenue (1)		17,177			30,450			47,773
Inventory provision due to product transition		—			19,928			9,154
Cost of service revenue (1)		11,404			8,389			7,846
Total cost of revenue		28,581			58,767			64,773
Gross profit		22,286			20,208			42,883
Operating expenses:
Sales and marketing (1)		55,623			61,871			81,104
Research and development (1)		41,696			52,091			73,743
General and administrative (1)		17,165			20,645			29,622
Gain on sale of PCIe product line		—			(17,448	)		—
Restructuring charges		—			3,062			4,869
Litigation settlement		—			652			350
Total operating expenses		114,484			120,873			189,688
Loss from operations		(92,198	)		(100,665	)		(146,805	)
Other expense, net		(11	)		(4,910	)		(1,389	)
Interest and other financing expense		(6,716	)		(3,205	)		(1,539	)
Loss before provision for income taxes		(98,925	)		(108,780	)		(149,733	)
Provision for income taxes		142			123			76
Net loss	$	(99,067	)	$	(108,903	)	$	(149,809	)
Net loss per share of common stock, basic and diluted (2)	$	(1.02	)	$	(1.20	)	$	(3.88	)
Shares used to compute net loss per share of common stock, basic and diluted (2)		97,008			90,959			38,591
(1)    Includes stock-based compensation expense as follows:
Cost of product revenue	$	1,155		$	718		$	100
Cost of service revenue		1,702			658			889
Sales and marketing		4,744			4,792			10,344
Research and development		7,183			9,570			6,900
General and administrative		6,577			7,228			18,166
	$	21,361		$	22,966		$	36,399

(2) See Note 12 of the consolidated financial statements for an explanation of the calculations of basic and diluted net loss per share available to common stock holders.

Revenue

	Year Ended January 31,				Change in						Year Ended January 31,				Change in
	2016		2015		$			%			2015		2014		$			%
Product revenue	$	27,342	$	58,378	$	(31,036	)		(53	%)	$	58,378	$	88,321	$	(29,943	)		(34	%)
Service revenue		23,525		20,597		2,928			14	%		20,597		19,335		1,262			7	%
	$	50,867	$	78,975	$	(28,108	)		(36	%)	$	78,975	$	107,656	$	(28,681	)		(27	%)

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Fiscal Year 2016 Compared to Fiscal Year 2015

Total revenue decreased $28.1 million from fiscal year 2015 to fiscal year 2016. The decrease in total revenue was due to a challenging product line transition, increased competition and later in the year around customers concerns around the Company’s long-term prospects given we hired an investment banker to assist with a review of strategic alternatives. In February 2015, we announced our Flash Storage Platform and started to move towards the primary storage market in addition to database acceleration. During the year, we saw our legacy platform revenue decrease faster than the increase in revenue from the Flash Storage Platform.

Specifically, product revenue decreased by $31.0 million due to a decrease of approximately 46% in the total number of All Flash Arrays sold. During fiscal years 2016 and 2015, revenue associated with our 6000 Series All Flash Arrays represented $11.3 million and $48.4 million, or 41% and 83% of product revenue, respectively. The increase in service revenue of $2.9 million primarily relates to an increase in our support revenue of $3.2 million related to the continued growth in our installed base and of $0.7 million due to some professional service engagements unique to fiscal year 2016 partially offset by a decrease in PCIe card development services provided to Toshiba of $1.0 million.

Fiscal Year 2015 Compared to Fiscal Year 2014

Revenue decreased $28.7 million from fiscal year 2014 to fiscal year 2015. The decrease in total revenue was due to a disruption in the sales cycle caused by a number of factors, including increased competition, especially against competitors with data efficiency software; the public disclosure at the time of our IPO of the size of our quarterly operating losses; the restructuring of our sales and marketing organization to a more efficient go-to-market model; and concern around executive turnover.

Specifically, product revenue decreased by $29.9 million due to a decrease of approximately 35% in the total number of All Flash Arrays sold and a decrease in PCIe cards of $4.2 million as we stopped selling PCIe cards in order to focus on our All Flash Array business. During fiscal years 2015 and 2014, revenue associated with our 6000 Series All Flash Arrays represented $48.4 million and $74.0 million, or 83% and 84% of product revenue, respectively. In addition, software revenue increased by $1.3 million to $5.3 million in fiscal year 2015 as compared to $4.0 million in fiscal year 2014. The increase in service revenue of $1.3 million primarily relates to an increase in our support revenue of $6.1 million related to the continued growth in our installed base partially offset by a decrease in PCIe card development services provided to Toshiba of $5.0 million.

Cost of Revenue and Gross Margin

	Year Ended January 31,						Change in						Year Ended January 31,						Change in
	2016			2015			$			%			2015			2014			$			%
Cost of product revenue	$	17,177		$	30,450		$	(13,273	)		(44	%)	$	30,450		$	47,773		$	(17,323	)		(36	%)
Inventory provision due to product transition		—			19,928			(19,928	)		*			19,928			9,154			10,774			118	%
Cost of service revenue		11,404			8,389			3,015			36	%		8,389			7,846			543			7	%
	$	28,581		$	58,767		$	(30,186	)		(51	%)	$	58,767		$	64,773		$	(6,006	)		(9	%)
Gross profit	$	22,286		$	20,208		$	2,078			10	%	$	20,208		$	42,883		$	(22,675	)		(53	%)
Product gross margin		37	%		14	%								14	%		36	%
Service gross margin		52	%		59	%								59	%		59	%
Total gross margin		44	%		26	%								26	%		40	%

* Not meaningful

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Fiscal Year 2016 Compared to Fiscal Year 2015

Cost of revenue decreased $30.2 million from $58.8 million in fiscal year 2015 to $28.6 million in fiscal year 2016. The decrease was primarily due to the decrease in product revenue of approximately $31.0 million and no major write-off of inventory in the current fiscal year.

Gross margin improved from 26% in fiscal year 2015 to 44% in fiscal year 2016. Excluding the inventory provision of $19.9 million from the prior fiscal year, our overall gross margin declined from 51% to 44%; and our product gross margin declined from 48% to 37%. The decline in our product gross margins is primarily due to greater discounting of product sales in fiscal year 2016 and our manufacturing overhead representing a higher percentage of revenue partially offset by the net benefit of $3.5 million we received in fiscal year 2016 from the sale of previously written-down inventory.

Service gross margin declined from 59% in fiscal year 2015 to 52% in fiscal year 2016. The decrease was due to increased support costs as we increased headcount in the service organization. Support costs increased approximately $3.0 million of which stock-based compensation was $1.0 million. Our customer support and professional services headcount increased from 26 in fiscal year 2015 to 38 in fiscal year 2016.

Fiscal Year 2015 Compared to Fiscal Year 2014

Cost of revenue decreased $6.0 million from $64.8 million for fiscal year 2014 to $58.8 million for fiscal year 2015. The decrease was primarily due to the decrease in product revenue of approximately $29.9 million offset by an increase in our inventory provision of $10.8 million in fiscal year 2015 due to our product transition to the Flash Storage Platform.

Gross margin declined from 40% in fiscal year 2014 to 26% in fiscal year 2015. Excluding the inventory provisions, our overall gross margin improved from 48% to 51% and our product gross margin improved from 46% to 48%. The improvement was primarily due to greater sales of our 6264 All Flash Array and software products, which had higher gross margin profiles, in fiscal year 2015 as compared to fiscal year 2014 partially offset by heavily discounted 32nm products and the introduction of our “Pay-As-You-Grow” model in the second quarter of fiscal 2015. The Pay-As-You-Grow model provides our customers with the ability to expand capacity non-disruptively. We accomplish this by initially shipping full capacity hardware at lower capacity prices, resulting in lower gross margins initially. If and when the customer buys capacity upgrades in the future, we will recognize 100% gross margin.

Service gross margin was 59% for the years ended January 31, 2015 and 2014.

Operating Expenses

	Year Ended January 31,					Change in						Year Ended January 31,					Change in
	2016		2015			$			%			2015			2014		$			%
Sales and marketing	$	55,623	$	61,871		$	(6,248	)		(10	%)	$	61,871		$	81,104	$	(19,233	)		(24	%)
Research and development		41,696		52,091			(10,395	)		(20	%)		52,091			73,743		(21,652	)		(29	%)
General and administrative		17,165		20,645			(3,480	)		(17	%)		20,645			29,622		(8,977	)		(30	%)
Gain on sale of PCIe product line		—		(17,448	)		*			*			(17,448	)		—		*			*
Restructuring charges		—		3,062			*			*			3,062			4,869		(1,807	)		(37	%)
Litigation settlement		—		652			*			*			652			350		302			86	%
	$	114,484	$	120,873								$	120,873		$	189,688

* Not meaningful

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Fiscal Year 2016 Compared to Fiscal Year 2015

Sales and marketing expense decreased $6.2 million from fiscal year 2015 to fiscal year 2016. The decrease was primarily due to a decrease in personnel related expenses of $7.4 million primarily due to a decrease in commissions of $4.5 million due to lower revenue and a reduction in headcount resulting in a $2.0 million decrease in salaries and related costs. As of January 31, 2016, we had 118 sales and marketing employees compared to 140 at January 31, 2015. In addition, depreciation expenses decreased $2.0 million due to the lower level of demonstration equipment at customer sites. Travel and entertainment expenses also decreased $0.5 million as a result of cost-cutting measures and lower headcount. These decreases were offset by an increase in marketing expenses of $2.0 million primarily due to the product launch of the Flash Storage Platform, marketing campaigns and digital marketing.

Research and development expense decreased $10.4 million from fiscal year 2015 to fiscal year 2016 primarily due to a decrease in personnel-related costs of $2.8 million and stock-based compensation of $2.4 million, primarily due to the transfer of an assembled workforce in connection with the sale of our PCIe product line half way through fiscal year 2015 as well as reduction in force that occurred during the first quarter of fiscal year 2015. We ended fiscal year 2016 with 127 employees in research and development, which compares to 128 at the end of fiscal year 2015 and 182 at the end of fiscal year 2014. We also experienced decreases in expensed equipment of $3.8 million, reflecting the development of the Flash Storage Platform in fiscal year 2015, depreciation of $0.8 million and consulting expenses of $0.5 million.

General and administrative expense decreased $3.5 million from fiscal year 2015 to fiscal year 2016 primarily due to a decrease in legal fees of $1.0 million after we met the deductible on our insurance related to the class action lawsuit during fiscal year 2016. In addition, the CEO’s sign-on bonus was being expensed over eighteen months, which ended in the second quarter of 2016, resulting in lower personnel costs of $1.0 million. Consulting fees decreased by $0.6 million, and stock-based compensation expense decreased by $0.7 million primarily related to the accelerated vesting of equity awards held by certain former executives in the prior year.

In May 2014, we entered into an asset purchase agreement with SK Hynix to sell certain intellectual property rights and fixed assets as well as transfer an assembled workforce related to our PCIe product line. As consideration, SK Hynix agreed to pay us $23.0 million and assume certain employee-related liabilities of approximately $0.5 million. We closed the transaction in July 2014 and recorded a gain of $17.4 million after deducting from the aggregate consideration (i) compensation paid to the transferred workforce of $3.2 million, which includes $1.4 million stock-based compensation, (ii) professional fees of $2.4 million and (iii) the net book value of the fixed assets sold of $0.5 million.

Beginning in the fourth quarter of fiscal year 2014, we began a strategic restructuring of our operations. For the year ended January 31, 2015, we recognized restructuring charges of $3.1 million, consisting of excess facilities of $1.8 million and severance expenses of $1.2 million. With the closing of the transaction with SK Hynix in the second quarter of fiscal year 2015, we completed our restructuring plan. There was no similar plan in fiscal year 2016.

Fiscal Year 2015 Compared to Fiscal Year 2014

Sales and marketing expense decreased $19.2 million from fiscal year 2014 to fiscal year 2015. The decrease was primarily due to a decrease in personnel related expenses of $20.1 million, including a reduction in stock-based compensation expenses of $5.6 million. In the fourth quarter of fiscal year 2014, we began reducing our sales and marketing organization to better align our expense structure with revenue. As of January 31, 2015, we had 140 sales and marketing employees compared to 189 sales and marketing employees at January 31, 2014. Travel and entertainment expenses also decreased $1.9 million as a result. These decreases were offset by increases in marketing expenses of $1.2 million and depreciation and amortization of $1.3 million.

Research and development expense decreased $21.7 million from fiscal year 2014 to fiscal year 2015 primarily due to a decrease in personnel-related costs of $8.4 million, which includes an increase in stock-based

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compensation of $2.7 million. The decrease is primarily due to the transfer of an assembled workforce in connection with the sale of our PCIe product line and to having less employees throughout the year as compared to the prior year. The number of research and development employees was 128 as of January 31, 2015 and compares to 182 as of January 31, 2014. We also experienced decreases in licensed software fees of $8.7 million, depreciation and amortization of $2.7 million and outside services costs of $0.8 million. In fiscal year 2014, we expensed $6.0 million related to a software OEM agreement.

General and administrative expense decreased $9.0 million from fiscal year 2014 to fiscal year 2015 primarily due to a decrease in stock-based compensation of $10.9 million primarily related to the accelerated vesting of equity awards held by certain former executives in the prior year and outside services of $1.3 million primarily related to fees associated with the CEO search incurred in the prior year. These decreases were partially offset by increases in personnel costs of $1.9 million primarily related to the CEO’s sign-on bonus being recognized over 18 months, insurance and business license expenses associated with being a public company of $0.9 million and bad debt expenses of $0.4 million.

Other Expense, Net

Other expense, net in fiscal year 2015 was $4.9 million primarily due to the impairment of a cost-method investment of $3.5 million and exchange rate losses of $1.4 million in fiscal year 2015 primarily related to Euro-denominated cash balances, accounts receivable and intercompany accounts. For fiscal year 2014, other expense, net consisted primarily of an impairment of a cost-method investment of $0.7 million and exchange rate losses of $0.4 million primarily related to foreign currency denominated accounts receivable.

Interest and Other Financing Expense

Interest and other financing expense for fiscal year 2016 consists primarily of $5.1 million in interest on our convertible senior notes issued October 2014 compared $1.7 million in fiscal year 2015. In addition, the expense includes $1.5 million amortization of debt issuance costs in fiscal year 2016 compared to $0.6 million in fiscal year 2015. We also expensed $0.4 million in fiscal year 2015 as a loss on extinguishment of our revolving debt concurrent with the issuance of the convertible senior notes.

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Quarterly Results of Operations Data

The following tables set forth our unaudited quarterly consolidated statements of operations data in dollars and as a percentage of total revenue for each of the eight quarters in the period ended January 31, 2016. We have prepared the quarterly consolidated statements of operations data on a basis consistent with the audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results of operations for any future period.

	Three Months Ended
	Jan. 31, 2016			Oct. 31, 2015			Jul. 31, 2015			Apr. 30, 2015			Jan. 31, 2015			Oct. 31, 2014			Jul. 31, 2014			Apr. 30, 2014
	(In thousands)
Revenue:
Product revenue	$	4,346		$	6,326		$	9,847		$	6,823		$	14,530		$	16,887		$	14,188		$	12,773
Service revenue		6,578			6,213			5,456			5,278			5,990			4,842			4,405			5,360
Total revenue		10,924			12,539			15,303			12,101			20,520			21,729			18,593			18,133
Cost of revenue:
Cost of product revenue (1)		3,692			3,383			5,872			4,230			8,373			8,477			6,934			6,666
Inventory provision due to product transition		—			—			—			—			19,928			—			—			—
Cost of service revenue (1)		3,067			2,785			2,831			2,721			2,421			2,099			1,971			1,898
Total cost of revenue		6,759			6,168			8,703			6,951			30,722			10,576			8,905			8,564
Gross profit (loss)		4,165			6,371			6,600			5,150			(10,202	)		11,153			9,688			9,569
Operating expenses:
Sales and marketing (1)		14,479			14,049			13,655			13,440			14,871			15,660			15,107			16,233
Research and development (1)		9,480			10,110			10,580			11,526			10,724			12,537			12,994			15,836
General and administrative (1)		3,850			3,456			4,708			5,151			4,769			4,890			5,154			5,832
Gain on sale of PCIe product line		—			—			—			—			—			—			(17,448	)		—
Restructuring charges		—			—			—			—			—			—			1,306			1,756
Litigation settlement		—			—			—			—			—			—			652			—
Total operating expenses		27,809			27,615			28,943			30,117			30,364			33,087			17,765			39,657
Loss from operations		(23,644	)		(21,244	)		(22,343	)		(24,967	)		(40,566	)		(21,934	)		(8,077	)		(30,088	)
Other income (expense), net		(90	)		126			(303	)		256			(4,421	)		(427	)		(181	)		119
Interest expense		(1,623	)		(1,649	)		(1,694	)		(1,750	)		(1,791	)		(1,122	)		(124	)		(168	)
Loss before income taxes		(25,357	)		(22,767	)		(24,340	)		(26,461	)		(46,778	)		(23,483	)		(8,382	)		(30,137	)
Provision for (benefit from) income taxes		157			(98	)		42			41			43			44			30			6
Net loss	$	(25,514	)	$	(22,669	)	$	(24,382	)	$	(26,502	)	$	(46,821	)	$	(23,527	)	$	(8,412	)	$	(30,143	)
Net loss per share of common stock, basic and diluted	$	(0.26	)	$	(0.23	)	$	(0.25	)	$	(0.28	)	$	(0.50	)	$	(0.25	)	$	(0.09	)	$	(0.35	)
Shares used to compute net loss per share of common stock, basic and diluted		98,363			97,556			96,588			95,478			93,611			92,373			91,410			85,951
(1)    Includes stock-based compensation expense as follows:
Cost of product revenue	$	402		$	232		$	270		$	251		$	104		$	156		$	279		$	179
Cost of service revenue		650			383			334			335			268			210			93			87
Sales and marketing		1,677			786			1,475			806			879			1,291			1,191			1,437
Research and development		1,647			1,582			1,977			1,977			1,735			1,735			1,834			4,266
General and administrative		1,732			1,052			1,902			1,891			2,277			1,861			1,419			1,671
	$	6,108		$	4,035		$	5,958		$	5,260		$	5,263		$	5,253		$	4,816		$	7,640

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The following table sets forth consolidated results of operations for the specified periods as a percentage of our revenues for those periods.

	Three Months Ended
	Jan. 31, 2016			Oct. 31, 2015			Jul. 31, 2015			Apr. 30, 2015			Jan. 31, 2015			Oct. 31, 2014			Jul. 31, 2014			Apr. 30, 2014
	(As percentage of total revenue)
Revenue:
Product revenue		40	%		50	%		64	%		56	%		71	%		78	%		76	%		70	%
Service revenue		60			50			36			44			29			22			24			30
Total revenue		100			100			100			100			100			100			100			100
Cost of revenue:
Cost of product revenue		34			27			38			35			41			39			37			37
Inventory provision due to product transition		—			—			—			—			97			—			—			—
Cost of service revenue		28			22			18			22			12			10			11			10
Total cost of revenue		62			49			56			57			150			49			48			47
Gross profit (loss)		38			51			44			43			(50	)		51			52			53
Operating expenses:
Sales and marketing		133			112			89			111			72			72			81			90
Research and development		87			81			69			95			52			58			70			87
General and administrative		35			28			31			43			23			23			28			32
Gain on sale of PCIe product line		—			—			—			—			—			—			(94	)		—
Restructuring charges		—			—			—			—			—			—			7			10
Litigation settlement		—			—			—			—			—			—			4			—
Total operating expenses		255			221			189			249			147			153			96			219
Loss from operations		(217	)		(170	)		(145	)		(206	)		(197	)		(102	)		(44	)		(166	)
Other income (expense), net		(1	)		1			(2	)		2			(22	)		(2	)		(1	)		1
Interest expense		(15	)		(13	)		(11	)		(14	)		(9	)		(5	)		(1	)		(1	)
Loss before income taxes		(233	)		(182	)		(158	)		(218	)		(228	)		(109	)		(46	)		(166	)
Provision for (benefit from) income taxes		1			(1	)		—			—			—			—			—			—
Net loss		(232	)%		(183	)%		(158	)%		(218	)%		(228	)%		(109	)%		(46	)%		(166	)%

Liquidity and Capital Resources

Primary Sources of Liquidity

As of January 31, 2016, our principal sources of liquidity were our cash, cash equivalents and short-term investments of $66.0 million and accounts receivable of $5.3 million. Historically, our primary sources of liquidity have been from the issuance of common stock, convertible senior notes and convertible preferred stock. In October 2013, we completed our IPO, in which we issued and sold 18,000,000 shares and received net proceeds of $145.8 million.

In September 2014, we issued $120 million of convertible senior notes, which included $15 million of principal amount issued pursuant to an over-allotment option granted to the initial purchasers, and received net proceeds of $115.4 million.

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In April 2016, we amended our secured revolving line of credit with Silicon Valley Bank, or SVB, to extend the term through May 1, 2017, modify the financial covenants and lower the commitment to $10 million. The Company’s obligations under the agreement are secured by a first priority security interest in the Company’s accounts receivable and the proceeds therefrom.

Cash Flow Analysis

	Year Ended January 31,
	2016			2015			2014
	(In thousands)
Net cash provided by (used in):
Operating activities	$	(78,591	)	$	(79,503	)	$	(81,548	)
Investing activities		4,234			7,576			(68,999	)
Financing activities		4,620			124,953			173,442

Operating Activities

Our net cash used in operating activities for fiscal year 2016 was $78.6 million and consisted primarily of our net loss of $99.1 million offset by non-cash items of depreciation and amortization of $8.7 million and stock-based compensation of $21.4 million. Besides our net operating loss, we used cash to settle liabilities during the year. Accounts payable and accrued liabilities decreased by $13.7 million. Our deferred revenue also decreased by $6.8 million due to lower sales and recognition of previously deferred amounts to revenue. These uses of cash were partially offset by a reduction in accounts receivable of $9.8 million due to lower sales.

We used net cash in operating activities for fiscal year 2015 of $79.5 million, which largely reflects our net loss less non-cash items and the payment of accrued liabilities during the fiscal year partially offset by a decrease in inventory. Specifically, we had a net loss of $108.9 million for the year ended January 31, 2015, less the following non-cash items: stock-based compensation of $23.0 million, provision for excess and obsolete inventory of $21.0 million and depreciation and amortization of $11.0 million and increased by a gain on the sale of PCIe product line of $17.5 million. In addition, we paid down accrued liabilities by $17.1 million, which relates primarily to the payment of non-cancellable inventory purchase commitments, the refund of fees associated with the termination of our PCIe development contract with Toshiba and a litigation settlement. These reductions in cash were offset by an increase in cash due to lower inventory of $9.1 million.

Our net cash used in operating activities for fiscal year 2014 was $81.5 million and was primarily due to costs related to building the infrastructure to support our current and anticipated growth. Our net loss for fiscal year 2014 was $149.8 million and included non-cash stock-based compensation of $36.4 million, depreciation of $12.6 million, impairment charges of $2.0 million and a provision for excess and obsolete inventory related to our PCIe card inventory of $9.2 million.

Investing Activities

Cash flows from investing activities generally consist of purchase of property and equipment, including product development and testing lab equipment used to support engineering and support service personnel. Our purchases of product development and testing lab equipment have varied over time as the number of our engineers fluctuates and based on the timing of new product introductions. We have purchased property and equipment of $6.9 million, $11.8 million and $9.3 million for fiscal years 2016, 2015 and 2014, respectively. A large portion of this equipment is All Flash Arrays that we have capitalized. In addition, we have transferred inventory into lab equipment within fixed assets of $0.1 million, $0.7 million and $4.4 million during fiscal years 2016, 2015 and 2014, respectively, which has been reflected as a non-cash transaction in the statements of cash flows.

In addition to purchases of property and equipment in fiscal year 2016, we received proceeds from sale and maturity of short-term investments of $70.8 million offset by purchases of short-term investments of $52.4 million and increased restricted cash balance by $7.7 million.

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In addition to purchases of property and equipment, cash from investing activities for fiscal year 2015 comprised of proceeds from the sale of the PCIe product line of $23.0 million offset by $2.3 million, which was placed in escrow, and by net purchases of short-term investments of $1.4 million.

In addition to purchases of property and equipment, cash used in investing activities for fiscal year 2014 comprised of purchases of short-term investments of $66.2 million, partially offset by maturity of short-term investments of $7.1 million.

Financing Activities

Cash flows from financing activities for fiscal year 2016 primarily include net proceeds from borrowings on our line of credit of $3.4 million and proceeds from the exercise of common stock options and stock purchases under our employee stock purchase plan of $1.3 million.

Cash flows from financing activities for fiscal year 2015 primarily include net proceeds from convertible debt of $115.4 million, net proceeds from borrowings on our line of credit of $9.5 million, and proceeds from the exercise of common stock options and from the sale of common stock of $3.2 million and $0.9 million, respectively, offset by taxes paid related to net share settlement of equity awards of $3.9 million.

We generated $173.4 million of net cash from financing activities in fiscal year 2014. This consisted of proceeds from our IPO, net of underwriting discount and commission and offering costs, of $145.8 million and proceeds from issuance of preferred stock, net of issuance costs, and convertible notes of $21.0 million and $5.2 million, respectively.

Future Capital Requirements

As of January 31, 2016, we had cash, cash equivalents, restricted cash and short-term investments of $76.0 million. For the year ended January 31, 2016, cash used in operations was primarily funded through borrowing. Our future capital requirements will depend on many factors, including our rate of revenue growth, changes in gross margin, the transition of our sales and marketing activities, the timing and extent of spending to support product development efforts, the timing of new product introductions and related inventory commitments, the continued market acceptance of our products and possible acquisitions of, or investments in businesses, technologies or other assets.

In October 2014, we entered into a $20.0 million secured revolving credit facility with SVB, which was subsequently amended in April 2016. Under the amendment, we extended the line of credit until May 1, 2017, modified the financial covenants and reduced the commitment to $10 million. The Company’s obligations under the agreement are secured by a first priority security interest in the Company’s accounts receivable and the proceeds therefrom. Borrowings under this facility will bear interest at a rate per annum of either (a) the sum of (i) the Eurodollar rate plus (ii) 5.00%, or (b) the sum of (i) ABR plus (ii) 2.00%. As of January 31, 2016, we had $13.4 million outstanding on the line of credit.

The credit agreement with SVB contains customary representations and warranties, as well as affirmative and negative covenants. The credit agreement contains financial covenants, including covenants requiring us to maintain a minimum cash balance, a minimum consolidated adjusted quick ratio and achieve a certain level of revenue relative to our operating plan. The credit agreement also contains certain affirmative covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. In addition, the credit agreement contains certain negative covenants, including restrictions on liens, indebtedness, fundamental changes, dispositions, restricted payments and investments.

In September 2014, we completed a convertible senior note offering, or the Notes, and received net proceeds of $115.4 million. With respect to the Notes, the credit agreement contains a covenant that prohibits us from paying cash upon conversion (other than cash in lieu of fractional shares), redemption, repurchase or other payment in respect of the principal amount of any of the Notes. The credit agreement also contains certain affirmative covenants, including

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covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. Noncompliance with one or more of the covenants and restrictions could result in the amounts borrowed under the agreement becoming immediately due and payable.

During the time that the Notes are outstanding, we may not at any time incur any indebtedness other than permitted debt, which is defined as: (a) revolving debt secured by our accounts receivable and the proceeds therefrom in a principal amount not to exceed $50 million; (b) unsecured indebtedness (including the Notes) in a principal amount not to exceed (when combined with any indebtedness incurred under clause (c) below) $150 million; (c) secured indebtedness secured by our intellectual property in a principal amount not to exceed (when combined with any indebtedness incurred under clause (b) above) $150 million; and (d) unsecured subordinated indebtedness in a principal amount not to exceed $50 million. Furthermore, we may incur indebtedness if (a) we are not in default and such additional debt would not put us into default and (ii) the consolidated leverage ratio, as defined, after taking the additional debt into account does not exceed 5:1. We were in compliance with these covenants as of January 31, 2016.

In July 2013, we entered into a $7.5 million line of credit with Comerica Bank, or Comerica. Under the line of credit, we were able to borrow up to 80% of our current US-based receivables or $7.5 million, whichever was lower. The line of credit was secured by our accounts receivable, collections thereon and intellectual property and bore interest at the rate of prime plus 1%. In August 2014, we repaid all outstanding amounts under the line of credit and terminated the Loan and Security Agreement with Comerica.

In May 2013, we entered into a $50.0 million debt facility with TriplePoint Capital LLC, or TriplePoint, which was available to us for one year. The debt facility with TriplePoint terminated in May 2014.

We believe that our existing cash, cash equivalents, short-term investments and available line of credit will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. Although management believes existing financial resources and available line of credit will be sufficient to fund our operations and capital expenditures for at least the next twelve months, it may be necessary thereafter to finance our future operations and capital expenditures by raising additional capital. However, there can be no assurances that capital will be available on acceptable terms to us or at all, or that we will ever achieve profitable operations. If we are not able to raise additional capital or access our debt facilities in sufficient amounts to fund our operations in the future, it could have a negative impact on our business plans.

Off-Balance Sheet Arrangements

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

Contractual Obligations

The following summarizes our contractual obligations as of January 31, 2016 (in thousands):

			Less than 1		2 to 3		4 to 5		After 5
	Total		year		years		years		years
Convertible senior notes, including interest (1)	$	140,400	$	5,100	$	10,200	$	125,100	$	—
Purchase commitments (2)(3)		18,884		6,634		3,500		3,500		5,250
Facility operating lease commitments		4,069		3,775		294		—		—
	$	163,353	$	15,509	$	13,994	$	128,600	$	5,250

(1) The convertible senior notes reflected above include projected interest payments over the term of the notes as of January 31, 2016, assuming interest rates in effect for the borrowings as of January 31, 2016 and redemption of the borrowings on October 31, 2019 in accordance with the terms of the notes.

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(2) Purchase obligations include non-cancelable purchase orders for raw materials inventory and others. Purchase obligations under purchase orders or contracts that we can cancel without a significant penalty, such as routine purchases for operating expenses, are not included in the above table.

(3) In June 2012, we entered into an agreement with the Forty Niners SC Stadium Company LLC, or the Team, which was amended in April 2014. As part of the amended agreement, we will receive advertising during home games and the ability to meet with potential and existing partners and customers at sporting and other events at the stadium in Santa Clara, California. We committed to make payments to the Team of $1.75 million per year through fiscal year 2024.

Critical Accounting Policies and Estimates

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

We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, inventory valuation, warranty liability and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Note 1 of the accompanying notes to our consolidated financial statements.

Revenue Recognition

We derive our revenue from sales of products and related support services and enter into multiple-element arrangements in the normal course of business with our direct customers, distributors and resellers. In all of our arrangements, we do not recognize revenue until we can determine that persuasive evidence of an arrangement exists; delivery has occurred; the fee is fixed or determinable; and we deem collection to be reasonably assured. In making these judgments, we evaluate these criteria as follows:

• Evidence of an Arrangement – We consider a non-cancelable agreement signed by a direct customer, distributor or reseller or purchase order generated by a customer, distributor or reseller to be persuasive evidence of an arrangement.

• Delivery has Occurred – We consider delivery to have occurred when product has been delivered to the customer and no post-delivery obligations exist other than ongoing support obligations sold under separate support terms. In instances where customer acceptance is required, delivery is deemed to have occurred when customer acceptance has been achieved.

• Fees are Fixed or Determinable – We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within normal payment terms. If the fee is subject to refund or adjustment, we recognize revenue net of estimated returns or if a reasonable estimate cannot be made, when the right to a refund or adjustment lapses. We currently do not provide price protection, rebates or other sales incentives to customers. We also do not allow a right of return to our customers, including distributors and resellers.

• Collection is Reasonably Assured – We conduct a credit worthiness assessment on our customers, distributors, and resellers. If we determine that collection is not reasonably assured, revenue is deferred and recognized upon the receipt of cash.

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Our multiple-element arrangements typically include two elements: hardware, which includes embedded software, and support services. Beginning in the second quarter of fiscal year 2014, following introduction of the Violin Symphony Management Software Suite, our multiple-element arrangements also may include non-essential software elements. We have determined that our hardware and the embedded software are considered a single unit of accounting, because the hardware and software function together to deliver the hardware’s essential functionality and the hardware is never sold separately without the essential software. Standalone software, professional services and support services are each considered a separate unit of accounting as they are sold separately and have standalone value.

When more than one element, such as hardware, software and services, are contained in a single arrangement, we first allocate consideration to the software deliverables as a group and non-software deliverables based on the relative selling price method. Our appliance products, embedded software and certain other services are considered to be non-software deliverables in our arrangements. We allocate revenue within the software group based upon fair value using vendor specific objective evidence, or VSOE, with the residual revenue allocated to the delivered element. If we cannot objectively determine the VSOE of the fair value of any undelivered software element, we defer revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. We allocate revenue within the non-software group to each element based upon their relative selling price in accordance with the selling price hierarchy, which includes: (1) VSOE, if available; (2) third-party evidence, or TPE, if VSOE is not available; and (3) best estimate of selling price, or BESP, if neither VSOE nor TPE are available.

• VSOE – We determine VSOE based on our historical pricing and discounting practices for the specific product or support service when sold separately or as an optional stated renewal rate in the transaction. In determining VSOE, we require that a substantial majority of the selling prices for products or support services fall within a reasonably narrow pricing range.

• TPE – When VSOE cannot be established for deliverables in multiple-element arrangements, we apply judgment with respect to whether we can establish selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our products differ from those of our peers such that the comparable pricing of support services with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor services’ selling prices are on a stand-alone basis. As a result, we have not been able to establish selling price based on TPE.

• BESP – When we are unable to establish selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or support service was sold on a stand-alone basis. We determine BESP for deliverables by considering multiple factors including, but not limited to, prices we charge for similar offerings, gross margin expectations, sales volume, geographies, market conditions, competitive landscape and pricing practices. We have historically priced our products within a narrow range and have used BESP to allocate the selling price of deliverables for product sales.

Deferred revenue primarily represents customer billings in excess of revenue recognized, primarily for support services. Support services are typically billed in advance on an annual basis or at the inception of a multiple year support contract, and revenue is recognized ratably over the support period of generally one to three years.

Stock-Based Compensation

Overview

We typically grant stock options and restricted stock units (“RSUs”) to our employees, consultants and members of our board of directors. These equity awards typically vest upon the satisfaction of a service condition, which is generally three to four years.

We account for stock-based employee compensation under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all stock-based payments to

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employees, including grants of stock options and RSUs to be measured based on the grant date fair value of the awards. We record stock-based compensation expense for service-based equity awards, including RSUs, using the straight-line attribution method over the period during which the employee is required to perform service in exchange for the awards. We capitalize stock-based employee compensation when appropriate. Capitalized stock-based compensation expense was not material for the three years ended January 31, 2016.

Determining the fair value of stock-based awards at the grant date requires judgment. We estimate the fair value of stock option awards using the Black-Scholes single option-valuation model, which requires assumptions such as fair value of our common stock, expected term, expected volatility, risk-free interest rate and dividend yield, which are estimated as follows:

• Expected Term – We determine the expected term of options granted using the “simplified” method. Under this approach, the expected term is presumed to be the average of the vesting term and the contractual term of the option.

• Volatility – Because we lacked a sufficient trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for a group of companies we consider our peers based on a number of factors including, but not limited to, similarity to us with respect to industry, business model, stage of growth, financial risk or other factors, along with considering the future plans of our company to determine the appropriate volatility over the expected life of the option. We used the weekly closing price of these peers over a period equivalent to the expected term of the stock option grants. We did not rely on implied volatilities of traded options in our peers’ common stock because the volume of activity was relatively low. Our group of comparable industry peer companies has changed from time to time. We removed certain companies that became financially distressed or for which public information was no longer available. Meanwhile, we added a new public company and other larger companies in our industry. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

• Risk-free Interest Rate – The risk-free interest rate was determined by reference to the U.S. Treasury rates with the remaining term approximating the expected option life assumed at the date of grant.

• Dividend Yield – We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those options and RSUs expected to vest. We estimate a forfeiture rate based on our historical experience. Further, to the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly. If any of the assumptions used in the Black-Scholes single option-valuation model change significantly, the fair value and stock-based compensation expense on future grants is impacted accordingly and stock-based compensation expense may differ materially in the future from that recorded in the current period.

We have used and will continue to use judgment in evaluating the expected term, expected volatility and forfeiture rate related to our stock-based compensation expense on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to the estimates of our expected volatility, expected terms and forfeiture rates, which could materially impact our future stock-based compensation expense.

Inventory Valuation

Inventory consists of raw materials and finished goods and is stated at the lower of cost, determined on a first-in, first-out (“FIFO”) basis, or market. We assess the valuation of inventory, including raw materials and finished goods, on a periodic basis. Inventory carrying value adjustments are established to reduce the carrying amounts

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of our inventory to their net estimated realizable value. Carrying value adjustments are based on historical usage, expected demand and trial deployment conversion rates. Inherent in our estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for our products and technological obsolescence of our products. For example, because our revenue often is comprised of large, concentrated sales to a limited number of customers, we may carry high levels of inventory prior to shipment. In addition, in circumstances where a supplier discontinues the production of a key raw material component, such as non-volatile memory components, we may be required to make significant “last-time” purchases in order to ensure supply continuity until the transition is made to products based on next generation components. If a significant order were cancelled after we had purchased the related inventory, or if estimates of “last-time” purchases exceed actual demand, we may be required to record additional inventory carrying value adjustments.

Warranty Liability

We provide our customers a limited product warranty of three years. Our standard warranties require us to repair or replace defective products during such warranty period at no cost to the customer. We estimate the costs that may be incurred under our basic limited warranty and record a liability in the amount of such costs at the time product sales are recognized. Factors that affect our warranty liability include the number of installed units, performance of equipment in our test and support labs, historical data and trends of product reliability and costs of repairing and replacing defective products. We assess the adequacy of our recorded warranty liability each period and make adjustments to the liability as necessary.

Income Taxes

Significant judgment may be required in determining our provision for income taxes and evaluating our uncertain tax positions. We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

We provide reserves as necessary for uncertain tax positions taken on our tax filings. First, we determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Second, based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement, we recognize any such differences as a liability or as a reduction to deferred tax assets. Because of our full valuation allowance against the net deferred tax assets, any change in our uncertain tax positions would generally not impact our effective tax rate.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, our forecast of future market growth, forecasted earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Due to the net losses incurred and the uncertainty of realizing the deferred tax assets, for all the periods presented, we have a full valuation allowance against our net deferred tax assets.

As of January 31, 2016, we had federal and state net operating loss carryforwards of $319.0 million and $103.2 million, respectively, and federal and state research and development tax credit carryforwards of $9.8 million and $11.7 million, respectively. In the future, we intend to utilize any carryforwards available to us to reduce our tax payments. A substantial amount of these carryforwards may be subject to annual limitations that may result in their expiration before some portion, or all, of them has been fully utilized.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities

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Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.

Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we currently rely on certain of these exemptions. These exemptions include, without limitation, providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and complying with any requirement that may be adopted. We will remain an emerging growth company upon the earliest of (i) February 1, 2019, (ii) the first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) as of the end of any fiscal year in which the market value of our common stock that is held by nonaffiliates exceeds $700 million as of the end of the second quarter of that fiscal year.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 “Organization and Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the notes to consolidated financial statements.

Segments

Operating segments are defined in accounting standards as components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief operating decision maker of an organization, in order to make operating and resource allocation decisions. We have concluded that we operate in one business segment. Substantially all of our revenue for all periods presented in the accompanying consolidated statements of operations has been from sales of the all flash arrays and related customer support services.

Certain Relationships and Related Party Transactions

For a discussion of certain relationships and related party transactions, see Note 10 “Related Party Transactions with Toshiba” in the notes to consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Fluctuation Risk

Our cash and cash equivalents consist of cash held by large, United States commercial banks. As a result, the fair value of our portfolio is relatively insensitive to interest rate changes.

The primary objective of our investment activities is to preserve principal and maintain liquidity while maximizing income without significantly increasing risk. We determined that the increase in yield from potentially investing our cash and cash equivalents in longer-term investments did not warrant a change in our investment strategy. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.

Foreign Currency Exchange Risk

Our sales transactions are primarily denominated in U.S. dollars, and therefore the substantial majority all of our revenue is not subject to foreign currency risk. However, certain of our operating expenses are incurred outside the United States; are dominated in foreign currencies; and are subject to fluctuations due to changes in foreign

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currency exchange rates, particularly changes in the British Pounds, Euro, South Korean Won and Japanese Yen. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we have experienced and will continue to experience fluctuations in our net loss as a result of transaction gains or losses related to revaluing certain cash balances, accounts receivable, accounts payable, current liabilities and intercompany balances that are denominated in currencies other than the U.S. dollar, we believe a 10% change in foreign currencies exchange rates would not have a material impact on our results of operations.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could materially and adversely affect our business, financial condition and results of operations.

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Item 8. Financial Statements and Supplementary Data

Violin Memory, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	70
Report of Independent Registered Public Accounting Firm	71
Consolidated Balance Sheets	72
Consolidated Statements of Operations	73
Consolidated Statements of Comprehensive Loss	74
Consolidated Statements of Stockholders’ Equity (Deficit)	75
Consolidated Statements of Cash Flows	76
Notes to the Consolidated Financial Statements	77

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Violin Memory, Inc.:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit) and cash flows present fairly, in all material respects, the financial position of Violin Memory, Inc. and its subsidiaries at January 31, 2016, and the results of their operations and their cash flows for the year ended January 31, 2016 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

April 5, 2016

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Violin Memory, Inc.:

We have audited the accompanying consolidated balance sheets of Violin Memory, Inc. and subsidiaries (the Company) as of January 31, 2015, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the years in the two-year period ended January 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Violin Memory, Inc. and subsidiaries as of January 31, 2015, and the results of their operations and their cash flows for each of the years in the two-year period ended January 31, 2015, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Santa Clara, California

April 8, 2015

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VIOLIN MEMORY, INC.

Consolidated Balance Sheets

(In thousands, except par value)

	January 31
	2016			2015
Assets
Current assets:
Cash and cash equivalents	$	23,921		$	93,432
Restricted cash		10,000			2,300
Short-term investments		42,058			60,483
Accounts receivable, net		5,308			15,080
Inventory		12,001			10,322
Other current assets		4,170			5,949
Total current assets		97,458			187,566
Property and equipment, net		9,322			9,863
Other assets		6,067			6,774
	$	112,847		$	204,203
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Line of credit	$	13,398		$	10,000
Accounts payable		3,747			11,065
Accrued liabilities		13,570			18,024
Deferred revenue		13,006			15,635
Total current liabilities		43,721			54,724
Convertible senior notes, net		117,464			115,968
Deferred revenue		6,239			10,398
Long-term liabilities		275			1,707
Total liabilities		167,699			182,797
Commitments and contingencies (Note 9)
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value, 10,000 shares authorized as of January 31, 2016; no shares issued and outstanding as of January 31, 2016 and 2015		—			—
Common stock, $0.0001 par value, 1,000,000 shares authorized as of January 31, 2016; 98,641 and 93,872 shares issued and outstanding as of January 31, 2016 and 2015, respectively		10			9
Additional paid-in capital		505,274			482,674
Accumulated other comprehensive income		456			248
Accumulated deficit		(560,592	)		(461,525	)
Total stockholders’ equity (deficit)		(54,852	)		21,406
	$	112,847		$	204,203

See accompanying notes to the consolidated financial statements.

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VIOLIN MEMORY, INC.

Consolidated Statements of Operations

(In thousands, except per share data)

	Year Ended January 31,
	2016			2015			2014
Revenue:
Product revenue	$	27,342		$	58,378		$	88,321
Service revenue		23,525			20,597			19,335
Total revenue		50,867			78,975			107,656
Cost of revenue:
Cost of product revenue (1)		17,177			50,378			56,927
Cost of service revenue (1)		11,404			8,389			7,846
Total cost of revenue		28,581			58,767			64,773
Gross profit		22,286			20,208			42,883
Operating expenses :
Sales and marketing (1)		55,623			61,871			81,104
Research and development (1)		41,696			52,091			73,743
General and administrative (1)		17,165			20,645			29,622
Gain on sale of PCIe product line		—			(17,448	)		—
Restructuring charges		—			3,062			4,869
Litigation settlement		—			652			350
Total operating expenses		114,484			120,873			189,688
Loss from operations		(92,198	)		(100,665	)		(146,805	)
Other expense, net		(11	)		(4,910	)		(1,389	)
Interest and other financing expense		(6,716	)		(3,205	)		(1,539	)
Loss before provision for income taxes		(98,925	)		(108,780	)		(149,733	)
Provision for income taxes		142			123			76
Net loss	$	(99,067	)	$	(108,903	)	$	(149,809	)
Net loss per share of common stock, basic and diluted	$	(1.02	)	$	(1.20	)	$	(3.88	)
Shares used to compute net loss per share of common stock, basic and diluted		97,008			90,959			38,591
(1)    Includes stock-based compensation expense as follows (Note 7):
Cost of product revenue	$	1,155		$	718		$	100
Cost of service revenue		1,702			658			889
Sales and marketing		4,744			4,792			10,344
Research and development		7,183			9,570			6,900
General and administrative		6,577			7,228			18,166

See accompanying notes to the consolidated financial statements.

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VIOLIN MEMORY, INC.

Consolidated Statements of Comprehensive Loss

(In thousands)

	Year Ended January 31,
	2016			2015			2014
Net loss	$	(99,067	)	$	(108,903	)	$	(149,809	)
Foreign currency translation adjustments		226			123			111
Unrealized gain (loss) on investments		(18	)		10			11
Comprehensive loss	$	(98,859	)	$	(108,770	)	$	(149,687	)

There were no reclassification adjustments during each of the years ended January 31, 2016, 2015 and 2014, respectively.

See accompanying notes to the consolidated financial statements.

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VIOLIN MEMORY, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except per share amounts)

	Convertible Preferred Stock						Common Stock					Additional Paid-in Capital			Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares			Amount			Shares			Amount
Balances as of January 31, 2013		91,570		$	9			15,614		$	4	$	247,531		$		(7)	$	(202,813	)	$	44,724
Issuance of Series D convertible preferred stock at $6.00 per share, net of issuance costs of $498		3,575			1			—			—		20,952			—			—			20,953
Issuance of common stock at initial public offering, net of issuance costs of $16,180		—			—			18,000			2		145,818			—			—			145,820
Conversion of convertible preferred stock into common stock		(95,145	)		(10	)		47,735			2		8			—			—			—
Conversion of convertible notes into common stock		—			—			585			—		5,203			—			—			5,203
Common stock warrants		—			—			—			—		309			—			—			309
Issuance of common stock upon exercise of stock options		—			—			1,008			—		732			—			—			732
Issuance of common stock for settlement of RSUs		—			—			250			—		—			—			—			—
Shares withheld related to net share settlement of RSUs		—			—			(38	)		—		(341	)		—			—			(341	)
Repurchase of unvested portion of common stock		—			—			(97	)		—		(388	)		—			—			(388	)
Stock-based compensation		—			—			—			—		36,399			—			—			36,399
Translation adjustment		—			—			—			—		—			111			—			111
Unrealized gain on investments		—			—			—			—		—			11			—			11
Net loss		—			—			—			—		—			—			(149,809	)		(149,809	)
Balances as of January 31, 2014		—			—			83,057			8		456,223			115			(352,622	)		103,724
Issuance of common stock upon exercise of stock options		—			—			1,648			—		1,930			—			—			1,930
Issuance of common stock for settlement of RSUs		—			—			8,611			1		(1	)		—			—			—
Issuance of common stock in settlement of liabilities		—			—			715			—		3,380			—			—			3,380
Issuance of common stock under the employee stock purchase plan		—			—			431			—		1,239			—			—			1,239
Sale of unregistered shares		—			—			200			—		908			—			—			908
Shares withheld related to net share settlement of RSUs		—			—			(790	)		—		(3,971	)		—			—			(3,971	)
Stock-based compensation		—			—			—			—		22,966			—			—			22,966
Translation adjustment		—			—			—			—		—			123			—			123
Unrealized gain on investments		—			—			—			—		—			10			—			10
Net loss		—			—			—			—		—			—			(108,903	)		(108,903	)
Balances as of January 31, 2015		—			—			93,872			9		482,674			248			(461,525	)		21,406
Issuance of common stock upon exercise of stock options		—			—			895			—		532			—			—			532
Issuance of common stock for settlement of RSUs		—			—			3,525			1		—			—			—			1
Issuance of common stock under the employee stock purchase plan		—			—			349			—		707			—			—			707
Stock-based compensation		—			—			—			—		21,361			—			—			21,361
Translation adjustment		—			—			—			—		—			226			—			226
Unrealized loss on investments		—			—			—			—		—			(18	)		—			(18	)
Net loss		—			—			—			—		—			—			(99,067	)		(99,067	)
Balances as of January 31, 2016		—		$	—			98,641		$	10	$	505,274		$	456		$	(560,592	)	$	(54,852	)

See accompanying notes to the consolidated financial statements.

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VIOLIN MEMORY, INC.

Consolidated Statements of Cash Flows

(In thousands)

	Year Ended January 31,
	2016			2015			2014
Cash flows from operating activities:
Net loss	$	(99,067	)	$	(108,903	)	$	(149,809	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,667			10,961			12,552
Accretion of debt issuance costs to interest expense		1,667			639			175
Gain on sale of PCIe product line		—			(17,448	)		—
Provision for excess and obsolete inventory		—			20,961			10,973
Loss on extinguishment of debt		—			372			—
Impairment (gain on sale) of cost method investment		(360	)		3,470			1,965
Stock-based compensation		21,361			22,966			36,399
Changes in operating assets and liabilities, net:
Accounts receivable		9,772			5,975			957
Inventory		(1,616	)		9,076			(24,339	)
Other assets		1,473			531			(932	)
Accounts payable		(7,774	)		(11,804	)		2,881
Accrued liabilities		(5,926	)		(17,097	)		15,413
Deferred revenue		(6,788	)		798			12,217
Net cash used in operating activities		(78,591	)		(79,503	)		(81,548	)
Cash flows from investing activities:
Purchase of property and equipment		(6,891	)		(11,745	)		(9,300	)
Purchase of cost method investments		—			—			(604	)
Proceeds from sale of PCIe product line		—			23,000			—
Proceeds from sale of cost method investment		400			—			—
Increase in restricted cash		(7,700	)		(2,300	)		—
Purchase of short-term investments		(52,373	)		(57,396	)		(66,224	)
Proceeds from sale of short-term investments		1,500			—			—
Proceeds from maturity of short-term investments		69,298			56,017			7,129
Net cash provided by (used in) investing activities		4,234			7,576			(68,999	)
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net of issuance costs		—			115,397			5,160
Proceeds from issuance of convertible preferred stock, net of issuance costs		—			—			20,953
Proceeds from debt and line of credit, net of issuance costs		45,015			46,776			20,078
Repayment of debt and line of credit		(41,618	)		(37,326	)		(20,500	)
Proceeds from issuance of common stock, net of related costs		—			908			147,870
Proceeds from exercise of common stock options and stock purchase plan		1,240			3,169			610
Repurchase of unvested portion of common stock		—			—			(388	)
Taxes paid related to net share settlement of equity awards		(17	)		(3,971	)		(341	)
Net cash provided by financing activities		4,620			124,953			173,442
Effect of exchange rates on cash and cash equivalents		226			133			—
Net increase (decrease) in cash and cash equivalents		(69,511	)		53,159			22,895
Cash and cash equivalents at beginning of year		93,432			40,273			17,378
Cash and cash equivalents at end of year	$	23,921		$	93,432		$	40,273
Supplemental disclosure of other cash flow information:
Taxes paid	$	388		$	115		$	47
Interest paid		5,230			419			972
Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible notes to common stock		—			—			5,203
Transfer of inventory to property and equipment		63			707			4,418
Payables related to purchases of long-term assets		455			2,324			—
Issuance of common stock in settlement of liabilities		—			3,379			—

See accompanying notes to the consolidated financial statements.

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VIOLIN MEMORY, INC.

Notes to Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Description of Business

Violin Memory, Inc. (the “Company”) was incorporated in the State of Delaware on March 9, 2005 under the name Violin Technologies, Inc. The Company re-incorporated as Violin Memory, Inc. in the State of Delaware on April 11, 2007. The Company is a developer and supplier of persistent memory-based storage systems that are designed to bring storage performance in line with high-speed applications, servers and networks. These All Flash Arrays are specifically designed at each level of the system architecture, starting with memory and optimized through the array, to leverage the inherent capabilities of flash memory. The Company also recently introduced the Flash Storage Platform, a vertically integrated design of software, firmware and hardware that delivers performance, resiliency and availability at the same cost as legacy enterprise-class primary storage. The Flash Storage Platform runs the Company’s Concerto OS 7, a single operating system with integrated data protection, in-line block de-duplication and compression, stretch metro cluster and LUN mirroring as well as its suite of other Enterprise Data Services. The Company sells its products through its global direct sales force, systems vendors, resellers and other channel partners. The Company operates as a single operating segment.

The Company has incurred significant operating losses and negative cash flows from operations since its inception and believes that it will continue to incur losses and negative cash flows from operations in fiscal year 2017. As of January 31, 2016, the Company had an accumulated deficit of approximately $560.6 million and cash, cash equivalents and short-term investments of $66.0 million. During the year ended January 31, 2016, the Company incurred a net loss of $99.1 million and negative cash flows from operations of $78.6 million.

Management’s plans include reducing expenditures, expanding the Company’s customer base and increasing revenues, improving gross margins and seeking additional debt or equity financing. In March 2016, the Company announced a restructuring plan focused on aligning its expense structure with revenue expectations. In connection with the restructuring plan, the Company reduced headcount by approximately 25% from that as of October 31, 2015. The Company anticipates these actions to result in a significant reduction of its quarterly operating expenses and cash burn rate. As a result, the Company believes that its available cash, cash equivalents and short-term investments will be sufficient to fund its operations and capital expenditures for at least the next twelve months.

There is no assurance that the Company will be successful in generating sufficient revenues, increasing gross margins or reducing operating costs. In addition, further capital may not be available on terms acceptable to the Company, if at all. Failure to generate sufficient revenues, increase gross margins, control or reduce operating costs or to raise sufficient funds may require the Company to modify, delay or abandon some of its plans and investments, which could have a material adverse effect on the Company’s business, operating results and financial condition and the Company’s ability to achieve its intended business objectives.

Basis of Presentation and Consolidation

We prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of Violin Memory, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

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Reclassifications

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the previously reported financial position, results of operations or cash flows.

Foreign Currency Translations and Remeasurement

The local currency is the functional currency for each of the Company’s subsidiaries. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates for the respective period.

Foreign currency translation adjustments are included in other comprehensive loss. Gains and losses from foreign currency transactions are included in other expense, net and have not been material for all periods presented.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its significant estimates, including those related to estimated selling prices for elements sold in multiple-element revenue arrangements, product warranty, determination of the fair value of stock options, carrying values of inventories, liabilities for unrecognized tax benefits and deferred income tax asset valuation allowances. The Company also uses estimates in determining the useful lives of property and equipment and in its provision for doubtful accounts. Actual results could differ from those estimates.

Concentrations of Market, Credit Risk, Significant Customers and Manufacturing

The Company participates in the business of developing and manufacturing scalable all flash arrays and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products or price reduction on current products; changes in the overall demand for products offered by the Company; changes in certain strategic relationships or customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; and risks associated with changes in domestic and international economic and international and/or political conditions or regulations.

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents, investments and accounts receivable. The Company places its cash and cash equivalents and investments with high credit quality financial institutions, which the Company believes are creditworthy. Deposits may exceed the insured limits provided on them.

The Company generally requires no collateral from its customers. The Company mitigates its credit risk associated with its accounts receivable by performing ongoing credit evaluations of its customers and establishes an allowance for doubtful accounts for estimated losses based on management’s assessment of the collectability of customer accounts.

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Customers that represented more than 10% of total revenue and gross accounts receivable are as follows:

	Year Ended January 31,
	2016			2015			2014
Percent of revenue:
Enterprise Vision Technology		14	%		10	%		*
Toshiba (Note 10)		*			*			12	%

* Less than 10%

	January 31,
	2016			2015
Percent of gross accounts receivable:
Isolin Trade & Investment Limited		20	%		*
ITS Overlap		20	%		*
Dasher Technologies		10	%		*
Arrow ECS		*			19	%

* Less than 10%

The Company sells to a limited number of large systems vendors, resellers and end-customers and, as a result, maintains individually significant receivable balances with such customers. The Company’s systems vendor customers and certain large resellers tend to be well-capitalized, multi-national companies, while other customers may not be as well capitalized. Sales of products to large systems vendors and resellers are expected to account for a majority of the Company’s revenues in the foreseeable future, and the Company’s financial results will depend in part upon the success of these customers. The composition of the Company’s major customer base may change as the market demand for its products changes, and the Company expects this variability will continue in the future. The loss of, or a significant reduction in purchases by, any of the major customers may harm the Company’s business, financial condition and results of operations.

The Company relies on a limited number of suppliers for its contract manufacturing and certain raw material components. The Company believes that other vendors would be able to provide similar products and services; however, the qualification of such vendors may require substantial start-up time. In order to mitigate any adverse impacts from disruption of supply, the Company attempts to maintain an adequate supply of critical single-sourced raw materials.

Cash and Cash Equivalents

Cash consists of deposits with financial institutions. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of money market funds, which are readily convertible into cash and are stated at cost, which approximates fair value. Cash and cash equivalents were $23.9 million and $93.4 million as of January 31, 2016 and 2015, respectively.

Restricted Cash

The Company maintains a $20.0 million line of credit with Silicon Valley Bank (“SVB”) from which it had borrowed $13.4 million as of January 31, 2016. The line is secured by the Company’s account receivable and the proceeds therefrom as well as a secured account with the same bank. The Company has recorded the cash held in this secured account as restricted cash on the consolidated balance sheet as of January 31, 2016.

In connection with the sale of its PCIe product line in the second quarter of fiscal year 2015, the Company was obligated to maintain a balance of $2.3 million with an escrow agent for one year. The escrow expired on July 24, 2015 after which the Company received $2.3 million.

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Investments

The Company classifies its investments as available-for-sale at the time of purchase since it is the Company’s intent that these investments are available for current operations and includes these investments on the consolidated balance sheet as short-term or long-term investments depending on their maturity and management’s intention with regard to the utilization of these investments, as needed, to fund current operations. As of January 31, 2016, all investments have been classified as short-term.

Investments are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

Fair Value Measurements and Disclosures

The Company records its financial assets and liabilities at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company recognizes transfers among Level 1, Level 2 and Level 3 classifications as of the actual date of the events or change in circumstances that caused the transfers.

The Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities have carrying amounts which approximate fair value due to the short-term maturity of these instruments.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers expected losses after taking into account current market conditions, customers’ financial condition, current receivable aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of January 31, 2016 and 2015, the Company’s allowance for doubtful accounts was insignificant.

Inventory

Inventory consists of raw materials and finished goods and is stated at the lower of cost, determined on a first-in, first-out (“FIFO”) basis, or market. The Company periodically assesses the recoverability of all inventory, including raw materials and finished goods to determine whether adjustments are required to record inventory at

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the lower of cost or market. Inventory that the Company determines to be obsolete or in excess of forecasted usage is reduced to its estimated realizable value based on assumptions about future and current market conditions. In the case of inventory, which has been written down below cost through the use of a reserve, such reduced amount is considered the cost for subsequent accounting purposes.

Revenue Recognition

The Company derives revenue primarily from sales of its All Flash Arrays, software and related support and professional services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable and collectability is reasonably assured. Evidence of an arrangement exists when there is a customer contract or purchase order. The Company considers delivery complete when title and risk of loss transfer to the customer, which is generally upon shipment, but no later than physical receipt by the customer.

The Company sells its products and support services directly to end-customers, systems vendors and resellers. The Company currently does not provide price protection, rebates or other sales incentives to customers. The Company generally does not allow a right of return to its customers, including resellers.

The Company’s multiple-element arrangements typically include two elements: hardware, which includes embedded software, and support services. Beginning in the second quarter of fiscal year 2014, following introduction of the Violin Symphony Management Software Suite, the Company’s multiple-element arrangements also may include software elements. The Company has determined that its hardware and the embedded software are considered a single unit of accounting, because the hardware and software individually do not have standalone value and are not sold separately. Standalone software, professional services and support services are each considered a separate unit of accounting as they can be sold separately and have standalone value.

When more than one element, such as hardware, software and services, are contained in a single arrangement, the Company first allocates consideration to the software deliverables as a group and non-software deliverables based on the relative selling price method. The Company’s appliance products, embedded software and certain other services are considered to be non-software deliverables in such arrangements. The Company allocates revenue within the software group based upon fair value using vendor-specific objective evidence, or VSOE, with the residual revenue allocated to the delivered element. If VSOE of fair value cannot be objectivity determined for any undelivered software elements, we defer revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. The Company allocates revenue within the non-software group to each element based upon its relative selling price in accordance with the selling price hierarchy, which includes: (1) VSOE, if available; (2) third-party evidence, or TPE, if VSOE is not available; and (3) best estimate of selling price, or BESP, if neither VSOE nor TPE is available. The Company establishes BESP considering multiple factors including, but not limited to, historical prices of products sold on a stand-alone basis, cost and gross margin objectives, competitive pricing practices and customer and market specific considerations.

The Company then recognizes revenue on each deliverable in accordance with its policies for product and service revenue recognition. Revenue allocated to the Company’s products is recognized upon shipment or delivery. Revenue allocated to support services is recognized over the term, which is generally one or three years.

The Company’s policy is to record revenue net of any applicable sales, use or excise tax.

Property and Equipment

Property and equipment consist primarily of capitalized equipment and computer hardware and software, which are stated at cost and depreciated using the straight-line method over the estimated useful lives of two years and three years, respectively. Leasehold improvements are amortized using the straight-line method over the shorter

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of the lease term or the estimated useful life of the asset. Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses.

Research and Development

Research and development costs are expensed as incurred. Research and development costs consist primarily of personnel costs, prototype expenses, software tools, consulting services and allocated facilities costs.

Software Development Costs

The Company expenses software development costs as incurred until technological feasibility is attained, including research and development costs associated with stand-alone software products and software embedded in hardware products. Technological feasibility is attained when the Company has completed the planning, design and testing phase of development of its software and the software has been determined viable for its intended use, which typically occurs when beta testing commences. The period of time between when beta testing commences and when the software is available for general release to customers has historically been short with immaterial amounts of software development costs incurred during this period. Accordingly, the Company has not capitalized any internal software development costs to date.

Advertising Expenses

All advertising costs are expensed as incurred. The Company recognized advertising expenses of $2.6 million, $1.6 million and $0.6 million for the years ended January 31, 2016, 2015 and 2014, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established for deferred tax assets to the extent it is more likely than not that the deferred tax assets may not be realized.

The Company evaluates uncertain tax positions taken or expected to be taken in the course of preparing an enterprise’s tax return to determine whether the tax positions are more likely than not of being sustained upon challenge by the applicable tax authority. Tax positions with respect to any potential income tax for the Company not deemed to meet the more likely than not threshold would be recorded as a tax expense in the current year.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for each fiscal period presented.

Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, warrants and convertible preferred stock, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

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Stock-Based Compensation

The Company records stock-based compensation expense related to employee stock-based awards on a straight-line basis based on the estimated fair value of the awards as determined on the date of grant. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock options and Employee Stock Purchase Plan (ESPP). The Black-Scholes model requires the input of highly subjective and complex assumptions, including the expected term of the stock option, the expected volatility of the Company’s common stock over the period equal to the expected term of the grant and forfeitures. The Company estimates forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company accounts for stock options that are issued to non-employees based on the estimated fair value of such awards using the Black-Scholes option pricing model. The measurement of stock-based compensation expense for these awards is variable and subject to periodic adjustments to the estimated fair value until the awards vest and the resulting change in the estimated fair value is recognized in the Company’s consolidated statements of operations during the period in which the related services are rendered.

The Company grants restricted stock units (RSUs) to employees. Stock-based compensation expense related to these grants is based on the grant date fair value of the RSUs and is recognized on a straight-line basis over the applicable service period, which is generally four years.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Investment in Privately-held Companies

The Company analyzes equity investments in privately held companies to determine if it should be accounted for under the cost or equity method of accounting based on such factors as the percentage ownership of the voting stock outstanding and our ability to exert significant influence over these companies. For the cost method investments, the Company determines at each reporting period whether a decline in fair value has occurred and whether such decline is considered to be an other-than-temporary impairment. If a decline in fair value is determined to be other-than-temporary, the Company would recognize an impairment to reduce the investment to the lower of cost or fair value.

For the years ended January 31, 2015 and 2014, the Company recorded impairments on its two investments in the amount of $3.5 million and $0.7 million, respectively. The charge is recorded in other expense, net in the consolidated statements of operations. In fiscal year 2016, the Company sold one of its investments for $0.4 million. As of January 31, 2016, the net carrying value of the Company’s remaining cost-method investment was nil.

Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

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Product Warranties

The Company generally provides a three-year warranty on all of its products. The Company accrues for potential liability claims as a component of cost of revenue based upon performance of equipment in the Company’s test and support labs, historical data and trends of product reliability and costs of repairing and replacing defective products. The accrued warranty balance is reviewed periodically for adequacy and is included in accrued liabilities in the consolidated balance sheets.

Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for the Company beginning with our annual report for the year ending January 31, 2017 with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which amends ASC 835-30, Interest – Imputation of Interest. This ASU clarifies the presentation and subsequent measurement of debt issuance costs associated with lines of credit. These costs may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. The guidance becomes effective for the Company beginning with the first quarter of fiscal year 2017. Early adoption is permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which replaces the current lower of cost or market test with the lower of cost or net realizable value test. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU requires prospective adoption and will be effective for the Company beginning in our first quarter of fiscal year 2018 with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03 – Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and the Company has adopted it during the fourth quarter of fiscal 2016. The adoption of this guidance resulted in the reduction of other long-term assets and the convertible senior notes liability as of January 31, 2015 and January 31, 2016 by approximately $4.0 million and $2.5 million, respectively.

In February 2015, the FASB issued ASU No. 2015-02 – Amendments to the Consolidation Analysis, which amends the consolidation requirements in Accounting Standards Codification 810, Consolidation. ASU 2015-02 makes targeted amendments to the current consolidation guidance for variable interest entities (“VIEs”), which could change consolidation conclusions. This ASU will be effective for the Company beginning in our first quarter of 2017. Early adoption is permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Before this new standard, there was minimal guidance in U.S. GAAP specific to going concern. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The new standard applies to all companies and is effective

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for the annual period ending after December 15, 2016, and all annual and interim periods thereafter. The Company has determined that this standard is not likely to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, a converged standard on revenue recognition. While the standard supersedes existing revenue recognition guidance, it closely aligns with current GAAP. Under the new standard, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. In July 2015, the FASB deferred the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the impact that the adoption of this pronouncement will have on its consolidated financial statements.

2. Balance Sheet Components

Accounts Receivable

The following table shows the components of accounts receivable, net (in thousands):

	January 31,
	2016			2015
Accounts receivable	$	5,589		$	15,680
Allowance for doubtful accounts		(37	)		(39	)
Allowance for sales returns		(244	)		(561	)
	$	5,308		$	15,080

The following table shows a rollforward of our allowance for doubtful accounts for the years ended January 31, 2016, 2015 and 2014 (in thousands):

	Balance at Beginning of Year		Additions		Deductions			Balance at End of Year
Year ended January 31, 2016	$	39	$	61	$	(63	)	$	37
Year ended January 31, 2015		—		80		(41	)		39
Year ended January 31, 2014		350		—		(350	)		—

Inventory

The following table shows the components of inventory (in thousands):

	January 31,
	2016		2015
Raw materials	$	3,785	$	3,677
Finished goods		8,216		6,645
	$	12,001	$	10,322

Included in the components of inventory are reserves of $16.8 million and $23.2 million as of January 31, 2016 and 2015, respectively. In the fourth quarter of fiscal year 2015, the Company incurred a provision for excess and obsolete inventory of approximately $19.9 million in connection with its transition from its 6000 Series All Flash Array to its 7000 Series Flash Storage Platform. This provision resulted in an increase in inventory reserves of $17.6 million and an increase in accrued liabilities of $2.3 million for non-cancellable purchase orders related to

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the 6000 Series parts. During the year ended January 31, 2016 the Company recognized a net benefit of $3.5 million from the sale of previously written down inventory.

Property and Equipment

The following table shows the components of property and equipment (in thousands):

	January 31,
	2016			2015
Laboratory equipment	$	29,572		$	25,589
Computer hardware and software		12,431			12,165
Office furniture		215			326
Leasehold improvements		651			691
		42,869			38,771
Less: accumulated depreciation		(33,547	)		(28,908	)
	$	9,322		$	9,863

Depreciation expense (including amortization of leasehold improvements) was $8.7 million, $11.0 million and $12.6 million for fiscal years 2016, 2015 and 2014, respectively.

Other Assets

The following table shows the components of intangibles and other assets (in thousands):

	January 31,
	2016		2015
Purchased intellectual property	$	5,294	$	6,086
Other		773		688
	$	6,067	$	6,774

During the year ended January 31, 2015, the Company capitalized $6.0 million in licensed OEM software, which is being amortized over the greater of an estimated useful life of six years on a straight line basis, or in proportion of the actual revenue to date over the expected revenue from our Flash Storage Platform product over the six year estimated life of the product. Amortization expense was $0.6 million and $0.1 million for the years ended January 31, 2016 and 2015, respectively.

Accrued Liabilities

The following table shows the components of accrued liabilities (in thousands):

	January 31,
	2016		2015
Compensation and benefits	$	6,161	$	9,036
Purchase commitments		117		2,328
Restructuring charges		955		313
Professional fees		1,123		101
Warranty		864		1,262
Accrued interest		1,700		1,700
Other		2,650		3,284
	$	13,570	$	18,024

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Accrued Warranty

The following table is a reconciliation of the changes in the Company’s aggregate product warranty liability (in thousands):

	Year ended January 31,
	2016			2015
Balance, beginning of year	$	1,262		$	1,223
Additions		489			1,301
Settlements		(887	)		(1,262	)
Balance, end of period	$	864		$	1,262

Restructuring Charges

During the fourth quarter of fiscal year 2014, the Company initiated a restructuring plan. In connection with the Company’s restructuring activities and decision to focus on its core all flash array market, the Company sold its PCIe Flash Memory Card product line in July 2014 and realized proceeds of $23.0 million and a gain of $17.4 million thereon. The Company’s restructuring and transition charges consist primarily of severance, facility costs and other related charges. Severance generally includes severance payments, payments for pro-rata share of earned incentive pay and health insurance coverage. Facility costs include rent expense and related common area maintenance charges attributable to a leased facility that will not utilized over the remaining lease term. Other related charges primarily consist of write-off of purchased software, which will not be utilized and consulting charges associated with the reorganization of the Company. A summary of the restructuring activities is as follows (in thousands):

	Severance and related charges			Excess Facility charges			Impairment of Assets			Other Restructuring Charges			Total
Balance January 31, 2013	$	—		$	—		$	—		$	—		$	—
Restructuring provision		2,728			511			1,231			399			4,869
Payments and other adjustments		(357	)		—			(1,231	)		(33	)		(1,621	)
Balance January 31, 2014		2,371			511			—			366			3,248
Restructuring provision		1,185			1,810			—			67			3,062
Payments and other adjustments		(3,556	)		(1,057	)		—			(433	)		(5,046	)
Balance January 31, 2015		—			1,264			—			—			1,264
Payments and other adjustments		—			(309	)		—			—			(309	)
Balance January 31, 2016	$	—		$	955		$	—		$	—		$	955

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3. Fair Value Measurements

The following tables present, for assets or liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy (in thousands):

	January 31, 2016
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	8,319	$	—	$	—	$	8,319
Commercial paper		—		6,505		—		6,505
Total cash equivalents		8,319		6,505		—		14,824
Short-term investments:
Corporate debt securities		—		30,386		—		30,386
U.S. government and agency obligations		1,503		8,671		—		10,174
Commercial paper		—		1,498		—		1,498
Total short-term investments		1,503		40,555		—		42,058
	$	9,822	$	47,060	$	—	$	56,882
	January 31, 2015
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	24,534	$	—	$	—	$	24,534
Commercial paper		—		34,395		—		34,395
Corporate debt securities		—		6,116		—		6,116
Total cash equivalents		24,534		40,511		—		65,045
Short-term investments:
Corporate debt securities		—		44,711		—		44,711
U.S. government and agency obligations		—		7,808		—		7,808
Municipal obligations		—		4,967		—		4,967
Commercial paper		—		2,997		—		2,997
Total short-term investments		—		60,483		—		60,483
	$	24,534	$	100,994	$	—	$	125,528

The Company measures its cash equivalents and marketable securities at fair value. Money market funds are valued primarily using quoted market prices utilizing market observable inputs. The Company’s investments in commercial paper, treasury bills, corporate debt securities and federal and municipal obligations are classified within Level 2 as the market inputs to value these instruments consist of market yields, reported trades and broker/dealer quotes.

Fair Value of Other Financial Instruments

Based on quoted market prices as of January 31, 2016 and 2015, the fair value of the Convertible Senior Notes (Note 13) was approximately $61.5 million and $111.9 million, respectively, determined using Level 2 inputs as they are not actively traded in markets.

The carrying amounts of the Company’s accounts receivable, accounts payable, accrued liabilities and other liabilities approximate their fair value due to their short-term maturities.

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4. Investments

Short-term investments as of January 31, 2016 and 2015 consist of U.S. corporate debt securities, U.S. government and municipal debt, agency obligations and commercial paper. All marketable securities are deemed by management to be available-for-sale and are reported at fair value. Net unrealized gains or losses that are not determined to be other-than-temporary are reported within stockholders’ equity on the Company’s consolidated balance sheets as a component of accumulated comprehensive loss. Realized gains or losses are recorded based on the specific identification method. The Company’s investments are detailed in the tables below (in thousands):

	January 31, 2016
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Commercial paper	$	1,498	$	—	$	—		$	1,498
Corporate debt securities		30,400		12		(26	)		30,386
U.S. government and agency obligations		10,175		2		(3	)		10,174
Municipal obligations		3		—		(3	)		—
	$	42,076	$	14	$	(32	)	$	42,058

	January 31, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Commercial paper	$	2,997	$	—	$	—		$	2,997
Corporate debt securities		44,705		14		(8	)		44,711
U.S. government and agency obligations		7,807		2		(1	)		7,808
Municipal obligations		4,964		3		—			4,967
	$	60,473	$	19	$	(9	)	$	60,483

The amortized cost and fair value of investments held as of January 31, 2016 and 2015, by contractual years-to-maturity, are as follows (in thousands):

	January 31,
	2016				2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	40,573	$	40,553	$	60,473	$	60,483
Due within one to two years		1,503		1,505		—		—
	$	42,076	$	42,058	$	60,473	$	60,483

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5. Stockholders’ Equity (Deficit)

Convertible Preferred Stock

Upon the closing of the Company’s IPO, all shares of our then-outstanding convertible preferred stock, as shown on the table below, automatically converted into an aggregate of 47.7 million shares of its common stock. The following table summarizes the convertible preferred stock authorized, issued and outstanding, and the rights and preferences of the respective series immediately prior to the conversion into common stock (in thousands, except per share data):

	Shares				Liquidation Preference Per Share		Dividend Per Share Per Annum		Conversion Ratio Per Share
	Authorized		Issued and Outstanding
Series 1		8,797		8,796		1.28	$	0.068		0.500000
Series A		35,357		35,357		0.90		0.048		0.500000
Series B		18,265		18,264		3.00		0.160		0.500000
Series C		13,525		13,525		6.00		0.320		0.500000
Series D		35,056		19,203		8.75		0.560		0.508499
		111,000		95,145

Common Stock

The Company is authorized to issue 1 billion shares of common stock at a par value of $0.0001 per share. As of January 31, 2016 and 2015, the Company had 98.6 million and 93.9 million shares of common stock issued and outstanding, respectively. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the shareholders of the Company.

Warrants

In August 2014, the Company entered into a secured $40.0 million credit facility with Silicon Valley Bank (“SVB”). Pursuant to this arrangement, the Company agreed to issue SVB a warrant to purchase 79,323 shares of its common stock, $0.0001 par value per share, at a price per share of $3.782. The warrant expires in August 2019.

During the second quarter of fiscal year 2014, the Company issued warrants to purchase 131,875 shares of Series D convertible preferred stock at $6.00 per share. These warrants were issued to TriplePoint in conjunction with the TriplePoint debt facility and to several investors in conjunction with the Company’s sale of convertible notes. In conjunction with the Company’s IPO, the warrants converted to warrants to purchase 84,278 shares of common stock at $11.80 per share. The warrants will expire during the second quarter of fiscal year 2018.

6. Equity Award and Employee Compensation Plans

2005 Stock Plan

The 2005 Stock Plan (the “2005 Plan”) expired October 2, 2013 upon closing of the Company’s IPO and was replaced by the 2012 Stock Incentive Plan. Under the 2005 Plan, the Company was able to directly sell or award restricted shares, restricted stock units and options to employees, directors and consultants. The share awards and options were granted at prices no less than the estimated fair value at the date of grant and generally vest ratably over three to four years. The options generally expire ten years from the date of grant.

2012 Stock Plan

In November 2012, the Company’s stockholders approved the adoption of the 2012 Stock Incentive Plan (the “2012 Plan”) as the successor plan to the 2005 Plan, which became effective at the completion of the Company’s

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initial public offering (“IPO”). Unexercised options or restricted stock units under the 2005 Plan that cancel due to a grantee’s termination may be reissued under the 2012 Plan. Under the 2012 Plan, stock options, restricted shares, restricted stock units and stock appreciation rights may be granted to employees, outside directors and consultants at not less than 100% of the fair value on the date of grant and generally vest ratably over three or four years. Options generally expire seven years from the date of grant.

As of January 31, 2016, shares authorized under the 2012 Plan were 16,352,218 shares plus any remaining shares forfeited from the 2005 Plan. The reserve will automatically increase on the first day of each fiscal year in an amount equal to the lesser of (i) 5% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (ii) a lesser amount determined by the Board of Directors. On February 1, 2016, the share reserve increased by 4,932,068 shares to an aggregate of 21,284,486 shares authorized under the 2012 Plan. The Compensation Committee of the Board of Directors (the “Compensation Committee”) administers the 2012 Stock Plan, and it may terminate or amend the plan at any time.

Inducement Awards

During fiscal year 2015, the Company issued inducement awards totaling 6,250,000 shares outside of the 2012 Plan (under the employee inducement award exemption under the New York Stock Exchange Listed Company Manual Rule 303A.08) to the Company’s CEO and certain key executives. In fiscal years 2016 and 2015, 1,000,000 shares and 1,250,000 shares were forfeited, respectively.

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Stock Options

The following table summarizes the stock option activity related to shares of common stock under the Company’s 2005 and 2012 Plans and the inducement awards (in thousands, except per share data):

				Outstanding Options
									Weighted-Average
	Shares						Weighted-		Remaining		Aggregate
	Available			Number of			Average		Contractual Life		Intrinsic
	for Grant			Options			Exercise Price		(in years)		Value (1)
Balances, January 31, 2013		4,858			6,067		$	0.94		8.31	$	42,096
Additional shares authorized		7,500			—
RSUs granted		(10,496	)		—			—
Recovery of shares from net settlement		39			—			—
RSUs cancelled/forfeited		3,632			—			—
Options granted		(1,320	)		1,320			5.00
Options exercised					(1,008	)		0.61
Options forfeited		1,149			(1,149	)		2.13
Repurchase of shares		97			—
Balances, January 31, 2014		5,459			5,230			1.43		7.23		19,770
Additional shares authorized		10,403			—
RSUs granted		(4,572	)		—
Recovery of shares from net settlement		790			—
RSUs cancelled/forfeited		3,601			—
Options granted		(9,371	)		9,371			3.99
Options exercised		—			(1,648	)		1.02
Options forfeited		304			(304	)		0.25
Balances, January 31, 2015		6,614			12,649		$	3.35		7.25		34,255
Additional shares authorized		4,702
RSUs granted		(11,242	)
Recovery of shares from net settlement		7
RSUs cancelled/forfeited		3,621
Options granted		(2,484	)		2,484			3.04
Options exercised		—			(895	)		0.52
Options forfeited		590			(2,840	)		0.95
Balances, January 31, 2016		1,808			11,398		$	3.37		6.85	$	157
Options vested and expected to vest – January 31, 2016					4,154		$	3.49			$	—
Options exercisable – January 31, 2016					6,080		$	3.22			$	157

(1) Aggregate intrinsic value is based on the common stock price at each respective date presented.

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The weighted average grant date fair value of options granted during the years ended January 31, 2016, 2015 and 2014 was $1.36, $1.74 and $2.15 per share, respectively. The total intrinsic value of options exercised during the year ended January 31, 2016, 2015 and 2014 was $2.5 million, $5.0 million and $5.6 million, respectively. The following table summarizes additional information regarding outstanding and exercisable options under the Stock Plans at January 31, 2016 (in thousands, except per share data):

	Options Outstanding
Weighted-Average Exercise Price ($)	Number Outstanding		Weighted- Average Remaining Contractual Life (years)		Number Exercisable
0.41		314		5.11		215
1.43		1,477		5.54		1,327
2.71		784		9.34		—
3.72		7,353		7.05		3,771
4.53		1,470		6.20		767
		11,398				6,080

Restricted Stock Units

The table below summarizes the RSU activity under the Company’s 2005 and 2012 Plans (in thousands, except per share data):

	Number of RSUs Outstanding			Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value (1)
Balance, January 31, 2013		8,463		$	6.52	$	63,469
RSUs granted		10,496			6.35
RSUs vested		(250	)		6.87
RSUs cancelled/forfeited		(3,632	)		7.46
Balance, January 31, 2014		15,077			6.09		56,990
RSUs granted		4,572			4.16
RSUs vested		(9,199	)		6.12
RSUs cancelled/forfeited		(3,601	)		5.57
Balance, January 31, 2015		6,849			4.71		26,299
RSUs granted		11,242			2.38
RSUs vested		(3,525	)		4.48
RSUs cancelled/forfeited		(3,621	)		4.00
Balance, January 31, 2016		10,945		$	2.61	$	9,741

(1) Aggregate intrinsic value is based on the common stock price at each respective date presented.

The aggregate intrinsic value of RSUs that vested during the year ended January 31, 2016, 2015 and 2014, amounted to $10.1 million, $37.0 million and $1.5 million, respectively.

Non-employee Stock Options and Awards

The Company granted stock options to purchase 5,000 shares to a non-employee in fiscal year 2014. The Company granted 142,000, 230,098 and 6,000 shares of restricted stock units to non-employees in fiscal years 2016, 2015 and 2014, respectively.

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Employee Stock Purchase Plan

In November 2012, the Company’s stockholders approved the adoption of the 2012 Employee Stock Purchase Plan (the “2012 Purchase Plan”). Upon adoption, a total of 1,000,000 shares were reserved for issuance under the 2012 Purchase Plan. The number of shares available for issuance under the 2012 Purchase Plan automatically increases on February 1 each year, beginning in 2014, by the lesser of 0.75% of the shares of common stock then outstanding or 1,000,000 shares, or a lesser amount as determined by the Compensation Committee. On February 1, 2016, pursuant to the provisions of the plan, no shares were added to the plan. The aggregate number of shares authorized under this plan is 2.3 million shares with 1.5 million shares available for future issuance.

The 2012 Purchase Plan permits eligible employees to purchase common stock on favorable terms via payroll deductions of up to 15% of the employee’s salary, subject to certain share and statutory dollar limits. Two overlapping offering periods commence during each calendar year, on each June 1 and December 1 or such other periods or dates as determined by the Compensation Committee from time to time, and the offering periods last up to 24 months with a purchase date every six months. The price of each share purchased is 85% of the lower of a) the fair value per share of common stock on the last trading day before the commencement of the applicable offering period, or b) the fair value per share of common stock on the purchase date. The Compensation Committee administers the 2012 Purchase Plan and may terminate or amend the plan. During the year ended January 31, 2016, 141 employees purchased 356,494 shares under the 2012 Purchase Plan.

Employee 401(k) Plan

The Company sponsors the Violin Memory, Inc. 401(k) Plan (“401(k) Plan”), which qualifies under Section 401(k) of the Internal Revenue Code and is designed to provide retirement benefits for its eligible employees through tax-deferred salary deductions.

Employees may elect to contribute up to 90% of their eligible compensation to the 401(k) Plan. Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Service (“IRS”). The Company does not currently match employee contributions.

7. Stock-Based Compensation

As of January 31, 2016, total stock-based compensation cost related to unvested equity awards not yet recognized, net of estimated forfeitures, totaled $24.3 million. The Company expects to amortize $11.0 million in fiscal year 2017, $7.4 million in fiscal year 2018, $5.2 million in fiscal year 2019 and $0.7 million in fiscal year 2020. Capitalized stock-based compensation expense was not material for any period presented. The Company used the following assumptions for its employee stock option and ESPP grants:

	Year Ended January 31,
Employee stock options	2016	2015	2014
Expected life (in years)	5.0 - 7.0	4.6 - 7.0	3.5 - 4.6
Expected volatility	46% - 47%	47% - 49%	45% - 50%
Risk-free interest rate	1.3% - 2.1%	1.4% - 2.1%	0.9% - 1.5%
Dividend yield	—  %	—  %	—  %

	Year Ended January 31,
Employee stock purchase plan	2016	2015	2014
Expected life (in years)	0.5	0.5	2.18
Expected volatility	44% - 45%	44% - 51%	45.6%
Risk-free interest rate	0.1% - 0.5%	0.1% - 0.2%	0.12%
Dividend yield	—  %	—  %	—  %

During the years ended January 31, 2016, 2015 and 2014, the Company recognized stock-based compensation associated with its ESPP plan of $0.5 million, $0.8 million and $0.4 million, respectively. Stock-based

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compensation associated with non-employee awards was approximately $0.4 million, $0.8 million and $0.8 million for fiscal years 2016, 2015 and 2014, respectively.

Award Modifications

During fiscal year 2014, the Company modified 225,000 options issued to a non-employee, accelerating the vesting of the award. The Company recognized a charge of $2.0 million within general and administrative expenses in the accompanying consolidated statement of operations for fiscal year 2014 relating to this modification.

In January 2014, as part of its retention program, the Company repriced approximately 377,000 stock options originally granted to 51 non-executive employees in September and November 2013 at exercise prices ranging from $5.97 to $8.82 per share to $3.49 per share, the fair market value of the Company’s common stock as of the date of the modification. Total incremental charge relating to this modification, approximately $0.3 million, net of forfeitures, will be recognized using the straight-line attribution method over the remaining service period.

8. Income Taxes

The components of loss before provision for income taxes are as follows (in thousands):

	Year Ended January 31,
	2016			2015			2014
United States	$	(99,148	)	$	(109,342	)	$	(150,146	)
Foreign		223			562			413
Total	$	(98,925	)	$	(108,780	)	$	(149,733	)

The Company’s tax provision for the years ended January 31, 2016, 2015 and 2014 consists of state and foreign taxes. Income tax expense differed from the amounts computed by applying the federal statutory income tax rate of 35% to pretax loss for the years ended January 31, 2016, 2015 and 2014, respectively, as result of the following (in thousands):

	Year Ended January 31,
	2016			2015			2014
Federal tax at statutory rate	$	(34,623	)	$	(38,073	)	$	(52,406	)
Loss not being benefited		33,310			32,422			55,506
State taxes		3			7			11
Permanent items		2,027			7,601			470
Nondeductible interest on convertible notes		—			—			(1,751	)
Research credits		(576	)		(1,834	)		(1,754	)
	$	142		$	123		$	76

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The tax effects of temporary differences and carryforwards that give rise to significant portions of the Company’s deferred tax assets and liabilities related to the following (in thousands):

	January 31,
	2016			2015
Net operating loss carryforwards	$	115,417		$	84,222
Depreciation and amortization		53,047			49,251
Tax credits and other		13,675			12,441
Inventory valuations		6,432			8,730
Accrual and reserve		5,960			7,476
Stock-based compensation		6,845			4,856
Gross deferred tax assets		201,376			166,976
Valuation allowance		(201,376	)		(166,976	)
Net deferred tax assets (liabilities)	$	—		$	—

Management believes that, based on available evidence, both positive and negative, it is more likely than not that the net deferred tax assets will not be utilized, such that a full valuation allowance has been recorded. The valuation allowance for deferred tax assets was $201.4 million and $167.0 million as of January 31, 2016 and 2015, respectively. The net change in the total valuation allowance for the year ended January 31, 2016 and 2015 was an increase of $34.4 million and $35.6 million, respectively.

As of January 31, 2016, the Company had approximately $319.0 million and $103.2 million of net operating loss carry forwards available to offset future taxable income for both federal and state purposes, respectively. If not utilized, these carry forward losses will expire in various amounts for federal and state tax purposes beginning in 2025 and 2015, respectively. The Company also has federal and state research and development tax credit carryforwards of approximately $9.8 million and $11.7 million, respectively. The federal tax credits will expire at various dates beginning in the year 2030 unless previously utilized. The state tax credits do not expire and will carry forward indefinitely until utilized.

Utilization of the net operating loss carry forwards and credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

The following table reflects changes in the gross unrecognized tax benefits (in thousands):

	Year ended January 31,
	2016		2015			2014
Gross unrecognized tax benefits-beginning of year	$	5,689	$	4,048		$	2,444
Net decreases related to prior year tax positions		—		(8	)		(122	)
Increases related to current year tax positions		907		1,649			1,726
Gross unrecognized tax benefits-end of year	$	6,596	$	5,689		$	4,048

None of the unrecognized tax benefits would have a net impact to income tax expense if subsequently recognized since the recognition of such benefits would result in a corresponding increase to the Company’s valuation allowance.

The Company’s policy is to classify interest and penalties associated with unrecognized tax benefits as income tax expense. The Company had no interest or penalty accruals associated with uncertain tax benefits.

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The Company is subject to taxation in the United States and in California and New Jersey among other states, and in certain foreign jurisdictions. As of January 31, 2016, the Company’s federal and state returns for the years ended 2010 through the current period are still open to examination. Net operating losses and research and development carryforwards that may be used in future years are still subject to inquiry given that the statute of limitation for these items would be from the year of the utilization. There are no tax years under examination by any jurisdiction at this time.

9. Commitments and Contingencies

Legal Disclosure

The Company assesses its potential liability by analyzing specific litigation and regulatory matters using reasonably available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies.

Beginning on November 26, 2013, four putative class action lawsuits were filed in the United States District Court for the Northern District of California naming the Company and a number of its present or former directors and officers, and the underwriters of the Company’s September 27, 2013 initial public offering (the “IPO”). The four complaints were consolidated into a single, putative class action, and on March 28, 2014, the plaintiffs filed a consolidated complaint purporting to assert claims under the federal securities laws, based upon seven categories of alleged omissions, on behalf of purchasers of the Company’s common stock issued in the IPO.

The parties have reached a settlement that, if approved by the Court, will fully resolve the claims brought by plaintiffs on behalf of the class they seek to represent. The proposed settlement establishes a settlement fund of $7.5 million in return for a release of all claims in this matter. The settlement fund will be paid by the Company’s insurance carrier and will not result in any additional expense to the Company.

On March 16, 2016, the Court granted plaintiffs’ Motion for Preliminary Approval of Class Action Settlement and set a Final Approval Hearing for July 26, 2016. Pursuant to the Court’s Preliminary Approval Order, notice and claim forms will be mailed to class members and class members will have an opportunity to submit claims, to opt-out of the settlement, and/or object to the settlement. At the final approval hearing, the Court will consider the notice process and results, any objections and other relevant information. The Court will then decide whether to finally approve the class settlement. If the settlement is approved, the settlement funds will be disbursed as provided in the settlement agreement and the Court’s orders.

A putative stockholder derivative action is pending before the same court as the putative class action. In the derivative action, the plaintiffs allege that certain of the Company’s current and former officers and directors breached their fiduciary duties to the Company by violating the federal securities laws and exposing the Company to possible financial liability. The parties agreed to stay the derivative action pending further developments in the putative class action. The parties have reached a settlement in principle of the derivative action, which is in the process of being documented and presented for the Court’s approval.

The Company believes the ultimate outcome of the current legal proceedings, individually and in the aggregate, will not have a material adverse effect on its financial position, results of operations or cash flows. However, because of the inherent uncertainties surrounding litigation, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations or cash flows could be materially and adversely affected.

Indemnification

The Company indemnifies certain of its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The Company’s

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certificate of incorporation and bylaws require that it indemnify its officers and directors against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to the Company. In addition, the Company has entered into separate indemnification agreements with each of its directors and executive officers, which provide for indemnification of these individuals under certain circumstances. The maximum amount of potential future indemnification is unlimited; however, the Company has a Directors and Officers insurance policy that enables the Company to recover a portion of any future amounts paid. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these obligations on the consolidated balance sheets as of January 31, 2016 and 2015.

The Company may, in the ordinary course of business, agree to defend and indemnify some customers against legal claims that the Company’s products infringe on certain U.S. patents or copyrights. The terms of such obligations may vary. To date, the Company has not been required to make any payments resulting from such infringement indemnifications and no amounts have been accrued for such matters.

Other Contingencies

From time to time, the Company may become involved in legal proceeding or other claims and assessments arising in the ordinary course of business. The Company is not currently a party to any litigation matters, except as discussed above, which, individually or in the aggregate, are expected to have a material adverse effect on the Company’s business, financial condition or results of operations.

Operating Lease Commitments

The Company leases office space under various non-cancelable operating leases that expire at various dates through fiscal year 2018. Rent expense related to operating leases was $3.1 million, $2.4 million and $2.5 million for the years ended January 31, 2016, 2015 and 2014, respectively. Future minimum lease payments under the Company’s operating leases as of January 31, 2016, are as follows (in thousands):

	Amount
Fiscal years ending January 31:
2017	$	3,775
2018		294
	$	4,069

Purchase Commitments

The Company depends entirely upon a contract manufacturer to manufacture its products and provide test services. Due to the lengthy lead times, the Company must order from its contract manufacturer well in advance and is obligated to pay for the materials when received and services once they are completed. As of January 31, 2016, the Company had approximately $4.9 million of outstanding purchase commitments to such contract manufacturer and other vendors.

In June 2012, the Company entered into an agreement with the Forty Niners SC Stadium Company LLC, which was amended in April 2014. As part of the amended agreement, the Company will receive advertising and related benefits at the stadium in Santa Clara, California for $1.8 million per year until 2023. The Company has a remaining commitment of $14.0 million. Advertising expense was $1.8 million and $1.2 million related to this agreement for the years ended January 31, 2016 and 2015, respectively.

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10. Related Party Transactions with Toshiba

Toshiba Corporation and its affiliates, including Toshiba America Electronic Components, Inc., (collectively, “Toshiba”) own approximately 9.2 million shares of the Company’s common stock. In August 2014, Toshiba’s ownership decreased below 10%, and consequently, Toshiba ceased being an affiliate.

In June 2011, the Company entered into a Sales Agreement with Toshiba pursuant to which the Company agreed to purchase at least 70% of its annual flash memory requirement from Toshiba. Our Sales Agreement with Toshiba expired in June 2014 and automatically renews for successive one-year periods unless terminated by either party.

In July 2013, the Company signed an agreement with Toshiba for the development of PCIe cards and the sale of sample cards and received a prepayment of $16 million. The $16 million prepayment consisted of $8 million for services to be performed for the development of the PCIe cards and $8 million for the sale of sample PCIe cards and related support services. The Company retains all ownership of the intellectual property developed under the agreement. The Company applied ASC 605-25, Revenue Recognition – Multiple Element Arrangements to identify the deliverables. The Company concluded that the deliverables are development services, sample PCIe cards and support services for the sample PCIe cards. The Company recognized $6.0 million of revenue related to development services of PCIe cards and $3.1 million of revenue related to sample products during fiscal year 2014 as determined on a relative fair value basis. For the year ended January 31, 2015, the Company recognized an additional $1.0 million under the agreement related to development services performed. The remaining $5.8 million advance payment was repaid to Toshiba in May 2014 pursuant to a Mutual Termination of Contract Agreement between Toshiba and the Company. Any incremental research and development expense related to this arrangement was recognized as cost of services. During fiscal year 2015, the Company recognized no incremental cost of services.

In addition to the development agreement, the Company recognized revenue of $1.6 million and $4.0 million related to the sale of All Flash Arrays and services to Toshiba during fiscal years 2015 and 2014, respectively, and purchased $9.2 million and $38.2 million of NAND flash memory from Toshiba during fiscal years 2015 and 2014, respectively.

11. Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, the Company’s chief executive officer. The Company’s chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. The Company has one business activity, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, the Company considers itself to have a single reportable segment and operating unit structure.

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Revenue by geography is based on the billing address of the customer. The following table sets forth revenue and property and equipment by geographic area (in thousands):

	Year Ended January 31,
	2016		2015		2014
Revenue
Americas:
United States	$	32,045	$	48,247	$	66,502
Other Americas		137		402		425
		32,182		48,649		66,927
Europe:
United Kingdom		2,816		5,807		7,491
Other Europe		8,436		12,796		9,003
		11,252		18,603		16,494
Asia Pacific:		7,433		11,723		24,235
	$	50,867	$	78,975	$	107,656

	January 31,
	2016		2015
Property and Equipment
United States	$	9,091	$	9,653
Europe		107		204
Asia Pacific		124		6
	$	9,322	$	9,863

12. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less the weighted-average unvested common stock subject to repurchase or forfeiture. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including preferred stock, stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential common shares outstanding would have been anti-dilutive. The following table sets forth the computation of historical basic and diluted net loss per share (in thousands, except per share data):

	Year Ended January 31,
	2016			2015			2014
Numerator:
Net loss	$	(99,067	)	$	(108,903	)	$	(149,809	)
Denominator:
Weighted average common shares outstanding		97,008			90,994			38,804
Less: Weighted average unvested common shares subject to repurchase		—			35			213
Weighted average shares used to compute net loss per share of common stock, basic and diluted		97,008			90,959			38,591
Net loss per share of common stock, basic and diluted	$	(1.02	)	$	(1.20	)	$	(3.88	)

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Since the Company experienced losses for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods. The following potential common stock equivalents that could potentially dilute net loss per share in the future were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive for the periods presented (in thousands):

	Year Ended January 31,
	2016		2015		2014
Convertible preferred stock (on an as converted basis)		21,352		21,352		—
Common stock subject to repurchase		—		—		70
Warrants related to common stock		164		164		84
Shares subject to outstanding common stock options and restricted stock units		22,343		19,498		20,307
		43,859		41,014		20,461

13. Convertible Senior Notes, Line of Credit and Debt Facility

Convertible Senior Notes

On September 19, 2014, the Company issued $120 million aggregate principal amount of Convertible Senior Notes (the “Notes”), which included $15 million issued pursuant to an over-allotment option granted to the initial purchasers. The aggregate principal amount of the Notes is due on October 1, 2019, unless earlier repurchased, redeemed or converted. The Company received net proceeds of $115.4 million after deducting offering costs.

Interest on the outstanding Notes accrues at a rate of 4.25% per annum and is payable semi-annually on April 1 and October 1 of each year beginning on April 1, 2015. Interest began to accrue on September 24, 2014. The Notes are unsecured senior obligations of Violin. These Notes were offered and sold only to qualified institutional investors, as defined in Rule 144 under the Securities Act of 1933 (“Securities Act”), and the Notes and the shares of the Company’s common stock issuable upon conversion of the Notes have not been registered under the Securities Act.

The Company used the net proceeds to repay all amounts outstanding and owed under its credit agreement with SVB and intends to use the remaining net proceeds for general corporate purposes, including working capital.

The Company may redeem the Notes, at its option, in whole or in part on or after October 1, 2017, if the last reported sale price per share of its common stock equals or exceeds 130% of the applicable conversion price for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on the trading day immediately prior to the date on which the Company delivers notice of the redemption.

Holders of the Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date. The Notes are convertible at an initial conversion rate of 177.8489 shares of our common stock per $1,000 principal amount of notes. This is equivalent to an initial conversion price of approximately $5.62 per share of the Company’s common stock, subject to adjustment upon the occurrence of certain dilutive events, or, if the Company obtains the required consent from its shareholders, into shares of the Company’s common stock, cash or a combination of cash and shares of its common stock, at the Company’s election. The conversion rate will be increased in the case of corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the indenture governing the notes). As of January 31, 2016, the Notes are not convertible.

The holders of the Notes will have the ability to require the Company to repurchase the notes in whole or in part upon the occurrence of an event that constitutes a “Fundamental Change” (as defined in the indenture governing the notes including such events as a “change in control” or “termination of trading”). In such case, the repurchase price would be 100% of the principal amount of the notes plus accrued and unpaid interest, if any. Certain events

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are also considered “Events of Default,” which may result in the acceleration of the maturity of the Notes, as described in the indenture governing the Notes, including, among other events, the Company’s failure to timely file with the SEC the reports required pursuant to Section 13 or 15(d) of the Securities Exchange of 1934, as amended or delisting by the NYSE. There were no “Fundamental Changes” or “Events of Default” that occurred during the year ended January 31, 2016.

During the time that the Notes are outstanding, the Company may not at any time incur any indebtedness other than permitted debt, which is defined as: (a) revolving debt secured by the Company’s accounts receivable and the proceeds therefrom in a principal amount not to exceed $50 million; (b) unsecured indebtedness (including the Notes) in a principal amount not to exceed (when combined with any indebtedness incurred under clause (c) below) $150 million; (c) secured indebtedness secured by the Company’s intellectual property in a principal amount not to exceed (when combined with any indebtedness incurred under clause (b) above) $150 million; and (d) unsecured subordinated indebtedness in a principal amount not to exceed $50 million. Furthermore, the Company may incur indebtedness if (a) the Company is not in default and such additional debt would not put it into default and (ii) the consolidated leverage ratio, as defined, after taking the additional debt into account does not exceed 5:1. The Company was in compliance with its covenants under the Notes as of January 31, 2016.

The conversion option of the Notes cannot be settled in cash prior to obtaining the necessary approval of the Company’s shareholders. In accordance with guidance in ASC 470-20, Debt with Conversion and Other Options and ASC 815-15, Embedded Derivatives, the Company determined that until shareholder approval that allows for settlement by issuing shares of the Company’s common stock, cash or a combination of cash and shares of its common stock, the embedded conversion components of the Notes do not require bifurcation and separate accounting. The $120 million principal amount of the Notes has been recorded as debt on the Company’s accompanying condensed consolidated balance sheet as of January 31, 2016.

The deferred debt issuance costs have been recorded as a direct deduction from the Notes’ carrying amount in accordance with ASU No. 2015-03 – Simplifying the Presentation of Debt Issuance Costs, and are being amortized to interest and other financing expense using the effective interest method over the Notes’ five-year term. For the years ended January 31, 2016 and 2015, the Company amortized debt issuance costs of $1.5 million and $0.6 million, respectively, to interest and other financing expenses. As of January 31, 2016 and 2015, the Company had accrued interest of $1.7 million and $1.7 million related to the Notes.

Silicon Valley Bank Credit Agreements

In August 2014, the Company entered into a $40.0 million credit facility with SVB that provides for a term loan of $10.0 million and a line of credit with a maximum commitment of $30.0 million. The Company’s obligations under the agreement were secured by a first priority security interest in substantially all of its assets. Pursuant to this arrangement, the Company agreed to issue SVB a warrant to purchase 79,323 shares of its common stock, $0.0001 par value per share, at a price per share of $3.782. The warrant expires in August 2019.

In connection with the Notes offering, the Company terminated the credit facility and repaid the loan. As a result, the Company recorded a loss on extinguishment amounting to $0.4 million in the year ended January 31, 2015, which relates to the write-off of debt issuance costs, including the warrant issued with the term loan. The loss on extinguishment is reflected as a part of interest and other financing expense in the accompanying consolidated statements of operations.

In October 2014, the Company entered into a new $20.0 million secured revolving line of credit with SVB. The Company’s obligations under the agreement are secured by a first priority security interest in the Company’s accounts receivable and proceeds therefrom. Borrowings under this facility will bear interest at a rate per annum of either (a) the sum of (i) the Eurodollar rate plus (ii) 5.00%, or (b) the sum of (i) ABR plus (ii) 2.00%. The Company has a balance of $13.4 million and $10.0 million outstanding on this facility as of January 31, 2016 and

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2015. The line of credit expires on October 24, 2016, subject to acceleration upon certain specified events of defaults. (See Note 14 – Subsequent Events.)

The credit agreement contains financial covenants, including covenants requiring the Company to maintain a minimum cash balance, a minimum consolidated adjusted quick ratio and achieve a certain level of revenue relative to its operating plan. In addition, the credit agreement contains certain negative covenants, including restrictions on liens, indebtedness, fundamental changes, dispositions, restricted payments and investments. The Company was in compliance with the covenants under this agreement as of January 31, 2016.

The remaining debt issuance costs associated with these two transactions are reflected in other assets and are being amortized to interest and other financing expense using the straight line method over the facility’s two-year term.

TriplePoint Capital Debt Facility

During May 2013, the Company entered into a $50.0 million debt arrangement with TriplePoint Capital LLC, or TriplePoint. The facility had first secured interest in substantially all of the Company’s assets and intellectual property other than $7.5 million of accounts receivable. The Company had one year to utilize the facility, which has a number of borrowing options ranging in duration from three months up to five years. Depending on the loan option, annualized interest rates range from 7.00% to 13.50%. In addition, the loans had an end-of-term payment, ranging from 0.50% to 14.00% of the principal amount depending on the duration of the loan. As of January 31, 2014, the Company had repaid all amounts outstanding on this facility. The facility was terminated in May 2014.

Other Short-term Borrowings

Convertible Notes: In fiscal year 2014, the Company issued and sold convertible promissory notes for an aggregate amount of $5.2 million pursuant to a note and warrant purchase agreement. The notes had an interest rate of 10%. The outstanding principal and accrued interest converted, upon completion of the IPO, into Company’s common stock at $9.00 per share. The convertible notes bore 6% interest per annum.

Product Financing Arrangement: In July 2014, the Company entered into a managed inventory program to run through December 2014. Under the agreement, the Company gave title to 194,000 units of product to the counterparty for approximately $2.3 million. The Company is obligated to repurchase the product in five equal monthly installments, including predetermined transaction fees of between 4.5% and 6%. As of January 31, 2015, the Company had settled this liability in full.

Line of Credit: In July 2013, the Company entered into a $7.5 million line of credit with Comerica Bank. The Company could borrow up to 80% of its current U.S.-based receivables, or $7.5 million, whichever is lower. The line was secured against the Company’s accounts receivable and collections thereof as well as its intellectual property. The line had a two-year term and bore interest of prime plus 1%. In August 2014, the Company repaid all outstanding amounts under the line of credit and terminated the Loan and Security Agreement with Comerica.

14. Subsequent Events

In April 2016, the Company amended its secured revolving line of credit with SVB, to extend its term through May 1, 2017, modify the financial covenants and lower the commitment to $10 million. The Company’s obligations under the agreement remain secured by a first priority security interest in the Company’s accounts receivable and the proceeds therefrom.

In March 2016, the United States District Court for the Northern District of California granted plaintiffs’ Motion for Preliminary Approval of Class Action Settlement and set a Final Approval Hearing for July 26, 2016 in the putative class action lawsuit. In addition, the parties have reached a settlement in principle of the derivative action, which is in the process of being documented and presented for the Court’s approval. (See Note 9.)

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In March 2016, the Company announced a restructuring plan. In connection with the plan, the Company reduced headcount by approximately 25% from that as of the end of the third quarter of fiscal year 2016.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of January 31, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of January 31, 2016, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the fourth quarter of 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that accurately and fairly reflect in reasonable detail the transactions and dispositions of the assets of our company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

• Provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our financial statements.

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Our management assessed our internal control over financial reporting as of January 31, 2016, the end of our fiscal year. Management based its assessment on criteria established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s assessment of our internal control over financial reporting, management concluded that, as of January 31, 2016, our internal control over financial reporting was effective.

Limitations on Effectiveness of Controls and Procedures

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Part II. Item 9B. Other Information

None.

Part III.

Item 10. Directors, Executive Officers and Corporate Governance

Officers and Directors

The information required by this item is incorporated herein by reference to information contained in the Proxy Statement for our 2016 Annual Meeting of Stockholders.

Corporate Governance

We have adopted a code of business conduct that applies to each of our directors, officers and employees. The code addresses various topics, including:

• compliance with laws, rules and regulations, including the Foreign Corrupt Practices Act;

• conflicts of interest;

• insider trading;

• corporate opportunities;

• competition and fair dealing;

• equal employment and working conditions;

• record keeping;

• confidentiality;

• giving and accepting gifts;

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• compensation or reimbursement to customers;

• protection and proper use of company assets; and

• payments to government personnel and political contributions.

We have adopted a code of ethics for senior financial officers applicable to our Chief Executive Officer, Chief Financial Officer and other key management employees addressing ethical issues. The code of business conduct and the code of ethics is posted on our website. The code of business conduct and the code of ethics can only be amended by the approval of a majority of our board of directors. Any waiver to the code of business conduct for an executive officer or director or any waiver of the code of ethics may only be granted by our board of directors or our nominating and corporate governance committee and must be timely disclosed as required by applicable law. We also have implemented whistleblower procedures that establish formal protocols for receiving and handling complaints from employees. Any concerns regarding accounting or auditing matters reported under these procedures will be communicated promptly to our audit committee.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to information contained in the Proxy Statement for our 2016 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to information contained in the Proxy Statement for our 2016 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this item is incorporated herein by reference to information contained in the Proxy Statement for our 2016 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to information contained in the Proxy Statement for our 2016 Annual Meeting of Stockholders.

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Part IV.

Item 15. Exhibits and Financial Statement Schedules

We have filed the following documents as part of this Form 10-K:

1. Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm	70
Report of Independent Registered Public Accounting Firm	71
Consolidated Balance Sheets	72
Consolidated Statements of Operations	73
Consolidated Statements of Comprehensive Loss	74
Consolidated Statements of Stockholders’ Equity (Deficit)	75
Consolidated Statements of Cash Flows	76
Notes to the Consolidated Financial Statements	77

2. Exhibits

See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	VIOLIN MEMORY, INC.
Dated: April 5, 2016	By:	/s/    Kevin A. DeNuccio
		Kevin A. DeNuccio
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
Dated: April 5, 2016	By:	/s/    Cory J. Sindelar
		Cory J. Sindelar
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints Kevin A. DeNuccio and Cory J. Sindelar, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Name	Title	Date
/s/ Kevin A. DeNuccio Kevin A. DeNuccio	President, Chief Executive Officer and Director	April 5, 2016
/s/ Cory J. Sindelar Cory J. Sindelar	Chief Financial Officer (Principal Financial and Accounting Officer)	April 5, 2016
/s/ Richard N. Nottenburg Richard N. Nottenburg	Chairman of the Board	April 5, 2016
/s/ Georges J. Antoun Georges J. Antoun	Director	April 5, 2016
/s/ Cheemin Bo-Linn Cheemin Bo-Linn	Director	April 5, 2016
/s/ William H. Kurtz William H. Kurtz	Director	April 5, 2016
/s/ Lawrence J. Lang Lawrence J. Lang	Director	April 5, 2016
/s/ Donald J. Listwin Donald J. Listwin	Director	April 5, 2016
/s/ Vivekanand Mahadevan Vivekanand Mahadevan	Director	April 5, 2016
/s/ David B. Walrod David B. Walrod	Director	April 5, 2016

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EXHIBIT INDEX

		Incorporated by Reference
Exhibit Number	Description	Form		Exhibit No.			Date Filed		Filed Herewith
3.1	Restated Certificate of Incorporation of the Registrant		S-1		3.1	(b)		9/16/2013
3.2	Amended and Restated Bylaws of the Registrant		S-1		3.2	(b)		9/16/2013
4.1	Form of Common Stock Certificate		S-1		4.1			9/16/2013
4.2	Plain English Warrant Agreement between the Registrant and TriplePoint Capital LLC dated May 13, 2013		S-1		4.5			8/26/2013
4.3	Form of Warrants to Purchase Shares of Series D Preferred Stock issued June 2013		S-1		4.8			8/26/2013
4.4	Schedule of Warrants issued by the Registrant to purchase shares of Series D Preferred Stock		S-1		4.9			8/26/2013
10.1	Form of Indemnification Agreement between the Registrant and its officers and directors		S-1		10.1			8/26/2013
10.2#	2005 Stock Plan and form of agreements thereunder		S-1		10.2			8/26/2013
10.3#	2012 Stock Incentive Plan and form of agreement thereunder		S-8		99.2			9/27/2013
10.4#	2012 Employee Stock Purchase Plan		S-8		99.3			9/12/2013
10.5	Sublease between the Registrant and Tellabs Operations, Inc. dated June 24, 2013		S-1		10.18			8/26/2013
10.6#	Offer Letter dated February 1, 2014 between the Registrant and Kevin A. DeNuccio		8-K		10.1			2/6/2014
10.7#	Stock Option Agreement dated February 3, 2014 providing Kevin A. DeNuccio an option to purchase 1,000,000 shares of Registrant Common Stock		8-K		10.2			2/6/2014
10.8#	Stock Option Agreement dated February 3, 2014 providing Kevin A. DeNuccio an option to purchase 3,000,000 shares of Registrant Common Stock		8-K		10.3			2/6/2014
10.9#	Offer Letter between the Registrant and Cory J. Sindelar dated December 4, 2011		S-1		10.8			8/26/2013
10.10#	Change of Control and Severance Agreement between the Registrant and Cory J. Sindelar dated January 31, 2014		8-K		10.1			2/6/2014
10.11#	Offer Letter dated February 12, 2014, and effective February 18, 2014, between the Registrant and Thomas G. Mitchell		8-K		10.1			2/24/2014
10.12#	Stock Option Agreement dated February 19, 2014 providing Thomas G. Mitchell an option to purchase 1,000,000 shares of Registrant common stock		8-K		10.2			2/24/2014
10.13#	Change of Control and Severance Agreement dated February 20, 2014 between the Registrant and Thomas G. Mitchell		8-K		10.3			2/24/2014

110

		Incorporated by Reference
Exhibit Number	Description	Form		Exhibit No.		Date Filed		Filed Herewith
10.14+	Sponsorship Agreement between the Registrant and Forty Niners SC Stadium Company LLC dated June 13, 2012		S-1		10.14		8/26/2013
10.15+	Supply Agreement among the Registrant, Toshiba Corporation and Toshiba America Electronic Components, Inc. dated June 27, 2011, as amended		S-1		10.15		8/26/2013
10.16+	PCIe Card Development Agreement between the Registrant and Toshiba Corporation dated July 16, 2013		S-1		10.23		9/16/2013
10.17+	Flextronics Infrastructure Manufacturing Services Agreement between the Registrant and Flextronics Telecom Systems, Ltd. dated May 13, 2011		S-1		10.10		8/26/2013
10.18#	Settlement Agreement and Release by and between Donald G. Basile and the Registrant effective April 12, 2014		10-K		10.19		4/16/2014
10.19#	Separation Agreement between the Registrant and Dixon R. Doll, Jr. dated January 2, 2014		10-K		10.20		4/16/2014
10.20	Plain English Growth Capital Loan and Security Agreement between the Registrant and TriplePoint Capital LLC dated May 13, 2013		S-1		10.16		8/26/2013
10.21	Plain English Intellectual Property Security Agreement between the Registrant and TriplePoint Capital LLC dated May 13, 2013		S-1		10.17		9/16/2013
10.22	Loan and Security Agreement between the Registrant and Comerica Bank dated July 18, 2013		S-1		10.19		8/26/2013
10.23	Intellectual Property Security Agreement between the Registrant and Comerica Bank dated July 18, 2013		S-1		10.20		9/16/2013
10.24	Inter Creditor Agreement between the Registrant, Comerica Bank and TriplePoint Capital LLC dated July 18, 2013		S-1		10.21		8/26/2013
10.25	Form of Subordination Agreement between Comerica Bank and certain creditors		S-1		10.22		8/26/2013
10.26+	First Amendment to Sponsorship Agreement by and between Forty Niners SC Stadium Company and the Company — redacted version		8-K		10.1		6/6/2014
10.27	Credit Agreement dates as of October 24, 2014, entered into by and among the Company, certain subsidiaries of the Company, the lenders party hereto from time to time and Silicon Valley Bank, as administrative agent and collateral agent		8-K		10.1		10/30/2014
10.28	Guarantee and Collateral Agreement dated as of October 24, 2014 between the Company in favor of Silicon Valley Bank, as administrative agent		8-K		10.2		10/30/2014

111

		Incorporated by Reference
Exhibit Number	Description	Form		Exhibit No.		Date Filed		Filed Herewith
10.29	Indenture dated as of September 24, 2014, between Violin Memory, Inc. and Wilmington Trust, National Association, as trustee (including form of Note) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed September 24, 2014		8-K		4.1		10/6/2014
10.30#	Agreement dated September 30, 2014, between Kevin A. DeNuccio and Violin Memory, Inc.		8-K		10.1		10/1/2014
10.31	Indenture dated as of September 24, 2014, between Violin Memory, Inc. and Wilmington Trust, National Association, as trustee (including form of Note)		8-K		4.1		9/24/2014
10.32#	Offer Letter between the Registrant and Said Ouissal dated May 1, 2015		8-K		10.1		5/13/2015
10.33#	Change of Control and Severance Agreement effective February 13, 2014 between the Registrant and Said Ouissal		8-K		10.2		5/13/2015
10.34#	Separation Agreement between the Registrant and Thomas G. Mitchell dated May 1, 2015		8-K		10.3		5/13/2015
10.35	First Amendment to Credit Agreement dated October 24, 2014 between the Registrant and Silicon Valley Bank		8-K		10.1		5/26/2015
10.36	Change in Registrant’s Certifying Accountant		8-K		16.1		5/6/2015
10.37#	Agreement dated March 23, 2016 between Ebrahim Abbasi and Violin Memory, Inc.		8-K		10.1		3/28/2016
10.38#	Change of Control Agreement effective March 2014 between the Company and Ebrahim Abbasi		8-K		10.2		3/28/2016
10.39	Second Amendment to Credit Agreement dated October 24, 2014 between Violin Memory, Inc. and Silicon Valley Bank								X
21.1	List of Subsidiaries								X
23.1	Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP								X
23.2	Consent of Independent Registered Public Accounting Firm — KPMG LLP								X
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002								X
31.2	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002								X
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*								X

112

		Incorporated by Reference
Exhibit Number	Description	Form	Exhibit No.	Date Filed	Filed Herewith
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

# Management contract or compensatory arrangement

+ Confidential treatment request

* The certification furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

113