<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number: 0-22071
OVERLAND DATA, INC.
(Exact name of registrant as specified in its charter)
California 95-3535285
(State or other jurisdiction of incorporation) (IRS Employer Identification
No.)
8975 Balboa Avenue, San Diego, California 92123-1599
(Address of principal executive offices, including zip code)
(619) 571-5555
(Registrant's telephone number, including area code)
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
--- ---
As of October 31, 1997 there were 10,529,207 shares of the registrant's common
stock, no par value, issued and outstanding.
<PAGE>
OVERLAND DATA, INC.
FORM 10-Q
For the quarterly period ended September 30, 1997
TABLE OF CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated condensed statement of operations --
Three months ended September 30, 1997 and 1996 . . . . . . . . . .3
Consolidated condensed balance sheet --
September 30, 1997 and June 30, 1997 . . . . . . . . . . . . . . .4
Consolidated condensed statement of cash flows --
Three months ended September 30, 1997 and 1996 . . . . . . . . . .5
Notes to consolidated condensed financial statements . . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . .8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .12
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2
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OVERLAND DATA, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
-------- --------
Net sales..................................... $ 13,998 $ 12,013
Cost of goods sold............................ 9,338 7,573
-------- --------
Gross profit.................................. 4,660 4,440
-------- ---------
Operating expenses:
Sales and marketing......................... 2,107 1,780
Research and development.................... 946 1,116
General and administrative.................. 1,531 951
-------- ---------
Total operating expenses................. 4,584 3,847
-------- ---------
Income from operations........................ 76 593
Other income (expense):
Interest income, net........................ 243 (57)
Other income (expense), net................. (33) 5
-------- ---------
Income before income taxes.................... 286 541
Provision for income taxes.................... 109 217
-------- ---------
Net income.................................... $ 177 $ 324
-------- ---------
Net income per share.......................... $ 0.02 $ 0.04
-------- ---------
-------- ---------
Number of shares used in computing
net income per share.................. 10,983 8,137
-------- ---------
-------- ---------
See accompanying notes to consolidated condensed financial statements
3
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OVERLAND DATA, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------ ---------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................................ $ 17,925 $ 18,926
Accounts receivable, less allowance for doubtful accounts
and returns of $827 and $774, respectively...................... 9,419 11,151
Inventories...................................................... 14,679 12,101
Deferred income taxes............................................ 1,743 1,743
Other current assets............................................. 514 607
---------- ---------
Total current assets........................................... 44,280 44,528
Property and equipment, net........................................ 4,168 3,499
Deferred income taxes.............................................. 77 77
Intangible and other assets........................................ 125 156
---------- ---------
$ 48,650 $ 48,260
---------- ---------
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................................ $ 5,543 $ 5,372
Accrued liabilities............................................. 1,131 1,377
Accrued payroll and employee compensation....................... 1,080 1,046
---------- ---------
Total current liabilities .................................... 7,754 7,795
Other liabilities................................................. 148 148
---------- ---------
Total liabilities............................................. 7,902 7,943
---------- ---------
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized; 10,523,707 and 10,434,593 shares
issued and outstanding, respectively........................... 33,495 33,246
Cumulative translation adjustment............................... 14 9
Retained earnings............................................... 7,239 7,062
---------- ---------
Total shareholders' equity.................................... 40,748 40,317
---------- ---------
$ 48,650 $ 48,260
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
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OVERLAND DATA, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .......................................................................... 177 324
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization .................................................... 247 238
Changes in operating assets and liabilities:
Accounts receivable ........................................................... 1,732 714
Inventories.................................................................... (2,578) (1,894)
Other assets................................................................... 93 (19)
Accounts payable and accrued liabilities....................................... 171 (677)
Accrued payroll and employee compensation...................................... (212) (144)
------- --------
Net cash used in operating activities........................................ (370) (1,458)
------- --------
INVESTING ACTIVITIES:
Capital expenditures................................................................. (885) (471)
------- --------
Net cash used in investing activities (885) (471)
------- --------
FINANCING ACTIVITIES:
Net proceeds under bank line of credit............................................... - 1,800
Proceeds from exercise of stock options.............................................. 249 112
------- --------
Net cash provided by financing activities...................................... 249 1,912
------- ---------
Effect of exchange rate changes on cash 5 -
------- ---------
Net (decrease) in cash and cash equivalents (1,001) (17)
Cash and cash equivalents at the beginning of the period 18,926 19
-------- ---------
Cash and cash equivalents at the end of the period $ 17,925 $ 2
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
OVERLAND DATA, INC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Overland
Data, Inc. and its subsidiaries (the "Company") have been prepared by the
Company without audit pursuant to the rules and regulations of the Securities
and Exchange Commission for Form 10-Q. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, these
statements reflect all normal recurring adjustments necessary for a fair
presentation of the financial position, results of operations and cash flows
for all periods presented. The Company's fiscal quarter ends on the Sunday
closest to September 30. For ease of presentation, the Company's quarter end
is deemed to be September 30. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the fiscal year ended June 30, 1997 on file with the
Securities and Exchange Commission.
NOTE 2 -- INITIAL PUBLIC OFFERING
On February 21, 1997, the Company completed its initial public offering of
3,450,000 shares of common stock at a price to the public of $10.00 per
share, including 450,000 shares granted to the Company's underwriters in the
form of an over-allotment purchase option which was exercised on the same
day. Of the 3,450,000 shares sold in the offering, 613,636 shares were sold
by certain shareholders of the Company and 2,836,364 shares were sold by the
Company. Net proceeds to the Company from the offering after deduction of
the underwriting discount and all expenses amounted to $25,659,000. As a
result of the offering, all of the Company's then outstanding shares of
convertible redeemable preferred stock were automatically converted into
shares of common stock on a one-for-one basis.
NOTE 3 -- NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
common shares and common stock equivalents, using the treasury stock method,
outstanding during the respective periods. All issuances of common stock and
all stock options granted within one year prior to the filing of the
Company's registration statement for its initial public offering and through
the effective date thereof have been included as outstanding for all periods
presented using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share." SFAS
No. 128 will be adopted by the Company as required in the second quarter of
fiscal 1998. Upon adoption of SFAS No. 128, the Company will present basic
earnings per share as well as diluted earnings per share. Basic earnings per
share will be computed based on the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share will
be computed based on the weighted average number of shares of common stock
outstanding during the period increased by the effect of diluted stock
options using the treasury stock method. Pro forma basic earnings per share
for the three months ended September 30, 1997 and 1996 are $0.02 and $0.06,
respectively. Pro forma diluted earnings per share for the three months ended
September 30, 1997 and 1996 are $0.02 and $0.04, respectively.
NOTE 4 -- INVENTORIES
Inventories consist of the following (In thousands):
Sept 30, June 30,
1997 1997
----------- ----------
(unaudited)
Raw materials $ 11,320 $ 8,160
Work-in-process 1,637 2,839
Finished goods 1,722 1,102
----------- ----------
$ 14,679 $ 12,101
----------- ----------
----------- ----------
NOTE 5 -- LITIGATION
The Company, its directors and certain of its officers have been named as
defendants in a class action lawsuit which alleges that the defendants
violated various federal securities laws through material misrepresentation
and omissions in connection with the Company's initial public offering in
February 1997. The suit seeks rescission of the share purchases of the class
during the period between February 21, 1997 and March 14, 1997 or rescissory
damages if their shares have been sold, as well as attorney's fees and other
costs and expenses. The defendants have not yet been required to answer the
allegations in the complaint. No discovery has been conducted, and the
outcome of the remaining lawsuit cannot be determined. However, management
believes that it has meritorious defenses and intends to defend against the
remaining lawsuit vigorously. The Company maintains directors' and officers'
liability insurance to provide coverage against suits of this nature, and
other than legal fees incurred to date, no amounts have been recorded in the
financial statements for any losses which may result from this litigation.
6
<PAGE>
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Advanced technology companies such as Overland Data are subject to numerous
risks and uncertainties generally characterized by rapid technological change
and other highly competitive factors. The Company's future revenue and
operating results are dependent upon gaining further market acceptance for
its LibraryXpress line of automated tape libraries and its ability to
manufacture sufficient product to satisfy demand. The LibraryXpress products
incorporate a line of DLT tape drives supplied by Quantum Corporation, which
is the sole source for the DLT tape technology. Demand for the newest
high-performance version of the drive (the DLT7000) has been extremely high
and, as a result, the Company has been unable to obtain an adequate supply of
such drives. However, late in the quarter ended September 30, 1997, a
significant improvement in the supply of drives was experienced, and the
Company believes that such supply may not be constrained during its next
fiscal quarter.
The Company's future revenue and operating results are also dependent upon
market demand for its TapeXpress line of 18/36-track products which could be
adversely affected by newly introduced competitive products and other
factors. Although IBM recently selected the Company to be its supplier of
36-track products, IBM is not required to purchase minimum quantities
pursuant to the supply arrangement. The future success of the Company will
also depend upon its ability to develop, manufacture and market new and
enhanced products on a timely and cost effective basis.
The risks and uncertainties noted above, along with others which could
materially affect the Company's business, are set forth in the "Risk
Factors", "Management's Discussion and Analysis" and other sections of the
Company's Form 10-K for the most recently completed fiscal year on file with
the Securities and Exchange Commission.
7
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RESULTS OF OPERATIONS
The following table sets forth items in the Company's statement of operations
as a percentage of net sales for the periods presented. The data has been
derived from the unaudited condensed consolidated financial statements.
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- --------
Net sales..................... 100.0% 100.0%
Cost of goods sold............ 66.7 63.0
--------- --------
Gross profit.................. 33.3 37.0
--------- --------
Operating expenses:
Sales and marketing......... 15.0 14.9
Research and development.... 6.8 9.3
General and administrative.. 11.0 7.9
--------- --------
Total operating
expenses................ 32.8 32.1
--------- --------
Income from operations........ 0.5 4.9
Other income (expense), net... 1.5 -0.4
--------- --------
Income before income taxes.... 2.0 4.5
Provision for income taxes.... 0.7 1.8
--------- --------
Net income.................... 1.3% 2.7%
--------- --------
--------- --------
NET SALES. The Company's net sales of $14.0 million in the first quarter
of fiscal 1998 grew by $2.0 million or 16.7% over sales of $12.0 million in the
comparable quarter of the prior year. This growth was attributable primarily
to increased sales of the LibraryXpress product line which grew from $1.9
million in fiscal 1997 to $5.5 million in fiscal 1998. This included sales
of the new LXS mini-library, which was introduced during the last quarter of
fiscal 1997, as well as improved sales of other LibraryXpress products to the
Company's volume distributors, OEM and European customers. These gains were
partially offset by a decline in sales of the Company's other mature product
lines. Sales of 18 and 36-track products declined by 25.5% from $5.1 million
in the prior year to $3.8 million in the current year, due principally to
sales declines in 18-track products as well as reduced sales of 36-track
products in Europe. Sales of 36-track products to the Company's OEM
customers were up over the prior year. Consistent with past trends, sales of
9-track products fell by 29.0% from $3.1 million in the prior year to $2.2
million in the first quarter of fiscal 1998, a trend the Company expects will
continue.
A summary of the sales mix by product for the periods presented in the
statement of operations is as follows:
8
<PAGE>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
------- -------
Company products:
LibraryXpress.................... 39.3% 16.2%
36-track......................... 22.1 29.3
18-track......................... 4.7 13.1
9- track......................... 15.7 25.4
Spare parts, controllers, other.. 10.4 8.8
Other products:
DLT distributed product.......... 7.8 6.8
HP distributed product........... - 0.4
------- -------
100.0% 100.0%
------- -------
------- -------
GROSS MARGIN. The Company's gross margin percentage for the first quarter
of fiscal 1998 was 33.3%, a decline from the 37.0% margin reported in the
first quarter of fiscal 1997. There were several factors which caused the
decline. Higher margins were generated in the prior year on sales of
LibraryXpress products because it was only the second full quarter since the
introduction of that product line. Typically, margins are higher at product
introduction due to higher prices, sales through lower level channels and an
absence of sales to OEM customers. Additionally, a greater portion of other
product sales were generated through the Company's volume channel and OEM
customers at lower margins.
SALES AND MARKETING EXPENSE. Sales and marketing expense amounted to $2.1
million or 15.0% of net sales in the first quarter of fiscal 1998 compared to
$1.8 million or 14.8% of net sales in fiscal 1997. The higher level of
expenses was principally related to the addition of new marketing personnel
as well as increased spending for promotions and advertising for the
Company's line of LibraryXpress products.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
amounted to approximately $946,000 or 6.8% of net sales in the first quarter
of fiscal 1998 compared to $1.1 million or 9.3% of net sales in fiscal 1997.
The reduced spending was due primarily to a recovery or reimbursement of
non-recurring engineering expenses from a major OEM customer related to the
development of a new product.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
amounted to $1.5 million or 11.0% of net sales in the first quarter of fiscal
1998 compared to $950,000 or 7.9% of net sales in fiscal 1997. The increased
level of expenses was due to a number of factors including costs incurred to
recruit and attract several top level personnel, legal fees related to the
class-action lawsuit filed against
9
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the Company, expense items relating to the replacement of the Company's
enterprise-wide information and business systems, and other costs incident to
being a public company.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists
primarily of interest income, interest expense and gain or loss on foreign
currency translation. In fiscal year 1997, prior to the Company's initial
public offering on February 21, 1997, this item consisted entirely of
interest expense incurred on borrowings under the Company's revolving bank
line of credit. After going public, the Company's revolving credit line was
repaid in full and interest income is now being generated on the invested IPO
proceeds. Net other income of $210,000 in the first quarter of fiscal 1998
consisted of $243,000 of interest income offset by $33,000 of foreign
currency translation losses.
INCOME TAXES. The Company's provision for state and federal income taxes
in fiscal year 1998 was 38% of income before taxes versus 40% in fiscal year
1997. The Company expects this lower rate to continue. The reduced tax rate
in the current year is primarily the result of a greater portion of product
sales being shipped from the Company's operation in the UK which is subject
to a lower tax rate.
NET INCOME. Net income per share decreased to $.02 in the first quarter
of fiscal year 1998 compared to $.04 in the first quarter of the prior year.
In addition to the lower level of earnings, the calculation of earnings per
share in the most recent quarter reflects a higher number of shares
outstanding as a result of the Company's initial public offering in February
1997. The calculation is based on the weighted average number of shares of
common stock and common stock equivalents (dilutive stock options)
outstanding during each respective period.
10
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LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1998, the Company used $370,000 of cash
for its operating activities, primarily to fund increased working capital.
Included in this net change was an increase of $2.6 million in inventories,
offset by a reduction in trade accounts receivable of $1.7 million. An
additional $885,000 was spent on capital equipment during the period,
primarily equipment, software and consulting related to the installation of
the Company's new enterprise-wide information and business systems.
Offsetting these uses was the generation of $249,000 in cash from the sale of
stock through the exercise of stock options. On an aggregate basis, these
activities consumed approximately $1.0 million and reduced the company's cash
reserves to $17.9 million at quarter-end. At September 30, 1997, the
Company's working capital amounted to $36.5 million, it had no outstanding
funded debt, and had an unused bank line of credit of $5 million. The
Company believes that these resources will be sufficient to fund its
operations and to provide for its growth for the foreseeable future.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, its directors and certain of its officers have been named as
defendants in two putative class action lawsuits filed on April 21, 1997 and
May 2, 1997 in the U.S. District Court for the Southern District of
California. In both cases, the plaintiffs purport to represent a class of all
persons who purchased the Company's Common Stock between February 21, 1997
and March 14, 1997. The complaints allege that the defendants violated
various federal securities laws through material misrepresentation and
omissions in connection with the Company's initial public offering and its
registration statement on Form S-1 which was declared effective by the
Securities and Exchange Commission on February 21, 1997. The suits seek
rescission of their share purchases or rescissory damages if their shares
have been sold, as well as attorneys' fees and other costs and expenses.
On September 16, 1997, the Court entered an Order permitting the voluntary
dismissal of the first-filed lawsuit without prejudice. The plaintiff in the
second lawsuit now has been appointed as the Lead Plaintiff in this
litigation, but the defendants have not yet been required to answer the
allegations in the complaint. No discovery has been conducted, and the
outcome of the remaining lawsuit cannot be determined. However, management
believes that it has meritorious defenses and intends to defend against the
remaining lawsuit vigorously. The Company maintains directors' and officers'
liability insurance to provide coverage against suits of this nature, and
other than legal fees incurred to date, no amounts have been recorded in the
financial statements for any losses which may result from this litigation.
11
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.0 Computation of Earnings Per Common Share
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OVERLAND DATA, INC.
Date: November 12, 1997 By: /s/ Vernon A. LoForti
----------------------------
Vernon A. LoForti
Vice President and
Chief Financial Officer
12
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EXHIBIT 11.0
OVERLAND DATA, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ 177,000 $ 325,000
------------ -----------
------------ -----------
Weighted average number of shares of
common stock outstanding. . . . . . . . . . . . . . . . . . . . . 10,457,682 5,107,155
Weighted average number of shares of
preferred stock outstanding . . . . . . . . . . . . . . . . . . . -- 2,336,573
Common stock equivalents from the
issuance of options using the
treasury stock method . . . . . . . . . . . . . . . . . . . . . . 524,844 498,260
Cheap stock effect . . . . . . . . . . . . . . . . . . . . . . . . . -- (8,333)
Cheap stock adjustment . . . . . . . . . . . . . . . . . . . . . . . -- 203,540
------------ -----------
Shares used in computing net
income (loss) per share . . . . . . . . . . . . . . . . . . . . . 10,982,526 8,137,195
------------ -----------
------------ -----------
Net income (loss) per share. . . . . . . . . . . . . . . . . . . . . $ 0.02 $0.04
------------ -----------
------------ -----------
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 17,925
<SECURITIES> 0
<RECEIVABLES> 9,419
<ALLOWANCES> 0
<INVENTORY> 14,679
<CURRENT-ASSETS> 44,280
<PP&E> 4,168
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,650
<CURRENT-LIABILITIES> 7,754
<BONDS> 0
0
0
<COMMON> 33,495
<OTHER-SE> 7,253
<TOTAL-LIABILITY-AND-EQUITY> 48,650
<SALES> 13,998
<TOTAL-REVENUES> 0
<CGS> 9,338
<TOTAL-COSTS> 9,338
<OTHER-EXPENSES> 4,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (243)
<INCOME-PRETAX> 286
<INCOME-TAX> 108
<INCOME-CONTINUING> 177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
