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Overland Storage Inc. Reports Operating Results (10-Q)

November 12, 2009 | About:
10qk

10qk

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Overland Storage Inc. (OVRL) filed Quarterly Report for the period ended 2009-09-27.

Overland Storage, Inc. is a global supplier of innovative hardware and software storage solutions for mid-range computer networks. The Company's reputation for delivering high availability products sets the standard for intelligent, automated and scalable storage solutions. Overland sells itsproducts worldwide through leading OEMs, commercial distributors, storage integrators and value-added resellers. Overland Storage Inc. has a market cap of $10.1 million; its shares were traded at around $0.79 with and P/S ratio of 0.1.

Highlight of Business Operations:

We reported net revenue of $19.3 million for the first quarter of fiscal 2010, compared with $32.3 million for the first quarter of fiscal 2009. The decline in net revenue resulted in a net loss of $3.7 million, or $0.29 per share, for the first quarter of fiscal 2010 compared with a net loss of $6.9 million, or $0.54 per share, for the first quarter of fiscal 2009.

Liquidity and capital resources. Historically, our primary source of liquidity has been cash generated from operations. However, in the first quarter of fiscal 2010, we incurred a net loss of $3.7 million and the balance of cash and cash equivalents declined by $1.5 million. At September 30, 2009, we had $4.0 million of cash and cash equivalents compared with $5.5 million at June 30, 2009. On November 4, 2009, we sold 6,210,000 shares of our common stock through a public offering of common stock at $0.70 per share for gross proceeds of $4.3 million (estimated net proceeds of $3.7 million). We have no unused source of liquidity at this time. Cash management and preservation continues to be a top priority. We expect to incur negative operating cash flows during the remainder of calendar 2009 as we continue to change our business model and improve operational efficiencies.

Research and Development Expenses. Research and development expenses decreased to $1.5 million during the first quarter of fiscal 2010 from $3.2 million during the first quarter of fiscal 2009. The decrease of approximately $1.7 million, or 53.1%, was primarily a result of (i) a decrease of $1.3 million in employee and related expenses (including travel costs) associated with a decrease in average headcount by 23 employees and the 10.0% pay cut enacted in January 2009, (ii) a decrease of $0.2 million in development expense associated with management re-focusing its efforts related to our product roadmap and (iii) a decrease of $0.1 million in severance costs associated with the August 2008 restructuring plan.

General and Administrative Expenses. General and administrative expenses decreased to $2.7 million during the first quarter of fiscal 2010 from $3.0 million for the first quarter of fiscal 2009. The decrease of approximately $0.3 million, or 10.0%, was primarily the result of (i) a decrease of $0.4 million in outside services fees due to cost reduction efforts and (ii) a decrease of approximately $0.3 million in employee and related expenses (including travel costs) associated with a the 10.0% pay cut enacted in January 2009. These decreases were partially offset by a (i) $0.3 million increase in severance expense associated with an executive officer and (ii) a $0.1 million increase in legal expenses associated with our October 2009 workforce restructurings.

Interest Expense. Interest expense totaled $0.4 million during the first quarter of fiscal 2010 compared with $13,000 during the first quarter of fiscal 2009. In fiscal 2009, we entered into two non-OEM accounts receivable financing agreements and converted $2.3 million in accounts payable to a note (the Anacomp note). Under the non-OEM accounts receivable financing agreements we recorded interest expense of $0.3 million, including $35,000 in amortization of debt issuance costs. Interest expense associated with our note payable to Anacomp included $0.1 million during the first quarter of fiscal 2010. Interest expense in the first quarter of fiscal 2009 was entirely associated with the note payable to Adaptec.

As of September 30, 2009, we had negative working capital of $6.5 million, reflecting a $2.8 million decrease in current assets and a $1.1 million increase in current liabilities during the first quarter of fiscal 2010. The decrease in current assets is primarily attributable to the use of cash in operating activities, reduced sales and maintaining lower inventory balances. The increase in current liabilities is primarily attributable to a reclassification of $0.7 million in long-term debt to current debt during the first quarter of fiscal 2010. Current liabilities associated with our non-OEM accounts receivable financing arrangements, including accrued interest, remained constant at $4.2 million as of September 30 and June 30, 2009.

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