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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 September 30, 1999
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 November 17, 1999 there were 10,101,416 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 September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
- -----------------------------------
Item 1. Financial Statements:
Consolidated condensed statement of operations --
Three months ended
September 30, 1999 and 1998....................................................................3
Consolidated condensed balance sheet --
September 30, 1999 and June 30, 1999..........................................................4
Consolidated condensed statement of cash flows --
September 30, 1999 and 1998...................................................................5
Notes to consolidated condensed financial statements................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................................10
PART II - OTHER INFORMATION
- -------------------------------
Item 1. Legal Proceedings...................................................................................16
Item 4. Submission of Matters to a Vote of Security Holders.................................................17
Item 6. Exhibits and Reports on Form 8-K....................................................................17
Signatures..........................................................................................18
</TABLE>
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
SEPTEMBER 30,
1999 1998
-------- --------
<S> <C> <C>
Net sales:
Product sales .................................... $ 22,645 $ 24,372
Royalties ........................................ 200 --
-------- --------
Total net sales ............................... 22,845 24,372
Cost of goods sold ...................................... 16,603 16,956
-------- --------
Gross profit ............................................ 6,242 7,416
-------- --------
Operating expenses:
Sales and marketing .............................. 3,132 2,789
Research and development ......................... 1,599 1,368
General and administrative ....................... 1,618 1,321
-------- --------
Total operating expenses ...................... 6,349 5,478
-------- --------
Income (loss) from operations ........................... (107) 1,938
Other income (expense):
Interest, net .................................... 175 236
Other income (expense), net ...................... (4) 35
-------- --------
Income before income taxes .............................. 64 2,209
Provision for income taxes .............................. 25 861
-------- --------
Net income .............................................. $ 39 $ 1,348
-------- --------
-------- --------
Earnings per share:
Basic ............................................ $ 0.00 $ 0.13
-------- --------
-------- --------
Diluted .......................................... $ 0.00 $ 0.12
-------- --------
-------- --------
Number of shares used in computing earnings per share:
Basic ............................................ 10,088 10,540
-------- --------
-------- --------
Diluted .......................................... 10,589 10,895
-------- --------
-------- --------
</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>
SEPTEMBER 30, JUNE 30,
1999 1999
-------- --------
<S> <C> <C>
ASSETS: . (unaudited)
Current assets:
Cash and cash equivalents ............................... $ 16,061 $ 16,199
Accounts receivable, less allowance for doubtful accounts
and returns of $893 and $885, respectively ........ 12,437 13,885
Inventories ............................................. 18,268 17,704
Deferred income taxes ................................... 1,375 1,375
Other current assets .................................... 2,230 2,136
-------- --------
Total current assets ....................... 50,371 51,299
Property and equipment, net ..................................... 4,491 4,657
Other assets .................................................... 331 274
-------- --------
$ 55,193 $ 56,230
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable ........................................ $ 5,621 $ 5,615
Accrued liabilities ..................................... 2,029 2,876
Accrued payroll and employee compensation ............... 1,574 1,827
-------- --------
Total current liabilities................... 9,224 10,318
Deferred income taxes ........................................... 441 441
Other liabilities ............................................... 768 664
-------- --------
Total liabilities .......................... 10,433 11,423
-------- --------
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized; 10,093,166 and 10,089,668 shares
issued and outstanding, respectively............... 30,774 31,030
Accumulated other comprehensive income (loss) ........... 111 (59)
Retained earnings ....................................... 13,875 13,836
-------- --------
Total shareholders' equity.................. 44,760 44,807
-------- --------
$ 55,193 $ 56,230
-------- --------
-------- --------
</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,
1999 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .............................................. $ 39 $ 1,348
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization ..................... 405 335
Gain on disposal of assets ........................ 5 --
Changes in operating assets and liabilities:
Accounts receivable .......................... 1,448 3,037
Inventories .................................. (564) (527)
Other assets ................................. (151) (16)
Accounts payable and accrued liabilities ..... (737) 396
Accrued payroll and employee compensation .... (253) (20)
-------- --------
Net cash provided by operating activities 192 4,553
INVESTING ACTIVITIES:
Capital expenditures .................................... (244) (190)
-------- --------
Net cash used in investing activities ... (244) (190)
-------- --------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options ................. 3 32
Stock repurchases ....................................... (415) (621)
Net proceeds from issuance of common stock .............. 156 176
-------- --------
Net cash used in financing activities ... (256) (413)
-------- --------
Effect of exchange rate changes on cash ......................... 170 18
-------- --------
Net (decrease) increase in cash and cash equivalents ............ (138) 3,968
Cash and cash equivalents at the beginning of the period ........ 16,199 15,550
-------- --------
Cash and cash equivalents at the end of the period .............. $ 16,061 $ 19,518
-------- --------
-------- --------
</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 first
fiscal quarter ends on the Sunday closest to September 30. For ease of
presentation, the Company's first fiscal 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 Annual Report on Form 10-K for the
fiscal year ended June 30, 1999 on file with the Securities and Exchange
Commission.
NOTE 2 -- NET INCOME PER SHARE
Basic earnings per share ("EPS") is computed based on the weighted average
number of shares of common stock outstanding during the period. Diluted EPS is
computed based on the weighted average number of shares of common stock
outstanding during the period increased by the weighted average number of common
stock equivalents outstanding during the period, using the treasury stock
method. Anti-dilutive common stock equivalents excluded from the computation
of diluted earnings per share amounted to $705,000 and $952,000 for the three
months ended September 30, 1999 and 1998, respectively.
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A reconciliation of the calculation of basic and diluted EPS is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------ -------
(unaudited)
<S> <C> <C>
Net income ........................... $ 39 $ 1,348
------- -------
------- -------
BASIC EPS:
Weighted average number of common
stock shares outstanding ....... 10,088 10,540
------- -------
------- -------
Basic earnings per share ............. $ 0.00 $ 0.13
------- -------
------- -------
DILUTED EPS:
Weighted average number of common
stock shares outstanding ........ 10,088 10,540
Common stock equivalents from the
issuance of options using the
treasury stock method ........... 501 355
------- -------
10,589 10,895
------- -------
------- -------
Diluted earnings per share ........... $ 0.00 $ 0.12
------- -------
------- -------
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income includes, in addition to net income, foreign currency
translation effects which are charged or credited to the accumulated other
comprehensive income account within shareholders' equity.
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Comprehensive income for the three months ended September 30, 1999 and 1998 was
as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------ ------
(unaudited)
<S> <C> <C>
Net income ........................ $ 39 $1,348
Foreign currency translation effect 170 18
------ ------
Comprehensive income .............. $ 209 $1,366
------ ------
------ ------
</TABLE>
NOTE 4 -- INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------- -------
(unaudited)
<S> <C> <C>
Raw materials ............ $ 9,455 $ 9,119
Work-in-process .......... 3,356 3,074
Finished goods ........... 5,457 5,511
------- -------
$18,268 $17,704
------- -------
------- -------
</TABLE>
NOTE 5 -- LITIGATION
The Company, its directors and certain of its officers were named as defendants
in two 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 purported to represent a class of all persons who purchased the
Company's Common Stock between February 21, 1997 and March 14, 1997. The
complaints alleged 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 the Securities and Exchange Commission declared effective on February 21,
1997. The plaintiffs sought rescission of their share purchases or rescissory
damages if their shares had been sold, as well as attorneys' fees and other
costs and expenses. The Shareholder who filed the first of these two lawsuits
was appointed to serve as the lead plaintiff on September 29, 1998, and on
December 17, 1998, the court certified the shareholder class, allowing the
litigation to proceed as a class action.
8
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The defendants answered the lead plaintiff's First Amended Complaint, denying
all material allegations and disavowing any wrongdoing. Factual discovery is
complete, but expert depositions were stayed by the court pending the conduct of
settlement conferences. No trial date has been scheduled by the court.
On September 24, 1999, the lead plaintiff and the defendants reached an
agreement in principle to settle the entire litigation, and that agreement was
memorialized in a Memorandum of Understanding dated October 4, 1999. The
settlement is subject to negotiation of a definitive agreement and final
approval by the court. It is expected that a Stipulation of Settlement will be
finalized for filing with the court in November 1999, at which time the court
will be asked to schedule a hearing for final approval in early 2000. In the
interim, the litigation remains stayed.
The Company maintains directors' and officers' liability insurance to cover the
settlement payment contemplated by the Memorandum of Understanding, less certain
unreimbursed defense costs. As a result, the Company incurred a one-time,
pre-tax charge of $242,000 for the fiscal quarter ended September 30, 1999.
In July 1998, a lawsuit was filed in the U.S. District Court for the District
of Massachusetts alleging infringement by the Company related to its use of
the "GUTS" and "Guaranteed Up Time Service" trademarks. The lawsuit is
currently in the course of discovery. Management believes that the
disposition of this matter will not have a material adverse effect on the
Company's financial position or results of operations.
9
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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. The Company disclaims any obligation to update or
publicly announce revisions to any such statements to reflect future events or
developments.
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 depend on 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 has been the sole source for DLT tape
technology. At certain times in the past, the Company has not obtained an
adequate supply of such drives and there can be no assurance that such supply
interruptions will not recur. In September 1998, Quantum announced that it had
entered into a manufacturing license and marketing agreement with Tandberg Data
ASA, through which Tandberg can become an independent second source of DLT tape
drives. Tandberg is now developing this capability, which is expected to
mitigate Overland Data's dependence on Quantum.
The Company's future revenue and operating results also depend on 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, and IBM's orders
can fluctuate from quarter to quarter.
The Company's future success also will depend on its ability to develop,
manufacture and market new and enhanced products on a timely and cost effective
basis, including products and licensing agreements related to the Company's new
Variable Rate Randomizer ("VR2") encoding technology. Although the Company has
now entered into licensing agreements with Tandberg Data ASA, Imation Corp. and
Seagate, the later occurring in the second quarter of fiscal 2000, the success
of VR2 depends on the success of the licensee's tape drives which ultimately
incorporate VR2. Success of VR2 cannot be assured because of the potential
difficulty of incorporating it into the electronics of new tape technology
platforms, the possible introduction of competing
10
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techniques to enhance tape drive performance, and the uncertain market
acceptance of VR2 enhanced tape drives.
The risks and uncertainties noted above, along with others which could
materially and adversely affect the Company's business, are set forth more fully
in the "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other sections of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999 on file with the
Securities and Exchange Commission.
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 Company's unaudited condensed consolidated financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------ ------
<S> <C> <C>
Net sales ................................. 100.0% 100.0%
Cost of goods sold ........................ 72.7 69.6
----- -----
Gross profit .............................. 27.3 30.4
----- -----
----- -----
Operating expenses:
Sales and marketing ............... 13.7 11.4
Research and development .......... 7.0 5.6
General and administrative ........ 7.1 5.4
----- -----
Total operating expenses ....... 27.8 22.4
----- -----
----- -----
Income (loss) from operations ............. (0.5) 8.0
Other income (expense):
Interest, net ..................... 0.8 1.0
Other income (expense), net ....... 0.0 0.1
----- -----
Income before income taxes ................ 0.3 9.1
Provision for income taxes ................ 0.1 3.5
----- -----
Net income ................................ 0.2% 5.6%
----- -----
----- -----
</TABLE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NET SALES. Net sales of $22.8 million in the first quarter of fiscal year
2000 were $1.6 million or 6.6% below net sales of $24.4 million in the
comparable quarter of the prior fiscal year. Sales in the current quarter
included $200,000 of royalty revenues from the Company's VR2 tape encoding
technology. No such revenues were recorded in the prior year quarter. Improved
sales during the first quarter of fiscal year 2000 of
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the Company's LibraryXpress products, distributed DLT tape drives, and spares
and accessories were insufficient to offset the decline in shipments of mature
products (36, 18, and 9-track products). Sales of the LibraryXpress product
family increased by 50.4% from $11.3 million in the first quarter of fiscal year
1999 to $17.0 million in the first quarter of fiscal year 2000, primarily due to
strong shipments to Compaq, the Company's largest customer. Sales of
LibraryXpress products to Compaq grew 97.9% compared to the same quarter of the
prior year. Sales to all customers of distributed DLT drives rose 16.7% from
$1.2 million in the first quarter of fiscal year 1999 to $1.4 million in the
first quarter of fiscal year 2000. Sales of the Company's mature 36-track
products declined by 72.8% from $9.2 million (which included record shipments to
OEM customers) in the first quarter of fiscal year 1999 to $2.5 million in the
first quarter of fiscal year 2000. Sales of 9-track and 18-track products, which
were discontinued by the Company at the end of fiscal 1999, amounted to $1.3
million in the first quarter of fiscal year 1999 and only $80,000 in the first
quarter of fiscal year 2000.
A summary of the sales mix by product for the periods presented in the statement
of operations follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----- -----
<S> <C> <C>
Company products:
LibraryXpress .......................... 74.5% 46.3%
36-track ............................... 11.0 37.7
18-track ............................... 0.0 0.2
9-track ................................ 0.4 5.3
Spare parts, controllers, other ....... 6.9 5.5
VR2 royalties ......................... 0.9 0.0
Other products:
DLT distributed product ............... 6.3 5.0
----- -----
100.0% 100.0%
----- -----
----- -----
</TABLE>
GROSS PROFIT. The Company's gross profit for the first quarter of fiscal
year 2000 was $6.2 million, down 16.2% from $7.4 million in the first quarter of
fiscal year 1999. As a percentage of sales, the gross margin of 27.3% in the
first quarter of fiscal year 2000 was lower than the gross margin of 30.4% in
the comparable quarter of the prior year. This margin decline from the prior
year was the result of changes in customer and product mixes, primarily the
decline in sales of mature products which carried higher margins.
SALES AND MARKETING EXPENSE. Sales and marketing expense amounted to $3.1
million or 13.7% of net sales in the first quarter of fiscal year 2000 compared
to $2.8 million or 11.4% of net sales in the first quarter of fiscal year 1999.
The
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increased expenses in the current quarter are due primarily to higher sales
personnel costs and marketing consultant fees.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense amounted
to $1.6 million or 7.0% of net sales in the first quarter of fiscal year 2000
compared to $1.4 million or 5.6% of net sales in the first quarter of fiscal
year 1999. The increased expenses in the current quarter reflect personnel
additions and higher development material costs related to new product
development programs.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
amounted to $1.6 million or 7.1% of net sales in the first quarter of fiscal
year 2000 compared to $1.3 million or 5.4% of net sales in the first quarter of
fiscal year 1999. The increase in expenses was the result of a one-time charge
of $242,000 consisting of unreimbursed legal fees related to the settlement of
the shareholder class action lawsuit that had been pending since March 1997.
OTHER INCOME, NET. In the first quarter of the fiscal year 2000, net other
income amounted to $171,000, comprised primarily of interest income of $175,000.
This compared to net other income in the first quarter of fiscal year 1999 of
$271,000, comprised primarily of interest income of $236,000 and foreign
currency gains of $28,000. Reduced interest income in the current quarter
reflects lower cash balances relative to the comparable quarter of the prior
year.
INCOME TAXES. The Company's effective tax rate in the first quarter of
fiscal year 2000 was 39.8% compared to 39% in the first quarter of fiscal year
1999. The effective tax rate for all of fiscal year 1999 was 39.5% and is
expected to remain unchanged for fiscal year 2000.
NET INCOME. Net income amounted to $39,000 in the first quarter of fiscal
year 2000 compared to $1.3 million in the first quarter of fiscal year 1999.
Both diluted and basic net income per share for the first quarter of fiscal year
2000 was $0.0, down $0.12 and $0.13, respectively, from the comparable quarter
of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 2000, the Company consumed $138,000 of
cash. Cash uses included a $990,000 increase in accounts payable and accrued
liabilities, $415,000 to repurchase shares of the Company's common stock
pursuant to its share buyback program, and $244,000 invested in capital
equipment. Partially offsetting these items was a decrease in accounts
receivable of $1.4 million and a currency translation adjustment of $170,000.
These activities, on an aggregate basis, decreased the Company's cash reserves
to $16.1 million at September 30, 1999 compared to $16.2 million at June 30,
1999. The Company's working capital amounted to $41.1 million with no
outstanding funded debt. The Company believes that these resources will be
sufficient to fund its operations and to provide for its growth into the
foreseeable future.
13
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YEAR 2000 COMPLIANCE
THIS STATEMENT IS INTENDED AS A YEAR 2000 READINESS DISCLOSURE.
The year 2000 computer issue arises because certain computer systems experience
problems handling dates in and beyond the year 1999. Consequently, some computer
hardware and software will need to be modified prior to the year 2000 in order
to remain functional. The widespread use and dependency on computer technology
in all areas of modern commerce may pose significant risks to companies,
including Overland, from year 2000 issues. These risks include potential
disruptions or failures within products and operations of Overland and its
suppliers, customers and service providers. Because a large part of the risk is
indirect through suppliers, service providers and customers, the Company cannot
accurately predict the impact of the year 2000 issue on the Company, its
financial condition and results of operations.
The Company has now completed its year 2000 readiness work. Its approach
included four major phases consisting of inventory, assessment, resolution and
internal testing/certification.
The Company has completed its analysis of its own internally manufactured
products and concluded that none of the products sold by the Company has any
date functionality built into it, with the exception of certain products that
employ a display-only date/time function. This function, which is year 2000
compliant, allows the operator to set the LCD front panel display date and time
from the front panel.
The Company then focused on the year 2000 functionality of its internal computer
systems and operating equipment. Overland completed its year 2000 preparations
for its primary business systems in October 1997 when the Company replaced its
internal enterprise wide computer system, which it believes to be year 2000
compliant. This system replacement included material forecasting, inventory
management, manufacturing management, order administration, accounts payable,
accounts receivable and financial management. The Company then undertook a year
2000 assessment of its secondary business systems, both information technology
("IT") and non-IT systems. This assessment is complete and no significant issues
arose. The Company remedied all year 2000 issues as they were revealed. The
Company has completed all remediation efforts and has also successfully
completed all testing and certification.
The Company's final year 2000 focus was on external elements. As indicated
above, the Company's risk assessment included understanding the year 2000
readiness of its suppliers. The Company's risk assessment process associated
with suppliers included soliciting and analyzing responses to questionnaires
distributed to these suppliers, as well as web-site and SEC filing research,
telephone surveys, and onsite interviews with certain critical suppliers. The
Company has completed interviews with all of its critical suppliers. All of the
critical suppliers surveyed have year 2000 plans in place. No
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suppliers appear to present major year 2000 issues at this time. All critical
suppliers are currently certified.
The year 2000 readiness of the Company's key supplier, Quantum Corporation, is
of particular importance. Quantum has implemented a year 2000 compliance program
using a resolution approach based on the U.S. General Accounting Office Year
2000 Assessment Guide. Quantum's program included the evaluation of all of its
products and internal systems and a review of the readiness of its suppliers and
service providers. On August 11, 1999, Quantum indicated in its Form 10-Q filing
with the SEC that it expected to be year 2000 compliant and certified by August
31, 1999.
The Company also worked closely with key customers to evaluate their readiness
for year 2000 and performed site visits where deemed necessary. The ability of
customers to deal with year 2000 issues may affect their operations and their
ability to order and pay for products. Based on the level of risk assessed, the
Company may develop contingency plans to address possible changes in customer
order patterns. The Company does not know how year 2000 programs may impact
customer spending patterns. As customers focus on preparing their business for
the year 2000 in the near term, capital budgets may be spent on remediation
efforts, potentially delaying the purchase and implementation of new systems,
thereby creating less demand for the Company's products and services. The
Company does not know the resulting impact on its revenues at this time.
Overland believes that its most likely worst case scenario would be attributed
to third party factors, rather than its internal systems and applications.
Because the Company relies heavily on third parties to manufacture and transport
products and services, a failure of third party systems could disrupt service,
which could delay shipments of Overland's products.
Although not directly related to the year 2000 issue, the cost of installing and
implementing the Company's new ERP system in October 1997 was approximately $1.5
million. The Company has had a policy since 1995 of purchasing year 2000
compliant products where possible. The Company has incurred less than $150,000
of other costs to address the year 2000 issue, amounting to less than 10% of the
Company's IT budget. No significant system projects have been deferred due to
the year 2000 program.
Based on its assessment and remediation efforts, the Company has not had any
significant disruption to its operations or operating results as a result of
year 2000 issues. The Company has taken all steps that it believes were
appropriate to identify and resolve any year 2000 issues. However, there can be
no assurance that the failure to ensure year 2000 capability by suppliers,
service providers, customers, or other third parties would not have a material
adverse affect on the Company's business, financial condition and results of
operations.
The foregoing statements are based on management's best estimates at the present
time, which were derived using numerous assumptions of future events and
conditions, including third party modification plans, third party assurances of
year 2000 compliance and other factors. There can be no assurance that these
assumptions will be accurate, that the estimates will be achieved, and actual
results could differ materially from those anticipated.
15
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PART II -- OTHER INFORMATION
ITEM 1. -- LEGAL PROCEEDINGS
The Company, its directors and certain of its officers were named as defendants
in two 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 purported to represent a class of all persons who purchased the
Company's Common Stock between February 21, 1997 and March 14, 1997. The
complaints alleged 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 the Securities and Exchange Commission declared effective on February 21,
1997. The plaintiffs sought rescission of their share purchases or rescissory
damages if their shares had been sold, as well as attorneys' fees and other
costs and expenses. The Shareholder who filed the first of these two lawsuits
was appointed to serve as the lead plaintiff on September 29, 1998, and on
December 17, 1998, the court certified the shareholder class, allowing the
litigation to proceed as a class action.
The defendants answered the lead plaintiff's First Amended Complaint, denying
all material allegations and disavowing any wrongdoing. Factual discovery is
complete, but expert depositions were stayed by the court pending the conduct of
settlement conferences. No trial date has been scheduled by the court.
On September 24, 1999, the lead plaintiff and the defendants reached an
agreement in principle to settle the entire litigation, and that agreement was
memorialized in a Memorandum of Understanding dated October 4, 1999. The
settlement is subject to negotiation of a definitive agreement and final
approval by the court. It is expected that a Stipulation of Settlement will be
finalized for filing with the court in November 1999, at which time the court
will be asked to schedule a hearing for final approval in early 2000. In the
interim, the litigation remains stayed.
The Company maintains directors' and officers' liability insurance to cover the
settlement payment contemplated by the Memorandum of Understanding, less certain
unreimbursed defense costs. As a result, the Company incurred a one-time,
pre-tax charge of $242,000 for the fiscal quarter ended September 30, 1999.
In July 1998, a lawsuit was filed in the U.S. District Court for the District
of Massachusetts alleging infringement by the Company related to its use of
the "GUTS" and "Guaranteed Up Time Service" trademarks. The lawsuit is
currently in the course of discovery. Management believes that the
disposition of this matter will not have a material adverse effect on the
Company's financial position or results of operations.
16
<PAGE>
ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the first quarter
of fiscal year 2000.
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
17
<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: November 17, 1999 By: /s/ Vernon A. LoForti
----------------------
Vernon A. LoForti
Vice President and
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE 3 MONTHS ENDED SEP. 30,
1999, THE CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEP. 30,1999 AND THE
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS FOR THE 3 MONTHS ENDED SEP. 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,061
<SECURITIES> 0
<RECEIVABLES> 12,437
<ALLOWANCES> 0
<INVENTORY> 18,268
<CURRENT-ASSETS> 50,371
<PP&E> 4,491
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,193
<CURRENT-LIABILITIES> 9,224
<BONDS> 0
0
0
<COMMON> 30,774
<OTHER-SE> 13,986
<TOTAL-LIABILITY-AND-EQUITY> 55,193
<SALES> 22,845
<TOTAL-REVENUES> 22,845
<CGS> 16,603
<TOTAL-COSTS> 16,603
<OTHER-EXPENSES> 6,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175
<INCOME-PRETAX> 64
<INCOME-TAX> 25
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
