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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 December 31, 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 February 3, 1998 there were 10,547,857 shares of the registrant's common
stock, no par value, issued and outstanding.
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OVERLAND DATA, INC.
FORM 10-Q
For the quarterly period ended December 31, 1997
TABLE OF CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated condensed statement of operations --
Three months and six months ended
December 31, 1997 and 1996. . . . . . . . . . . . . . . . 3
Consolidated condensed balance sheet --
December 31, 1997 and June 30, 1997 . . . . . . . . . . . 4
Consolidated condensed statement of cash flows --
Six months ended December 31, 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. . . . . . . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security Holders. . . . . .15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . .16
2
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OVERLAND DATA, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ------------------------
1997 1996 1997 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . $ 18,071 $ 15,220 $ 32,069 $ 27,233
Cost of goods sold.. . . . . . . . . . . . . . . 12,367 9,848 21,705 17,421
--------- --------- --------- ----------
Gross profit . . . . . . . . . . . . . . . . . . 5,704 5,372 10,364 9,812
--------- --------- --------- ----------
Operating expenses:
Sales and marketing . . . . . . . . . . . . 2,196 1,778 4,303 3,558
Research and development. . . . . . . . . . 957 979 1,903 2,095
General and administrative. . . . . . . . . 1,537 798 3,068 1,749
--------- --------- --------- ----------
Total operating expenses. . . . . . . . . 4,690 3,555 9,274 7,402
--------- --------- --------- ----------
Income from operations.. . . . . . . . . . . . . 1,014 1,817 1,090 2,410
Other income (expense):
Other income (expense), net . . . . . . . . 38 - 4 5
Interest, net . . . . . . . . . . . . . . . 220 (77) 464 (134)
--------- --------- --------- ----------
Income before income taxes . . . . . . . . . . . 1,272 1,740 1,558 2,281
Provision for income taxes . . . . . . . . . . . 483 696 592 913
--------- --------- --------- ----------
Net income . . . . . . . . . . . . . . . . . . . $ 789 $ 1,044 $ 966 $ 1,368
--------- --------- --------- ----------
--------- --------- --------- ----------
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . $ 0.07 $ 0.13 $ 0.09 $ 0.18
--------- --------- --------- ----------
--------- --------- --------- ----------
Diluted . . . . . . . . . . . . . . . . . . $ 0.07 $ 0.13 $ 0.09 $ 0.17
--------- --------- --------- ----------
--------- --------- --------- ----------
Number of shares used in computing earnings
per share:
Basic . . . . . . . . . . . . . . . . . . . 10,538 7,741 10,498 7,683
-------- --------- --------- ----------
-------- --------- --------- ----------
Diluted . . . . . . . . . . . . . . . . . . 11,111 8,292 11,100 8,238
-------- --------- --------- ----------
-------- --------- --------- ----------
</TABLE>
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>
DECEMBER 31, JUNE 30,
1997 1997
------------ ----------
ASSETS: (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 15,149 $ 18,926
Accounts receivable, less allowance for doubtful accounts
and returns of $885 and $774, respectively . . . . . . . . . . . 10,763 11,151
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,305 12,101
Deferred income taxes .. . . . . . . . . . . . . . . . . . . . . . . 1,743 1,743
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 727 607
--------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . 42,687 44,528
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 4,285 3,499
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 77 77
Intangible and other assets. . . . . . . . . . . . . . . . . . . . . . 96 156
--------- ----------
$ 47,145 $ 4 8,260
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,032 $ 5,372
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 1,219 1,377
Accrued payroll and employee compensation. . . . . . . . . . . . . . 1,206 1,046
--------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . 5,457 7,795
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 127 148
--------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 5,584 7,943
--------- ----------
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized; 10,547,857 and 10,434,593 shares
issued and outstanding, respectively . . . . . . . . . . . . . . 33,517 33,246
Cumulative translation adjustment. . . . . . . . . . . . . . . . . . 16 9
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 8,028 7,062
--------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . . . 41,561 40,317
--------- ----------
$ 47,145 $ 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>
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.. . . . . . . . . . . . . . . . $966 $1,368
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . 694 491
Changes in operating assets and liabilities:
Account receivables. . . . . . . . . . . . 388 (1,480)
Inventories. . . . . . . . . . . . . . . . (2,204) (1,546)
Other assets . . . . . . . . . . . . . . . (120) 182
Accounts payable and accrued liabilities . (2,519) 546
Accrued payroll and employee compensation. 160 (402)
-------- -------
Net cash used in operating activities. (2,635) (841)
INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . (1,420) (871)
-------- -------
Net cash used in investing activities. (1,420) (871)
-------- -------
FINANCING ACTIVITIES:
Net proceeds under bank line of credit. . . . . . 0 1,600
Proceeds from exercise of stock options . . . . . 82 29
Net proceeds from issuance of common stock. . . . 189 92
-------- -------
Net cash provided by financing
activities . . . . . . . . . . . . . 271 1,721
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH. . . . . . . . 7 0
-------- -------
Net (decrease) increase in cash and cash equivalents . (3,777) 9
Cash and cash equivalents at beginning of period . . . 18,926 19
-------- -------
Cash and cash equivalents at end of period . . . . . . $15,149 $28
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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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 results of operations for such periods are not
necessarily indicative of the results expected for the full fiscal year. The
Company's fiscal quarter ends on the Sunday closest to December 31. For ease of
presentation, the Company's quarter end is deemed to be December 31. 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
As required, in the quarter ended December 31, 1997 the Company retroactively
adopted Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per
Share." Basic earnings per share is computed based on the weighted average
number of shares of common stock outstanding during the period. Prior year
periods presented in the income statement also include preferred stock that
was converted into common stock upon the Company's initial public offering.
Diluted earnings per share is computed based on the weighted average number of
6
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shares of both common and preferred stock outstanding during the period, plus
the effect of dilutive stock options and common shares issuable under the
Company's Employee Stock Purchase Plan using the treasury stock method.
NOTE 4 -- INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
--------- ---------
(unaudited)
<S> <C> <C>
Raw materials $ 10,548 $ 8,160
Work-in-process 2,240 2,839
Finished goods 1,517 1,102
-------- ---------
$ 14,305 $ 12,101
-------- ---------
-------- ---------
</TABLE>
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 attorneys' fees and other costs and expenses.
The defendants have not yet been required to answer the allegations in the
complaint, and, on November 24, 1997, filed a Motion to Dismiss with the Court,
which is expected to be ruled upon in early 1998. No discovery has been
conducted, and the outcome of the 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.
7
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ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements usually contain the words "estimate," "anticipate," "expect"
or similar expressions. All forward-looking statements are inherently
uncertain as they are based on various expectations and assumptions concerning
future events and they are subject to numerous known and unknown risks and
uncertainties. The forward-looking statements included herein are based on
current expectations and entail such risks and uncertainties as those set forth
below which could cause the Company's actual results to differ materially from
those projected in the forward-looking statements.
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. In the past, there have been times when the
Company was unable to obtain an adequate supply of such drives and there can be
no assurance that such supply interruptions will not recur.
The Company's future revenue and operating results are also dependent upon
market demand for its TapeXpress line of 36-track products, which could be
adversely affected by newly introduced competitive products and other factors.
Although IBM is the Company's primary customer for this product line, 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, including products related to the Company's new Variable Rate Randomizer
(VR2) encoding technology which was announced on December 11, 1997. Success in
this area cannot be assured because of the inherent uncertainty of development
projects for high technology products, the possible introduction of competing
products in the marketplace, the lengthy cycle for sales and alliances with
large OEM customers and other such factors.
The risks and uncertainties noted above, along with others which could
materially affect the Company's business, are more fully set forth in the "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations," 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.
8
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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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . . . 68.4 64.7 67.7 64.0
----------- ----------- ----------- -----------
Gross profit . . . . . . . . . . . . . . . . 31.6 35.3 32.3 36.0
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing . . . . . . . . . . 12.2 11.7 13.4 13.1
Research and development. . . . . . . . 5.3 6.4 5.9 7.7
General and administrative. . . . . . . 8.5 5.2 9.6 6.4
----------- ----------- ----------- -----------
Total operating expenses . . . . . . 26.0 23.3 28.9 27.2
----------- ----------- ----------- -----------
Income from operations . . . . . . . . . . . 5.6 11.9 3.4 8.8
Other income (expense), net. . . . . . . . . 1.4 -0.5 1.5 -0.5
----------- ----------- ----------- -----------
Income before income taxes . . . . . . . . . 7.0 11.4 4.9 8.3
Provision for income taxes . . . . . . . . . 2.7 4.6 1.9 3.4
----------- ----------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . 4.3% 6.8% 3.0% 4.9%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
NET SALES. Net sales of $18.1 million in the fiscal 1998 second quarter grew
by $2.9 million or 19.1% over sales of $15.2 million in the comparable quarter
of the prior year. The growth was attributable primarily to increased sales of
the LibraryXpress product line, which grew 150% from $3.4 million in the fiscal
1997 second quarter to $8.5 million in the fiscal 1998 second quarter. This
included sales of the new LXS mini-library, which was introduced during the last
quarter of fiscal 1997. Sales of the Company's 36-track products of $5.8
million in the fiscal 1998 second quarter grew by $1.0 million or 20.8% from
$4.8 million in fiscal 1997, due principally to increased sales to IBM. These
gains were partially offset by declines in sales of the Company's more mature
18-track and 9-track products. Combined sales of these two product lines of
$1.6 million declined by 68.6% from $5.1 million in the second quarter of the
prior year, due principally to declines of 18-track products in all sales
channels and 9-track products in the OEM channel. The Company expects that its
customers will continue to migrate to newer technologies and that, as a result,
sales of 18-track and 9-track products will comprise a smaller percentage of its
sales in future quarters.
A summary of the sales mix by product for the periods presented in the statement
of operations is as follows:
9
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Company products:
LibraryXpress . . . . . . . . . . . . 46.9% 22.4% 43.5% 19.6%
36-track. . . . . . . . . . . . . . . 31.9 31.6 27.7 30.6
18-track. . . . . . . . . . . . . . . 2.5 15.3 3.5 14.4
9-track . . . . . . . . . . . . . . . 6.4 17.7 10.5 21.1
Spare parts, controllers, other . . . 7.4 6.6 8.6 7.5
Other products:
DLT distributed product . . . . . . . 4.9 6.2 6.2 6.5
HP distributed product. . . . . . . . - 0.2 - 0.3
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
GROSS PROFIT. The Company's gross profit for the fiscal 1998 second quarter
was $5.7 million, up from $5.4 million in the fiscal 1997 second quarter. As a
percentage of sales, however, the fiscal 1998 gross margin declined to 31.6%
from 35.3% in fiscal 1997. The margin erosion was due primarily to the fact
that a greater portion of sales were made to OEM customers and to upper level
distributors at lower margins relative to the Company's other sales channels.
Additionally, gross margins on the LibraryXpress product line were better in the
prior year because it was relatively new then and prices are typically higher at
product introduction.
SALES AND MARKETING EXPENSE. Sales and marketing expense amounted to
$2.2 million or 12.2% of net sales in the fiscal 1998 second quarter compared to
$1.8 million or 11.7% of net sales in the fiscal 1997 second quarter. The
higher level of expenses is related to the addition of new marketing personnel,
increased spending for promotions and advertising and an expansion of the
Company's European operation.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense amounted
to $957,000 or 5.3% of net sales in the fiscal 1998 second quarter compared to
$979,000 or 6.4% of net sales in the fiscal 1997 second quarter. The reduced
spending was due primarily to a reimbursement of non-recurring engineering
expenses from a major OEM customer related to the development of a new product
which began in the first quarter of fiscal 1998. This reimbursement is expected
to continue through the third quarter of fiscal 1998.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
amounted to $1.5 million or 8.5% of net sales in the fiscal 1998 second quarter
compared to $798,000 or 5.2% of net sales in the fiscal 1997 second quarter.
The fiscal 1997 expenses benefited from a one-time facilities related rebate.
The increased level of expenses in fiscal 1998 also reflects increased legal
fees related to
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the class-action lawsuit filed against the Company, an increase in support
personnel, depreciation on the Company's new computer system, and other costs
incident to being a public company.
OTHER INCOME (EXPENSE), NET. Other income (expense) 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. In
fiscal year 1998, interest income is being generated on the invested IPO
proceeds. Net other income of $258,000 in the fiscal 1998 second quarter
consisted of $220,000 of interest income and $38,000 of foreign currency gains.
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. Diluted net income per share decreased to $.07 in the fiscal
1998 second quarter compared to $.13 in the fiscal 1997 second quarter. Basic
net income per share decreased from $.13 to $.07 in the same time periods. 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. Basic earnings
per share in the prior year also excludes the shares of preferred stock which
were then outstanding but which were converted to common shares upon the IPO.
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
NET SALES. The Company's net sales of $32.1 million in the fiscal 1998 first
half grew by $4.8 million or 17.6% over sales of $27.2 million in the comparable
period of the prior year. Similar to the quarterly results, this growth was
principally the result of increased sales of the LibraryXpress product line,
including sales of the new LXS mini-library which was introduced during the last
quarter of fiscal 1997. LibraryXpress sales grew from $5.4 million in the
fiscal 1997 first half to $14.0 million in 1998, an increase of 159%. Sales of
the Company's 36-track products of $8.9 million in the fiscal 1998 first half
were up from $8.3 million in the prior year, reflecting the start of the supply
agreement with IBM in the fiscal 1997 second quarter. Partially offsetting
these gains were declines in sales of the Company's mature 18-track and 9-track
products, which fell by a combined 55% from $9.7 million in the prior year to
$4.5 million in the current year. Finally, the fiscal 1998 first half sales of
controllers, spare parts, software and other products amounted to $2.8 million,
an increase of 33% over the fiscal 1997 first half sales of $2.1 million.
11
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GROSS PROFIT. The Company's gross profit for the fiscal 1998 first half was
$10.4 million, up from $9.8 million reported in the fiscal 1997 first half.
However, the gross margin percentage declined from 36.0% in 1997 to 32.3% in
1998. Again, this reflects the generation of a greater portion of sales through
the Company's OEM and volume channels in the current year and lower margins on
LibraryXpress sales as that product line matures.
SALES AND MARKETING EXPENSE. Sales and marketing expense amounted to
$4.3 million or 13.4% of net sales in the fiscal 1998 first half compared to
$3.6 million or 13.1% of net sales in the fiscal 1997 first half. The higher
level of expense includes the addition of new marketing personnel and an
expanded advertising and promotion program.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense amounted
to $1.9 million or 5.9% of net sales in the fiscal 1998 first half compared to
$2.1 million or 7.7% of net sales in the fiscal 1997 first half. The reduced
spending was due primarily to a reimbursement of non-recurring engineering
expenses from a major OEM customer related to the development of a new product
which began in the first quarter of fiscal 1998. This reimbursement is expected
to continue through the third quarter of fiscal 1998.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
amounted to $3.1 million or 9.6% of net sales in the fiscal 1998 first half
compared to $1.7 million or 6.4% of net sales in the fiscal 1997 first half.
The increased level of expenses reflects a one-time facilities-related rebate in
the prior year, a high level of costs incurred to recruit and attract several
top level personnel, legal fees related to the class-action lawsuit filed
against the Company, depreciation on the Company's new computer system, and
other costs incident to being a public company.
OTHER INCOME (EXPENSE), NET. In the fiscal 1997 first half, net other expense
of $129,000 consisted almost entirely of interest expense incurred on borrowings
under the Company's revolving bank line of credit. After going public, the net
other income of $468,000 in the fiscal 1998 first half consisted of $464,000 of
interest income generated on invested IPO proceeds and $4,000 of foreign
currency gains.
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. Diluted net income per share decreased to $.09 in the fiscal
1998 first half compared to $.17 in the first half of the prior year. Basic net
income per share decreased from $.18 to $.09 in the same time periods. In
addition to the lower level of earnings, the calculation of earnings per share
in the most recent half reflects
12
<PAGE>
a higher number of shares outstanding as a result of the Company's initial
public offering in February 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal 1998 first half, the Company used $3.8 million of cash
primarily to fund increased working capital. Included in this net change was an
increase of $2.2 million in inventories and a net paydown/reduction of $2.5
million in payables/accruals, affected primarily to increase the Company's
supply of DLT tape drives and pay off creditors. An additional $1.4 million was
spent on capital equipment during the period, primarily equipment and
software related to the Company's new computer system. Offsetting these uses
was the generation of $271,000 in cash from the sale of stock to employees
and the exercise of stock options and $388,000 generated by a reduced level
of accounts receivable. On an aggregate basis, these activities reduced the
company's cash reserves to $15.1 million at December 31, 1997. At that
date, the Company's working capital amounted to $37.2 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.
13
<PAGE>
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. On November 24, 1997, the defendants filed a Motion to Dismiss with
the Court, which is expected to be ruled upon in early 1998. 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.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 11, 1997, the Company held its Annual Meeting of Stockholders. At
the meeting, the stockholders approved management's slate of directors and all
four additional proposals with the following vote distribution:
<TABLE>
<CAPTION>
Broker
Item Affirmative Negative Withheld Non-vote
---- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
ELECTION OF BOARD MEMBERS
Scott McClendon 9,133,411 153,473
Martin D. Gray 9,133,211 153,673
William W. Otterson 9,132,411 154,473
Joseph D. Rizzi 9,132,911 153,973
John A. Shane 9,133,911 152,973
OTHER MATTERS
1) Amend the bylaws to set the
number of directors at five(5) 9,025,630 17,023 3,581 240,650
2) Increase the number of shares
issuable under the Company's
1995 Stock Option Plan 6,522,361 843,782 6,050 1,914,691
3) Approval of the 1997 Executive
Stock Option Plan 6,560,295 709,900 9,500 2,007,189
4) Reappoint Price Waterhouse LLP
as independent auditors for
fiscal year 1998 7,939,060 1,344,424 3,400 -
</TABLE>
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
15
<PAGE>
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: January 31, 1998 By: /s/ Vernon A. LoForti
----------------------
Vernon A. LoForti
Vice President and
Chief Financial Officer
16
<PAGE>
OVERLAND DATA, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ -----------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Net income ....................................... $ 789,000 $1,044,000 $ 966,000 $1,368,000
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Weighted average number of shares of
common stock outstanding........................ 10,538,000 5,209,000 10,498,000 5,158,000
Weighted average number of shares of
preferred stock outstanding..................... - 2,337,000 - 2,337,000
Cheap stock adjustment............................ - 195,000 - 188,000
----------- ---------- ---------- ----------
Total.......................................... 10,538,000 7,741,000 10,498,000 7,683,000
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Basic earnings per share.......................... $ 0.07 $ 0.13 $ 0.09 $ 0.18
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
DILUTED EPS COMPUTATION
Net income ....................................... $ 789,000 $1,044,000 $ 966,000 $1,368,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Weighted average number of shares of
common stock outstanding........................ 10,538,000 5,209,000 10,498,000 5,158,000
Weighted average number of shares of
preferred stock outstanding..................... - 2,337,000 - 2,337,000
Common stock equivalents from the
issuance of options and the employee
stock purchase plan using
the treasury stock method....................... 573,000 551,000 602,000 555,000
Cheap stock adjustment............................ - 195,000 - 188,000
----------- ---------- ----------- ----------
Total.......................................... 11,111,000 8,292,000 11,100,000 8,238,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Diluted earnings per share........................ $ 0.07 $ 0.13 $ 0.09 $ 0.17
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997, BALANCE SHEET AS OF DECEMBER 31, 1997, AND STATEMENT OF
CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,149
<SECURITIES> 0
<RECEIVABLES> 10,763
<ALLOWANCES> 0
<INVENTORY> 14,305
<CURRENT-ASSETS> 42,687
<PP&E> 4,285
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,145
<CURRENT-LIABILITIES> 5,457
<BONDS> 0
0
0
<COMMON> 33,517
<OTHER-SE> 8,044
<TOTAL-LIABILITY-AND-EQUITY> 47,145
<SALES> 32,069
<TOTAL-REVENUES> 0
<CGS> 21,705
<TOTAL-COSTS> 21,705
<OTHER-EXPENSES> 9,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (464)
<INCOME-PRETAX> 1,558
<INCOME-TAX> 592
<INCOME-CONTINUING> 966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 966
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
