UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): July 22, 2014 (January 21, 2014)
OVERLAND STORAGE, INC.
(Exact name of registrant as specified in its charter)
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California |
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000-22071 |
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95-3535285 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(I.R.S. Employer
Identification No.) |
9112 Spectrum Center Boulevard, San Diego, California 92123
(Address of principal executive offices, including zip code)
(858) 571-5555
(Registrants telephone number, including area code)
Not Applicable
(Former
name or former address, if changed since last report)
Check the appropriate box below
if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
x |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
On January 22, 2014, Overland Storage, Inc. (Overland) filed a
report on Form 8-K to report the completion of the acquisition of Tandberg Data Holdings S.à r.l. (Tandberg), which was consummated on January 21, 2014. Although not required to be filed, Tandbergs audited financial
statements as of, and for the year ended December 31, 2013, are being filed as Exhibit 99.1 to this Current Report on Form 8-K, and Tandbergs Managements Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 2013 is being filed as Exhibit 99.2 to this Current Report on Form 8-K, in each case to facilitate future filings by Overland.
Item 9.01 |
Financial Statements and Exhibits |
(d) Exhibits
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Exhibit Number |
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Description |
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23.1 |
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Consent of RSM Deutschland GmbH Wirtschaftsprüfungsgesellschaft, Independent Registered Public Accounting Firm. |
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99.1 |
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Audited consolidated financial statements of Tandberg as of, and for the year ended, December 31, 2013. |
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99.2 |
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Management Discussion and Analysis of Tandberg for the year ended December 31, 2013. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
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OVERLAND STORAGE, INC. |
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Date: July 22, 2014 |
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/s/ Kurt L. Kalbfleisch |
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Name: Kurt L. Kalbfleisch Title: Senior Vice
President, Finance and Chief Financial Officer |
EXHIBIT INDEX
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Exhibit Number |
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Description |
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23.1 |
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Consent of RSM Deutschland GmbH Wirtschaftsprüfungsgesellschaft, Independent Registered Public Accounting Firm. |
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99.1 |
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Audited consolidated financial statements of Tandberg as of, and for the year ended, December 31, 2013. |
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99.2 |
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Management Discussion and Analysis of Tandberg for the year ended December 31, 2013. |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion of our report dated May 14, 2014, with respect to the consolidated financial statements of Tandberg Data Holdings S.ar.l. in this
Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2014 by Overland Storage, Inc., and to the reference to us in such Current Report on Form 8-K.
/s/ RSM Deutschland GmbH Wirtschaftsprüfungsgesellschaft
Berlin, Germany
July 22, 2014
Exhibit 99.1
Tandberg Data Holdings S.à r.l.
Consolidated Financial Statements
December 31, 2013 and 2012
Table of Contents
Independent Auditors Report
To the Shareholders of
Tandberg Data Holdings S.à r.l.
and its subsidiaries
Luxembourg, Grand Duchy of Luxembourg
Report on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of Tandberg Data Holdings S.à r.l. and its subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, consolidated statements of equity
(deficit), consolidated statements of comprehensive loss and consolidated statements of cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America: this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States if America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tandberg Data
Holdings S.à r.l. and their subsidiaries as of December 31, 2013 and 2012, and the results of their operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States
of America.
Emphasis of Matter
As discussed in Note
10, the Company has entered into a definitive agreement to be acquired by Overland Storage, Inc. The acquisition was completed in January 2014. The Companys ability to continue as a going concern is dependent upon continued future funding from
the Companys shareholders.
Our opinion is not modified with respect to these matters.
/s/ RSM Deutschland GmbH Wirtschaftsprüfungsgesellschaft
Berlin, Germany
May 14, 2014
1
Tandberg Data Holdings S.à r.l.
Consolidated Balance Sheets
(in thousands USD)
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Assets |
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December 31, 2013 |
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December 31, 2012 |
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Current assets |
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Cash and cash equivalents |
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$ |
2,625 |
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$ |
2,841 |
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Accounts receivable, net |
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10,128 |
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10,827 |
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Inventories |
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5,776 |
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7,066 |
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Other current assets |
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1,226 |
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1,864 |
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Total current assets |
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19,755 |
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22,598 |
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Non-current assets |
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Property, plant and equipment, net |
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3,102 |
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3,518 |
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Goodwill and trade name |
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2,220 |
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2,220 |
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Intangible assets, net |
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16,932 |
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19,394 |
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Deposits |
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339 |
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162 |
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Deferred tax assets |
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3 |
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Total non-current assets |
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22,593 |
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25,297 |
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Total assets |
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$ |
42,348 |
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$ |
47,895 |
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See accompanying notes to consolidated financial statements
2
Tandberg Data Holdings S.à r.l.
Consolidated Balance Sheets (continued)
(in thousands USD)
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Liabilities and Equity (Deficit) |
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December 31, 2013 |
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December 31, 2012 |
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Current liabilities |
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Debt to related party |
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$ |
57,488 |
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$ |
43,139 |
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Credit facility |
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1,290 |
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1,285 |
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Trade accounts payable |
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7,513 |
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7,465 |
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Accrued liabilities |
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6,481 |
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5,580 |
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Deferred tax liabilities |
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40 |
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Total current liabilities |
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72,772 |
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57,509 |
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Non-current liabilities |
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Other long-term liabilities |
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1,399 |
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3,471 |
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Deferred tax liabilities |
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139 |
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|
348 |
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Total non-current liabilities |
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1,538 |
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3,819 |
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Total liabilities |
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74,310 |
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61,328 |
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Commitments and contingencies (Note 7) |
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Equity (deficit) |
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Subscribed capital |
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18 |
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18 |
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Accumulated deficit |
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(32,729 |
) |
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(14,254 |
) |
Accumulated other comprehensive income |
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749 |
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|
803 |
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Total equity (deficit) |
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(31,962 |
) |
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(13,433 |
) |
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Total liabilities and equity (deficit) |
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$ |
42,348 |
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$ |
47,895 |
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See accompanying notes to consolidated financial statements
3
Tandberg Data Holdings S.à r.l.
Consolidated Statements of Operations
(in thousands USD)
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Year Ended December 31, |
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2013 |
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2012 |
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Net revenue: |
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Product revenue |
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$ |
55,997 |
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$ |
61,618 |
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Service revenue |
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4,438 |
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4,261 |
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Royalty fees |
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1,075 |
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1,735 |
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Total net revenue |
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61,510 |
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67,614 |
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Cost of sales: |
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Cost of product revenue |
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41,830 |
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44,765 |
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Cost of service revenue |
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2,612 |
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2,541 |
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Cost of royalty fees |
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822 |
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1,113 |
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Total cost of sales |
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45,264 |
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48,419 |
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Gross profit |
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16,246 |
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|
19,195 |
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Operating expenses: |
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Sales and marketing |
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13,118 |
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13,010 |
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Research and development |
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3,476 |
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3,294 |
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General and administrative |
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13,181 |
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|
10,417 |
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Total operating expenses |
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29,775 |
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|
26,721 |
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Loss from operations |
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(13,529 |
) |
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|
(7,526 |
) |
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|
|
|
|
|
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Interest expense, related party debt |
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|
(4,849 |
) |
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|
(3,866 |
) |
Interest expense |
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|
(225 |
) |
|
|
(291 |
) |
Other (expense) income, net |
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|
(196 |
) |
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255 |
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Loss before income taxes |
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(18,799 |
) |
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(11,428 |
) |
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|
|
|
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Income tax (benefit) expense |
|
|
(324 |
) |
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|
32 |
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|
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|
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Net loss |
|
$ |
(18,475 |
) |
|
$ |
(11,460 |
) |
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|
|
|
|
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|
See accompanying notes to consolidated financial statements
4
Tandberg Data Holdings S.à r.l.
Consolidated Statements of Comprehensive Loss
(in thousands USD)
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Year Ended December 31, |
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2013 |
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2012 |
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Net loss |
|
$ |
(18,475 |
) |
|
$ |
(11,460 |
) |
Other comprehensive loss: |
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Foreign currency translation |
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(54 |
) |
|
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(158 |
) |
|
|
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|
|
|
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Comprehensive loss |
|
$ |
(18,529 |
) |
|
$ |
(11,618 |
) |
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|
|
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|
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|
See accompanying notes to consolidated financial statements
5
Tandberg Data Holdings S.à r.l.
Consolidated Statements of Equity (Deficit)
(in thousands USD)
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|
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|
|
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Subscribed Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive Income/(Loss) |
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Total Deficit |
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Balance as of January 1, 2012 |
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$ |
18 |
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$ |
(2,794 |
) |
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$ |
961 |
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$ |
(1,815 |
) |
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|
|
|
|
|
|
|
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Net loss |
|
|
|
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(11,460 |
) |
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|
|
|
|
|
(11,460 |
) |
Foreign currency translation loss |
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|
|
|
|
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(158 |
) |
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|
(158 |
) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance as of December 31, 2012 |
|
|
18 |
|
|
|
(14,254 |
) |
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|
803 |
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|
|
(13,433 |
) |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net loss |
|
|
|
|
|
|
(18,475 |
) |
|
|
|
|
|
|
(18,475 |
) |
Foreign currency translation loss |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
|
|
(54 |
) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Balance as of December 31, 2013 |
|
$ |
18 |
|
|
$ |
(32,729 |
) |
|
$ |
749 |
|
|
$ |
(31,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
6
Tandberg Data Holdings S.à r.l.
Consolidated Statements of Cash Flows
(in thousands USD)
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Year Ended December 31, |
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2013 |
|
|
2012 |
|
Operating activities: |
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|
|
|
|
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Net loss |
|
$ |
(18,475 |
) |
|
$ |
(11,460 |
) |
Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,123 |
|
|
|
3,082 |
|
Deferred tax benefit |
|
|
(247 |
) |
|
|
|
|
Impairment on trade name |
|
|
|
|
|
|
122 |
|
Accrued interest expense, related party |
|
|
4,907 |
|
|
|
3,955 |
|
Provision for losses on accounts receivable |
|
|
521 |
|
|
|
153 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
178 |
|
|
|
2,448 |
|
Prepayments |
|
|
34 |
|
|
|
190 |
|
Inventories |
|
|
1,290 |
|
|
|
495 |
|
Accounts payable and accrued liabilities |
|
|
48 |
|
|
|
1,409 |
|
Other assets and liabilities, net |
|
|
205 |
|
|
|
666 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(8,416 |
) |
|
|
1,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
|
(111 |
) |
|
|
(388 |
) |
Purchase of intangible assets |
|
|
(36 |
) |
|
|
(296 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(147 |
) |
|
|
(684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings, related party |
|
|
9,500 |
|
|
|
1,500 |
|
Proceeds from borrowings, netcredit facility |
|
|
|
|
|
|
131 |
|
Repayment of RDX obligation |
|
|
(1,063 |
) |
|
|
(1,168 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
8,437 |
|
|
|
463 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(89 |
) |
|
|
(13 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
(126 |
) |
|
|
839 |
|
Cash and cash equivalents, beginning of period |
|
|
2,841 |
|
|
|
2,015 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
2,625 |
|
|
$ |
2,841 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
138 |
|
|
$ |
160 |
|
Cash paid for income tax |
|
$ |
74 |
|
|
$ |
234 |
|
See accompanying notes to consolidated financial statements
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Tandberg Data Holdings S.à r.l. and
subsidiaries (collectively, Tandberg, Tandberg Data or the Company) was incorporated on August 14, 2009 as Société à Responsabilité Limitée (S.à r.l.) under the laws
of the Republic of Luxembourg with wholly-owned subsidiaries in Germany, USA, Norway, Japan, China, Singapore, Hong Kong and France.
In 2009, Tandberg
Data assumed the operating activities of Tandberg Data ASA and Tandberg Storage ASA (in liquidation), which went into bankruptcy in the same year. For this purpose, Cyrus Capital Partners, LP (Cyrus) established Tandberg Data in its
current structure, which is owned by FBC Holdings S.à r.l. and Tandberg Data Management S.à r.l. Cyrus ultimately acted as the recipient of all transferred assets and shares from the bankruptcy estate. Prior to the establishment of the
Company, Cyrus was the largest creditor and pledgee to the predecessor companies. Cyrus remains the Companys largest shareholder and its primary creditor as more fully detailed in Note 4 of the consolidated financial statements.
Tandberg Data is a leading global supplier of data storage and data protection solutions for small and medium-sized businesses, remote offices, departments
and workgroups. These solutions include an assortment of drives, systems, appliances and libraries based on disk, tape, removable disk and software for data storage, backup, archiving and disaster recovery. The Companys wide range of storage
solutions help organizations store and protect their data, increase productivity and improve business continuity.
Tandberg Datas storage solutions
range from disk-based solutions, such as the BizNAS, RDX® QuikStor, AccuVault Series and RDX QuikStation, to automated tape solutions like the StorageLoader and
StorageLibrary Series. Tandberg Data also offers tape drives, based on the LTO, DAT, and SLR tape technology platforms, and media. Tandberg Data solutions are supported by AccuGuard, a robust, easy-to-use deduplication software.
All solutions are maintained through a worldwide service and support network.
Tandberg Data products work with all major operating systems and software
applications to successfully integrate and operate in heterogeneous storage environments. All solutions are designed to meet the growing storage requirements of organizations with scalability, reliability and backward compatibility features that
ensure cost-effective operation and long-term investment protection.
Tandberg Data markets its solutions exclusively through a global channel of
qualified resellers and distributors. This channel model is supported by original equipment manufacturer (OEM) agreements with major server manufacturers. Headquartered in Dortmund, Germany, Tandberg Data operates additional offices around the
world, including a manufacturing and repair plant in China.
Principles of Consolidation
The consolidated financial statements include the accounts of Tandberg Data Holdings S.à r.l. (holding company; Luxembourg) and the wholly-owned
subsidiaries, Tandberg Data S.A.S. (France), Tandberg Data GmbH (Germany), Tandberg Data Norge AS (Norway), Guangzhou Tandberg Electronic Components Co., Ltd. (China), Tandberg Data Corp. (USA), Tandberg Data (Asia) Pte Ltd. (Singapore), Tandberg
Data (Japan) Inc., and Tandberg Data (Hong Kong) Limited. All intercompany accounts and transactions have been eliminated in consolidation.
8
Management Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and judgment affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent
liabilities. The Company evaluates estimates, including those related to customer programs and incentives, product returns, allowance for doubtful accounts, inventories and inventory reserves, impairments of goodwill, intangibles and long-lived
assets, income taxes, warranty obligations, contingencies and litigation. The Company bases estimates on historical experience and on other assumptions that management believes are reasonable under the circumstances. These estimates form the basis
for making judgments about the carrying value of assets and liabilities when those values are not readily apparent from other sources. Actual results could materially differ from these estimates.
Revenue Recognition
Revenue is derived primarily from
the sale of products and services. The following revenue recognition policies define the manner in which the Company accounts for sales transactions. The Company enters into agreements (purchase orders) and contracts to sell its products and
services, and, while the majority of sales agreements contain standard terms and conditions, there are agreements that contain non-standard terms and conditions.
Generally, the Company recognizes revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services are rendered, the sales
price or fee is fixed or determinable and collectability is reasonably assured. Additionally, the Company recognizes hardware revenue on sales to channel partners, including resellers or distributors, at the time of sale when the channel partners
have economic substance apart from the Company and it has completed its obligations related to the sale.
The Company records estimated reductions to
revenue for customer programs and incentive offerings, including price protection, volume-based incentives, and expected returns. The Company is able to reasonably estimate such exposures and revenue from shipments to these customers is recognized
upon delivery with the related estimates accrued at the time of recognition. Future market conditions and product transitions may require increases to customer incentive offerings, possibly resulting in an incremental reduction of revenue at the
time the incentive is offered. Additionally, certain incentive programs require estimates which are based on historical experience and the specific terms and conditions as well as the number of expected customers who will actually redeem the
incentive and actual results may differ from those estimates. Additionally, revenues are recognized on a gross basis as the Company is the primary obligor for all arrangements, maintains sole inventory risk, and discretion regarding pricing
decisions.
Generally, title and risk of loss transfer to the customer when the product arrives at the customers location. Product sales to
distribution customers are subject to certain rights of return, stock rotation privileges and price protection. The Company recognizes revenue from the sale of software bundled with hardware that is essential to the functionality of the hardware in
accordance with current general revenue recognition accounting guidance.
For Accuguard products, the Company has determined that the software is
more than an incidental component and recognizes revenue in accordance with current authoritative guidance for software revenue recognition. The Company recognizes revenue from software licenses at the inception of the license term, assuming all
revenue recognition criteria have been met. Tandberg Data offers post contract customer support (PCS) accessible through the Companys website. The Company recognizes all revenues associated with the PCS from software products
together with the licensing fee as PCS is not substantive, are insignificant to the arrangements as a whole, and support provided is attributable to product maintenance and bug fixes.
9
The Company offers a suite of support services called SecureService which can be purchased separately by
end users of the Companys products, providing both onsite and remote assistance to diagnose and resolve technical problems. The service package also includes an Advanced Replacement Service (ARS), which will ship replacement parts
or units depending on the product to the customer site within 48 hours. The related services revenue is generally recognized when the service is provided and the amount earned is not contingent upon any future event. The Company recognizes revenue
from support or maintenance contracts, including extended warranty contracts ratably over the contract period and recognizes the costs associated with these contracts as incurred.
The Company records amounts invoiced to customers in excess of revenue recognized as deferred revenue until the revenue recognition criteria are met.
The Company has licensing agreements relating to RDX technology to a third party. The third party pays a royalty fee for sales of their products which
incorporate our RDX® technology. They provide the Company with periodic reports which include the number of units, subject to royalty, sold to their end users. The Company records the royalty
when reported to it by the third party, generally in the period during which the third party ships the products containing RDX® technology.
Warranty and Extended Warranty
The Company provides for
the estimated cost of product warranties at the time that revenue is recognized. The Company evaluates its warranty obligations on a product group basis. The standard product warranty terms generally include post-sales support and repairs or
replacement of a product at no additional charge for a specified period of time. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, it
bases the estimated warranty obligation upon several factors including warranty terms, ongoing product failure rates, and current period product shipments. If actual product failure rates or other factors were to differ from our estimates, the
Company would be required to make revisions to the estimated warranty liability. Warranty terms generally range from one to three years depending upon the product.
In addition to the standard warranty described above offered with all product sales, the Company also offers a separately priced extended warranty. Extended
warranty revenue and amounts paid in are deferred and recognized as revenue ratably over the period of the service agreement. The Company had $1.7 million and $1.8 million in deferred revenues related to revenue for extended warranty contracts at
December 31, 2013 and 2012, respectively.
Changes in the liability for standard product warranty were as follows (in thousands USD):
|
|
|
|
|
|
|
Product warranty |
|
Liability as of December 31, 2011 |
|
$ |
970 |
|
New warranty provision |
|
|
623 |
|
Payments of warranty obligations |
|
|
(644 |
) |
|
|
|
|
|
Liability as of December 31, 2012 |
|
$ |
949 |
|
|
|
|
|
|
thereof short-term |
|
$ |
586 |
|
|
|
|
|
|
thereof long-term |
|
$ |
363 |
|
|
|
|
|
|
New warranty provision |
|
|
515 |
|
Payments of warranty obligations |
|
|
(499 |
) |
|
|
|
|
|
Liability as of December 31, 2013 |
|
$ |
965 |
|
|
|
|
|
|
thereof short-term |
|
$ |
512 |
|
|
|
|
|
|
thereof long-term |
|
$ |
453 |
|
|
|
|
|
|
10
Shipping and Handling
Amounts billed to customers for shipping and handling are included in product revenue, and costs incurred related to shipping and handling are included in cost
of product revenue.
Advertising Costs
Advertising
costs are expensed as incurred. Advertising expenses in the amount of $1.7 million and $1.4 million were incurred during the years ended December 31, 2013 and 2012, respectively.
Research and Development Costs
Research and development
costs are expensed as incurred.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments in money market funds with insignificant interest rate risk that are readily convertible to cash and
have remaining maturities of three months or less at date of purchase. The carrying amounts approximate fair value due to the short maturities of these instruments.
Accounts Receivable
Accounts receivable include amounts
owed by geographically dispersed distributors, retailers and OEM customers. The Company estimates the collectability of its accounts receivable based on a combination of factors, including but not limited to, customer credit ratings and historical
experience. In circumstances where the Company is aware of a specific customers inability to meet its financial obligations to the Company (e.g., bankruptcy filings or substantial downgrading of credit ratings), the Company provides allowances
for bad debts against amounts due to reduce the net recognized receivable to the amount it reasonably believes will be collected. Tandberg Data GmbH receivable balances are partially covered by credit insurance.
The following table summarizes the changes in allowance for doubtful accounts (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
Balance at beginning of year |
|
|
Charged to Expense |
|
|
Write-off, net of recoveries |
|
|
Balance at end of year |
|
2013 |
|
$ |
433 |
|
|
$ |
521 |
|
|
$ |
(168 |
) |
|
$ |
786 |
|
2012 |
|
$ |
621 |
|
|
$ |
(172 |
) |
|
$ |
(16 |
) |
|
$ |
433 |
|
Inventories
The Company
values inventories at the lower of cost (weighted average costs and first-in, first-out (FIFO) or net realizable value. The weighted average method of valuing certain inventories does not materially differ from a FIFO method. The Company
assesses the value of its inventories based upon numerous factors including, but not limited to, expected product or material demand, current market conditions, technological obsolescence, current cost and net realizable value. If necessary, the
Company adjusts its inventory for obsolete or unmarketable inventory by an amount equal to the difference between the cost of the inventory and the estimated market value. Inventory impairment charges, when taken, permanently establish a new cost
basis and are not subsequently reversed to income even if circumstances later suggest that increased carrying amounts are recoverable. Rather, these amounts are recognized in income only if, as and when the inventory is sold.
11
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation expense is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the term of the lease.
|
|
|
|
|
Estimated useful lives are as follows: |
|
|
|
Building |
|
|
40 years |
|
Machinery and equipment |
|
|
5 - 10 years |
|
Leasehold improvements |
|
|
Shorter of useful life or lease term |
|
Computer equipment |
|
|
1 - 5 years |
|
Furniture and fixtures |
|
|
5 - 15 years |
|
Expenditures for normal maintenance and repair are charged to expense as incurred, and improvements are capitalized. Upon the
sale or retirement of property, plant or equipment, the asset cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in the results of operations.
Goodwill and Trade Name
Goodwill derived from the
acquisition of the RDX Business is not amortized, but is subject to an annual impairment test. The Goodwill is assigned to all reporting units (EMEA, USA, APAC and Japan) in which the RDX technology is marketed. The definition of the reporting units
reflects the Companys reporting structures that are distinguished between four geographical areas. Goodwill is reviewed for impairment at least annually or more frequently if a triggering event has occurred. The goodwill impairment test is a
two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the
fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit, and the enterprise must perform step two of the impairment test. Under step two, an impairment loss is recognized
for any excess of the carrying amount of the reporting units goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting units goodwill. The Company determined that there was no impairment for the years ended December 31, 2013 and 2012.
The trade name, Tandberg Data, was retained as the company name, reflecting a perceived value. The Company has no expectation of rebranding its products or
changing the Companys trade name and therefore expects to continue using the trade name for the foreseeable future. As such, the life of the trade name was deemed indefinite by management. Accordingly, the trade name is subject to annual
impairment test described in the preceding paragraph. The Company recorded an impairment charge on the trade name during the year end December 31, 2012 (see Note 3) due to new competitive technologies and consolidation in the storage business
industry that resulted in sustained pressure on the Companys margin and revenue. Fair value was determined based on an estimated future discounted cash flows using a discount rate determined by management to be commensurate with the risk
inherent in its current business model.
Intangible Assets
Intangible assets that meet the recognition criteria and are separately allocable from goodwill are recognized upon acquisition of a business. The
Companys intangible assets mainly consist of acquired patents, license arrangements and trade names in business combinations. Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives
(software over five years, RDX technology assets over 10 years, and patents and licenses over 10 years).
12
Long-lived Assets
Long-lived assets, such as property and equipment and finite-lived intangible assets, are evaluated for impairment whenever events or changes in circumstances
indicate the carrying value of an asset group may not be recoverable. In evaluating recoverability, the following factors, among others, are considered: (1) significant under-performance relative to the historical or projected future operating
results; (2) significant changes in the manner of use of assets; (3) significant negative industry or economic trends; and (4) significant decrease in the market value of the assets. When such events or changes in circumstances are
present, the Company generally assesses the recoverability of its long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is
less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.
Foreign Currency
The financial statements of foreign
subsidiaries, for which the functional currency is the local currency, are translated into U.S. Dollar using the exchange rate at the balance sheet date for assets and liabilities and a weighted-average exchange rate during the year for
revenue, expenses, gains and losses. Translation adjustments are recorded as other comprehensive income (loss) within equity. Gains or losses from foreign currency transactions are recognized in the statements of operations. Such transactions
resulted in a loss of $264,000 for 2013 and a gain of $259,000 for 2012 and are recorded in other income (expense) in the consolidated statements of operations. The Companys main exposure to functional currency is to the Japanese Yen and the
Euro.
For the Companys subsidiaries that do not maintain their records in the functional currency, the records are remeasured into the functional
currency before translation into the group reporting currency. The remeasurement between the functional currency and the other currency for nonmonetary balance sheet accounts and for related statements of operations accounts is based on historical
exchange rates.
RDX Obligation
The obligations
relating to an acquired license agreement, whereby 31.5 % of all worldwide royalties collected by Tandberg after the acquisition for media products during an exclusivity period have to be paid the providing third party (the RDX
Obligation).
Income Taxes
The Company
provides for income taxes utilizing the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are
recovered or paid. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of
the Companys assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when a judgment is made that it is considered more likely than
not that a tax benefit will not be realized. When the Company changes its determination as to the amount of deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to income tax expense/benefit in
the period in which such determination is made.
The calculation of tax liabilities involves uncertainties in the application of complex global tax
regulations. The impact of an uncertain income tax position is recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. The Company recognizes interest and penalties, if
any, related to unrecognized tax benefits in income tax expense. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. If the estimate of tax liabilities proves to be less than the ultimate
assessment, a further charge to expense would result.
13
Comprehensive income (loss)
Comprehensive income (loss) and its components encompasses all changes in equity other than those with stockholders, includes net loss and foreign currency
translation adjustments, and are disclosed as a separate statement of comprehensive income.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable, which are generally
not collateralized. To reduce credit risk, the Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses and sales returns.
Sales are generally dispersed among a large number of customers, minimizing reliance on any particular customer or group of customers. No single customer
represented 10% or more of total net revenue or accounts receivable during the year ended December 31, 2013 or 2012.
Contingencies
From time to time, the Company may become involved in claims and other legal matters arising in the ordinary course of business. The Company records accruals
for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. Legal fees and other expenses related to litigation are expensed
as incurred and included in selling, general and administrative expenses.
Recently Issued Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11, Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU No. 2013-11 provides that an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax
benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective for
reporting periods beginning after December 15, 2013. The adoption of this guidance affects presentation only and, therefore, it is not expected to have a material impact on the Companys consolidated financial results.
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting Amounts Reclassified Out of Accumulated other
Comprehensive Income. The provisions of ASU No. 2013-02 require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income on the face of the
financial statements or in the notes. This update is effective for reporting periods beginning after December 15, 2012. The Company adopted this guidance and there was not a material impact to the consolidated financial results.
14
NOTE 2 COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
The following table summarizes inventories as of December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Raw materials |
|
$ |
2,443 |
|
|
$ |
2,628 |
|
Finished goods |
|
|
3,333 |
|
|
|
4,438 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,776 |
|
|
$ |
7,066 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes property, plant and equipment, net as of December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Building |
|
$ |
2,004 |
|
|
$ |
1,872 |
|
Machinery and equipment |
|
|
2,112 |
|
|
|
2,049 |
|
Leasehold improvement |
|
|
910 |
|
|
|
910 |
|
Computer equipment |
|
|
472 |
|
|
|
361 |
|
Furniture and fixtures |
|
|
229 |
|
|
|
227 |
|
Accumulated depreciation |
|
|
(2,625 |
) |
|
|
(1,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,102 |
|
|
$ |
3,518 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $0.7 million for the years ended December 31, 2013 and 2012, respectively.
The following table summarizes other current assets as of December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Prepaid royalties |
|
$ |
171 |
|
|
$ |
215 |
|
Prepaid expenses |
|
|
296 |
|
|
|
285 |
|
VAT receivable |
|
|
280 |
|
|
|
324 |
|
Other current receivables and assets |
|
|
479 |
|
|
|
1,040 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,226 |
|
|
$ |
1,864 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes accrued liabilities as of December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Accrued expenses |
|
$ |
2,017 |
|
|
$ |
2,217 |
|
Accrued payroll and employee compensation |
|
|
1,699 |
|
|
|
1,551 |
|
Deferred revenue |
|
|
959 |
|
|
|
692 |
|
RDX obligation |
|
|
729 |
|
|
|
|
|
Warranty accruals |
|
|
512 |
|
|
|
586 |
|
Other taxes |
|
|
393 |
|
|
|
383 |
|
Income taxes payable |
|
|
135 |
|
|
|
156 |
|
VAT payable |
|
|
37 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,481 |
|
|
$ |
5,580 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes other long-term liabilities as of December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Deferred revenue |
|
$ |
706 |
|
|
$ |
1,063 |
|
Warranty accruals |
|
|
453 |
|
|
|
363 |
|
RDX obligation |
|
|
220 |
|
|
|
1,956 |
|
Other non-current accruals |
|
|
20 |
|
|
|
71 |
|
Other taxes |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,399 |
|
|
$ |
3,471 |
|
|
|
|
|
|
|
|
|
|
15
NOTE 3 INTANGIBLE ASSETS AND GOODWILL
The following table summarizes intangible assets, net as of December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
carrying amount |
|
|
Accumulated
amortization |
|
|
Net book value |
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
Patents and licenses |
|
$ |
21,147 |
|
|
$ |
21,147 |
|
|
$ |
5,640 |
|
|
$ |
3,525 |
|
|
$ |
15,507 |
|
|
$ |
17,622 |
|
Technology |
|
|
2,264 |
|
|
|
2,264 |
|
|
|
1,056 |
|
|
|
830 |
|
|
|
1,208 |
|
|
|
1,434 |
|
Software and other intangible assets |
|
|
1,158 |
|
|
|
1,122 |
|
|
|
941 |
|
|
|
784 |
|
|
|
217 |
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
24,569 |
|
|
$ |
24,533 |
|
|
$ |
7,637 |
|
|
$ |
5,139 |
|
|
$ |
16,932 |
|
|
$ |
19,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of patents and licenses, technologies and software and other intangible assets was $2.4 million and
$2.3 million for the years ended December 31, 2013 and 2012, respectively, and is recognized in cost of product revenue and cost of royalty fees. Estimated amortization expense for these intangible assets will be $2.4 million in each
of the years 2014 to 2018 and $12.0 million for the total five year period.
The following table summarizes goodwill and trade name as of
December 31, 2013 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
Accumulated impairment losses |
|
|
Net carrying amount |
|
Trade name |
|
$ |
2,281 |
|
|
$ |
122 |
|
|
$ |
2,159 |
|
Goodwill |
|
|
61 |
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite lived intangibles and goodwill |
|
$ |
2,342 |
|
|
$ |
122 |
|
|
$ |
2,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes goodwill and trade name as of December 31, 2012 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
|
|
Accumulated impairment losses |
|
|
Net carrying amount |
|
Trade Name |
|
$ |
2,281 |
|
|
$ |
122 |
|
|
$ |
2,159 |
|
Goodwill |
|
|
61 |
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite lived intangibles and Goodwill |
|
$ |
2,342 |
|
|
$ |
122 |
|
|
$ |
2,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
NOTE 4 DEBT
Debt consisted of the following (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amounts |
|
|
Maturity date 2013 |
|
|
December 31, 2013 |
|
|
December 31, 2012 |
|
|
|
|
|
Cyrus promissory notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued 10/2009 (note 1) |
|
$ |
2,000 |
|
|
|
10/15/2014 |
|
|
$ |
3,068 |
|
|
$ |
2,786 |
|
Issued 03/2010 (note 2) |
|
|
250 |
|
|
|
10/15/2014 |
|
|
|
377 |
|
|
|
365 |
|
Issued 03/2010 (note 3) |
|
|
250 |
|
|
|
10/15/2014 |
|
|
|
377 |
|
|
|
342 |
|
Issued 04/2010 (note 4) |
|
|
2,750 |
|
|
|
10/15/2014 |
|
|
|
3,947 |
|
|
|
3,584 |
|
Issued 12/2012 (note 5) |
|
|
1,500 |
|
|
|
10/15/2014 |
|
|
|
1,660 |
|
|
|
1,508 |
|
Issued 02/2013 (note 6) |
|
|
2,000 |
|
|
|
10/15/2014 |
|
|
|
2,169 |
|
|
|
|
|
Issued 04/2013 (note 7) |
|
|
1,500 |
|
|
|
10/15/2014 |
|
|
|
1,596 |
|
|
|
|
|
Issued 06/2013 (note 8) |
|
|
1,000 |
|
|
|
10/15/2014 |
|
|
|
1,054 |
|
|
|
|
|
Issued 07/2013 (note 9) |
|
|
5,000 |
|
|
|
10/15/2014 |
|
|
|
5,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,250 |
|
|
|
|
|
|
|
19,439 |
|
|
|
8,585 |
|
Cyrus reconfirmed bond |
|
|
10,303 |
|
|
|
10/15/2014 |
|
|
|
15,135 |
|
|
|
13,745 |
|
Cyrus RDX loan |
|
|
17,750 |
|
|
|
10/15/2014 |
|
|
|
22,914 |
|
|
|
20,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt to related parties |
|
|
44,303 |
|
|
|
|
|
|
|
57,488 |
|
|
|
43,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facility |
|
|
1,285 |
|
|
|
05/30/2014 |
|
|
|
1,290 |
|
|
|
1,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
45,588 |
|
|
|
|
|
|
$ |
58,778 |
|
|
$ |
44,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt to Related Parties
Cyrus Promissory Notes
The promissory notes as presented in the table above consist of nine notes. In November 2012, the maturity date was extended to March 15,
2013, and in September 2013 extended again to October 15, 2014. The effective interest rate was 9.75% per annum. as of December 31, 2013 and 2012.
Cyrus Reconfirmed Bond
In February 2010, the Company issued a bond to Cyrus with an initial maturity date was December 31, 2012. In November 2012, the maturity
date was extended to March 15, 2013, and in September 2013 extended again to October 15, 2014. The reconfirmed bond is secured by a pledge over all intellectual property rights and receivables and a pledge over all shares in subsidiaries.
The effective interest rate was 9.75% p.a. as of December 31, 2013 and 2012.
Cyrus RDX Loan
In May 2011, the RDX loan was issued to fund the purchase of the RDX business. In November 2011, the initial due date was extended to
December 31, 2011, and in November 2012 and September 2013 extended again to March 15, 2013 and October 15, 2014, respectively. The effective interest rate was 9.75% p.a. as of December 31, 2013 and 2012.
17
The Cyrus Promissory Notes, the Cyrus Reconfirmed Bond, and the Cyrus RDX Loan are pay-in-kind
with an interest rate of 9.75% p.a., which in the event of a default increases to 14.75% p.a. The lender for all of these instruments is FBC Holdings S.à r.l. The carrying amount of the Companys debt approximates its fair value as the
interest rates are substantially comparable to the expected cost for similar debt instruments.
Credit facility
The credit facility is a revolving facility, which is renewed every six months. It has a maximum capacity of $1.25 million. The principal amounts drawn down as
of each balance sheet date are shown in the table above. The lender is a financial institution. The interest is floating and is currently USD LIBOR + 2.9%. The credit facility is secured by a pledge in inventory, accounts receivable and cash
deposits at Tandberg Data Norge AS. The overdraft as of December 31, 2013 was agreed by the lender and cleared in January 2014.
NOTE 5
INCOME TAXES
The Company recognizes the impact of an uncertain income tax position on its income tax return at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company records interest and penalties on
uncertain tax positions as a component of income tax expense.
At December 31, 2013 and 2012, there were no unrecognized tax benefits presented as a
component of long-term liabilities in the accompanying consolidated balance sheet.
The Company believes it is reasonably possible that, within the next
twelve months, the amount of unrecognized tax benefits may remain unchanged. The Company had no material accrual for interest and penalties on its consolidated balance sheet as of December 31, 2013 and 2012, and recognized no interest and/or
penalties in the consolidated statement of operations for the years ended December 31, 2013 and 2012.
The Company is subject to taxation in
Luxembourg and also in certain foreign tax jurisdictions. Generally, the Companys tax returns for fiscal years 2009 and forward are subject to examination by the Luxembourg tax authorities. In foreign jurisdictions the Company is subject to
examination for all years subsequent to 2009.
The components of loss before income taxes were as follows for the year ended December 31 (in
thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Domestic |
|
$ |
(6,908 |
) |
|
$ |
(3,261 |
) |
Foreign |
|
|
(11,891 |
) |
|
|
(8,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
(18,799 |
) |
|
$ |
(11,428 |
) |
|
|
|
|
|
|
|
|
|
The components of the income tax expense (benefit) include the following for the year ended December 31 (in thousands
USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Domestic |
|
$ |
4 |
|
|
$ |
(4 |
) |
Foreign |
|
|
(328 |
) |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(324 |
) |
|
$ |
32 |
|
|
|
|
|
|
|
|
|
|
18
A reconciliation of income taxes computed by applying the applicable income tax rate of 1.44% to income/loss
before income taxes to the total income tax provision reported in the accompanying consolidated statements of operations is as follows for the years ended December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
Earnings before tax |
|
$ |
(18,799 |
) |
|
|
|
% |
|
$ |
(11,428 |
) |
|
|
|
% |
Expected tax [expense()/income(+)] |
|
|
271 |
|
|
|
(1.44 |
) |
|
|
165 |
|
|
|
(1.44 |
) |
Change in valuation allowance |
|
|
(2,807 |
) |
|
|
14.93 |
|
|
|
(3,119 |
) |
|
|
27.29 |
|
Permanent differences |
|
|
(204 |
) |
|
|
1.09 |
|
|
|
(185 |
) |
|
|
1.62 |
|
Difference to local tax rate |
|
|
3,320 |
|
|
|
(17.66 |
) |
|
|
2,299 |
|
|
|
(20.12 |
) |
Other |
|
|
(256 |
) |
|
|
1.36 |
|
|
|
808 |
|
|
|
(7.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)/ effective tax rate |
|
$ |
(324 |
) |
|
|
(1.72 |
)% |
|
$ |
32 |
|
|
|
0.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Companys deferred tax assets and
liabilities are shown below. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, carry back opportunities, and tax planning strategies in making the assessment. A partial valuation allowance for the excess of deferred tax assets over deferred tax liabilities in each individual jurisdiction has been recorded, as
realization of such assets is uncertain. As of December 31, deferred income taxes are comprised of (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Loss carryforwards |
|
$ |
37,458 |
|
|
$ |
33,938 |
|
Loan receivables |
|
|
338 |
|
|
|
418 |
|
State tax benefit |
|
|
131 |
|
|
|
|
|
Obligation (RDX) |
|
|
14 |
|
|
|
36 |
|
Research and development (RDX) |
|
|
65 |
|
|
|
56 |
|
Other |
|
|
29 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
$ |
38,035 |
|
|
$ |
34,478 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
(171 |
) |
|
$ |
(171 |
) |
Tangible assets |
|
|
(186 |
) |
|
|
(217 |
) |
Intangible assets |
|
|
(88 |
) |
|
|
(102 |
) |
Other accruals |
|
|
(149 |
) |
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities |
|
|
(594 |
) |
|
|
(705 |
) |
|
|
|
|
|
|
|
|
|
Valuation allowances |
|
|
(37,580 |
) |
|
|
(34,158 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities) |
|
$ |
(139 |
) |
|
$ |
(385 |
) |
|
|
|
|
|
|
|
|
|
19
The components giving rise to the net deferred tax assets and liabilities described above as of December 31
are as follows (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Non-current deferred tax assets |
|
|
|
|
|
$ |
3 |
|
Current deferred tax liabilities |
|
$ |
(139 |
) |
|
|
(40 |
) |
Non-current deferred tax liabilities |
|
|
|
|
|
|
(348 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities) |
|
$ |
(139 |
) |
|
$ |
(385 |
) |
|
|
|
|
|
|
|
|
|
The valuation allowance is based on our assessment that it is more likely than not that certain deferred tax assets will not
be realized in the foreseeable future. As of December 31, 2013 the Company had net operating loss carryforwards of $125.5 million. As of December 31, 2012, the Company had net operating loss carryforwards of $109.2 million. The loss
carryforwards resulted from the foreign operations and expire between 2013 (with an amount of $0.2 million, unless previously utilized) and 2029. If certain substantial changes in the entitys ownership occur, there could be an annual
limitation on the amount of the carryforwards that can be utilized.
NOTE 6 EQUITY
Subscribed capital consists of the minimum capital of Tandberg Data S.à r.l. in the amount of $17,800 which was fully subscribed and fully paid in cash
on August 14, 2009.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its office, production and
sales facilities under non-cancelable operating leases that expire in various years through year 2016. Future minimum lease payments under these arrangements as of December 31, 2013 are as follows (in thousands USD):
|
|
|
|
|
|
|
Minimum Lease Payments |
|
2014 |
|
$ |
1,021 |
|
2015 |
|
|
626 |
|
2016 |
|
|
209 |
|
|
|
|
|
|
Total future minimum payments |
|
$ |
1,856 |
|
|
|
|
|
|
Rental expense is recognized on a straight-line basis over the respective lease terms and was $1.2 million and $1.3 million
for the years ended December 31, 2013 and 2012, respectively.
Litigation
From time to time, the Company may be involved in various lawsuits, legal proceedings or claims that arise in the ordinary course of business. Management does
not believe any legal proceedings or claims pending as of December 31, 2013 will have, individually or in the aggregate, a material adverse effect on its business, liquidity, financial position or results of operations. Litigation, however, is
subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Companys business.
20
NOTE 8 RELATED PARTIES
During the year ended December 31, 2013 and 2012 the Companys significant related party transactions related to debt from FBC Holdings S.à
r.l.
The following shows related party transactions relating to debt from FBC Holding S.à r.l. as of December 31 (in thousands USD):
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Debt to FBC Holdings S.à r.l. |
|
|
|
|
|
|
|
|
Debt (including pay in kind interest of $8,336 and $4,470 as of the beginning of the annual periods ending December 31, 2013 and 2012,
respectively) |
|
$ |
52,639 |
|
|
$ |
39,273 |
|
Accrued interest expense (current period) |
|
|
4,849 |
|
|
|
3,866 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
57,488 |
|
|
$ |
43,139 |
|
|
|
|
|
|
|
|
|
|
NOTE 9 DEFINED CONTRIBUTION PLAN
Tandberg Data Corp. has adopted an employee savings plan (the 401(k) Plan hereafter plan) covering all Tandberg Data
Corp.s employees. Pursuant to the 401 (k) Plan, eligible employees may make before-tax contributions of up to 75% of their annual compensation not to exceed certain limitations established by the Internal Revenue Service. This maximum
percentage may be reduced by the plan administrator in certain circumstances. The Tandberg Data Corp. did not make any matching contributions during each of the years ended December 31, 2013 and 2012.
NOTE 10 SUBSEQUENT EVENTS AND LIQUIDITY
On
1 November 2013 the Company entered into a definitive agreement with Overland Storage, Inc. to sell the shares of the Company. On January 21, 2014, the acquisition closed. The shareholders of the Company received 47,152,630 shares of
common stock of Overland Storage, Inc., priced at $1.04.
As of and for the year ending December 31, 2013, the Company had a deficit working capital
of $53,017, deficit equity of $31,962 and incurred a net loss of $18,475, these conditions raise a question about the entitys ability to continue as a going concern for the next twelve months. The Company will require additional shareholder
financial support during the next twelve months. Immediately prior to closing of the Overland acquisition, the debt to related party, including accrued interest with a December 31 balance of $58,778, was converted to equity and the credit
facility was repaid. The accompanying financial statements do not include any adjustments from this recapitalization or if the Company is unable to continue as a going concern.
There were no other subsequent events or transactions that required recognition or disclosure in the Companys evaluation period from the consolidated
financial statement date through May 14, 2014 which is the date the Company had financial statements available for issuance.
21
Exhibit 99.2
Managements Discussion and Analysis of Financial Condition and Results of Operations
Selected Consolidated Financial Data of Tandberg
The following selected consolidated financial data of Tandberg should be read together with Tandbergs consolidated financial statements.
The selected consolidated statements of operations data of Tandberg for the years ended December 31, 2013 and December 31, 2012 and the selected consolidated balance sheet data as of December 31, 2013 and December 31, 2012 are
derived from Tandbergs audited consolidated financial statements included elsewhere in this document. Tandbergs historical results are not necessarily indicative of Tandbergs results to be expected for any future period. All
figures are in thousands of U.S. dollars.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2013 |
|
|
2012 |
|
Total net revenue |
|
$ |
61,510 |
|
|
$ |
67,614 |
|
Loss from operations |
|
$ |
(13,529 |
) |
|
$ |
(7,526 |
) |
Net loss |
|
$ |
(18,475 |
) |
|
$ |
(11,460 |
) |
|
|
|
|
|
December 31, 2013 |
|
|
December 31, 2012 |
|
Total assets |
|
$ |
42,348 |
|
|
$ |
47,895 |
|
Total non-current liabilities |
|
$ |
1,538 |
|
|
$ |
3,819 |
|
Total liabilities |
|
$ |
74,310 |
|
|
$ |
61,328 |
|
Operating and Financial Review and Prospects
The following operating and financial review and prospects contain forward-looking statements that involve risks, uncertainties and
assumptions that are difficult to predict.
Overview
Tandberg is a global supplier of data storage and data protection solutions for small and medium-sized businesses, distributed enterprises,
departments and workgroups. Tandbergs wide range of storage solutions enable organizations efficiently manage, store and protect their data, delivering increased productivity and improved business continuity.
Tandberg has a broad product line ranging from disk-based solutions to automated tape solutions. Tandbergs solutions are supported by
their software which provides data backup, de-duplication, data protection and data interchange between disk and tape based products. Products offered include:
Tape Drives
Tape drives,
based on DAT, LTO, or SLR technologies.
Tape Automation
Reliable, scalable data protection systems, ranging from autoloaders to midrange automation for small to medium businesses.
Removable Disk
The RDX® QuikStor removable disk storage system offers rugged, reliable and convenient storage for backup, archive, data interchange and disaster recovery. The RDX® QuikStation is a multi-drive, network-attached removable disk library based on industry-standard RDX® technology, which combines the
removability, durability and economy of tape with the random accessibility and performance of disk.
1
Media
Tandberg complements its range of storage solutions with a complete range of media, including
RDX®, LTO, DAT, and SLR.
Tandbergs solutions are designed to meet
the growing storage requirements of organizations with scalability, reliability and backward compatibility features that are designed for cost-effective operation and long-term investment protection. Tandbergs products are compatible with
major operating systems and software applications enabling the solutions to work in heterogeneous storage environments.
Tandberg markets
its solutions through a global channel of qualified resellers and distributors, supported by original equipment manufacturer (OEM) agreements with major server manufacturers. Headquartered in Dortmund, Germany, Tandberg operates additional offices
around the world, including a manufacturing and repair plant in China.
Recent Developments
Acquisition. On January 21, 2014, Tandberg was acquired by Overland Storage, Inc. (Overland).
Liquidity. As of December 31, 2013, the Company had a deficit working capital of $53.0 million, deficit equity of $32.0 million
and incurred a net loss of $18.5 million for the year ended December 31, 2013. Tandberg will be dependent on Overland for funding of its operations for the next twelve months.
Immediately prior to closing of the Overland acquisition, the debt to related party, including accrued interest with a December 31, 2013
balance of $58.8 million, was converted to equity and the Companys revolving credit facility was repaid.
Critical Accounting Policies and
Estimates
This operating and financial review and prospects is based upon Tandbergs consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of contingent liabilities. Management evaluates its estimates on an on-going basis including, but not limited to, those related to reductions to revenue for customer programs and
incentive offerings, including price protection, volume-based incentives, and expected returns, bad debts, inventories, intangible and other long-lived assets, warranty obligations and income taxes. Estimates are based on historical experience and
on various assumptions believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Critical accounting policies are those policies that, in
managements view, are most important in the portrayal of financial condition and results of operations. The footnotes to Tandbergs consolidated financial statements also include disclosure of significant accounting policies. The methods,
estimates and judgments that Tandberg used in applying accounting policies have a significant impact on the results that are reported in its consolidated financial statements.
These critical accounting policies require difficult and subjective judgments, often as a result of the need to make estimates regarding
matters that are inherently uncertain. Tandbergs critical accounting policies and estimates that require the most significant judgment are discussed further below.
Revenue Recognition
Tandberg
recognizes revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services are rendered, the sales price or fee is fixed or determinable and collectability is reasonably assured. Additionally, Tandberg recognizes
revenue on sales of hardware to channel partners, including resellers or distributors, at the time of sale when the channel partners have economic substance apart from Tandberg and Tandberg has completed its obligations related to the sale.
2
Tandberg records estimated reductions to revenue for customer programs and incentive offerings,
including price protection, volume-based incentives, and expected returns. Revenue from shipments to these customers is recognized upon delivery with the related estimates accrued at the time of recognition. Future market conditions and product
transitions may require increases to customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive are offered. Additionally, certain incentive programs require estimates which are based on
historical experience and the specific terms and conditions as well as the number of expected customers who will actually redeem the incentive and actual results may differ from those estimates.
Generally, title and risk of loss transfer to the customer when the product arrives at the customers location. Product sales to
distribution customers are subject to certain rights of return, stock rotation privileges and price protection.
Tandberg offers a suite
of support services called SecureService which can be purchased separately by end users of its products. The services revenue is generally recognized when the service is provided and the amount earned is not contingent upon any future event.
Tandberg has licensing agreements relating to RDX® technology with a third party
and records revenue for the royalty paid by such third party when reported by the third party, generally in the period during which the third party ships the products containing RDX®
technology.
Allowance for Doubtful Accounts
Tandberg estimates the collectability of accounts receivable based on a combination of factors including, but not limited to, customer credit
ratings and historical experience. In circumstances where Tandberg is aware of a specific customers inability to meet its financial obligations (e.g., due to a bankruptcy filings or substantial downgrading of credit ratings) or where other
factors indicate accounts receivable may not be collected, Tandberg provides allowances for doubtful accounts against amounts due to reduce the net receivable to the amount Tandberg reasonably believes will be collected.
Inventory Valuation
Tandberg
values inventories at the lower of cost or net realizable value. Tandberg assesses the fair value of its inventories based upon numerous factors including, but not limited to, expected product or material demand, current market conditions,
technological obsolescence, current cost and net realizable value. If necessary, Tandberg adjusts its inventory for obsolete or unmarketable inventory by an amount equal to the difference between the cost of the inventory and the estimated market
value. New competitive technologies in Tandbergs industry may negatively affect net realizable values in future periods and the valuation of inventories.
Warranty and Extended Warranty
Tandberg provides for the estimated cost of product warranties at the time that revenue is recognized for the related product. Tandberg
evaluates its warranty obligations on a product group basis. While Tandberg engages in product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, Tandberg bases estimated warranty
obligations upon several factors including warranty terms, on-going product failure rates and current period product shipments. If actual product failure rates or other factors were to differ from estimates, revisions to estimated warranty
liabilities would be required. Warranty terms generally range from one to three years depending upon the product.
In addition to the
standard warranty offered with all product sales, Tandberg also offers a separately priced extended warranty. Extended warranty revenue is recognized as revenue ratably over the period of the extended warranty service agreement.
Intangible Assets
The 2009
acquisition of the Tandberg business and the 2011 acquisition of RDX created significant amounts of intangible assets. At December 31, 2013 Tandberg had amortizing intangibles with a net book value of $16.9 million, consisting of patents,
licenses and technology as well as $2.2 million net carrying value of indefinite lived intangibles, consisting of goodwill and trade names.
3
Tandbergs indefinite lived intangible assets are required to be tested annually for
impairment or more frequently. In 2013, there was no impairment charge on its indefinite lived intangibles.
Tandbergs amortizing
intangible assets are tested for impairment only when a triggering event or indicator occurs indicating that the carrying value may be impaired. When such indicators are present, Tandberg generally assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than the carrying amount of those assets, then a fair value
calculation is necessary to assess whether any impairment has occurred. The determination of whether a triggering event has occurred and forecasting of undiscounted cash flows requires considerable judgment. In determining whether a triggering event
has occurred Tandberg considers the impact of new competitive technologies, consolidation in the storage business industry and other factors that may negatively affect margin and revenue.
Results of Operations
The following
table sets forth certain financial data as a percentage of Tandbergs net revenue:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2013 |
|
|
2012 |
|
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
73.6 |
|
|
|
71.6 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
26.4 |
|
|
|
28.4 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
21.3 |
|
|
|
19.2 |
|
Research and development |
|
|
5.7 |
|
|
|
4.9 |
|
General and administrative |
|
|
21.4 |
|
|
|
15.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
48.4 |
|
|
|
39.5 |
|
Loss from operations |
|
|
(22.0 |
) |
|
|
(11.1 |
) |
Interest (expense) |
|
|
(8.2 |
) |
|
|
(6.2 |
) |
Other income (expense), net |
|
|
(0.3 |
) |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(30.5 |
) |
|
|
(16.9 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
0.5 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(30.0 |
)% |
|
|
(16.9 |
)% |
|
|
|
|
|
|
|
|
|
A summary of the sales mix by product follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
2013 |
|
|
|
|
2012 |
|
|
|
Tape Drives |
|
|
16.7 |
% |
|
|
|
|
20.2 |
% |
|
|
Tape Automation |
|
|
12.7 |
|
|
|
|
|
15.5 |
|
|
|
RDX |
|
|
47.6 |
|
|
|
|
|
40.7 |
|
|
|
Disk Solution |
|
|
1.4 |
|
|
|
|
|
0.5 |
|
|
|
Media |
|
|
12.2 |
|
|
|
|
|
13.7 |
|
|
|
Others |
|
|
0.5 |
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91.1 |
|
|
|
|
|
91.1 |
|
|
|
Services |
|
|
7.2 |
|
|
|
|
|
6.3 |
|
|
|
RDX Royalty |
|
|
1.7 |
|
|
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2013 Compared With Fiscal 2012
Net Revenue. Net revenue decreased to $61.5 million during fiscal 2013 from $67.6 million during fiscal 2012, a decrease of $6.1
million, or 9.0%. The majority of the decline can be attributed to general declines in the tape market in tape automation, tape drives and tape media, which declines were partially offset by increased revenue from RDX products.
4
Product Revenue.
Net product revenue decreased to $56.0 million during fiscal 2013 from $61.6 million during fiscal 2012, a decrease of $5.6 million, or 9.1%.
Revenues from tape automation, tape drives and tape media decreased $7.8 million during 2013 as compared to 2012. The tape drives
revenues decreased $3.4 million and the tape automation revenues decreased $2.7 million. These declines were primarily the result of, a reduction in the overall tape market, as well as an increase in competition between existing tape product
vendors during 2013, which resulted in price erosion within the tape product market. Tape media revenues decreased $1.7, due primarily to decreased LTO and SLR media sales resulting from general market declines. Revenue from RDX products
increased $1.7 million, or 12.3%, in 2013, compared to 2012.
Service Revenue.
Net service revenue remained relatively constant at $4.4 million during fiscal 2013 from $4.3 million during fiscal 2012.
Royalty Revenue.
Net
royalty revenue decreased to $1.1 million during fiscal 2013 from $1.7 million during fiscal 2012. The decrease of approximately $0.6 million, or 35.3%, was primarily due to a reduction in sales of RDX technology-based products by third parties.
Gross Profit. Overall gross profit decreased to $16.2 million during fiscal 2013 compared to $19.2 million during fiscal
2012. Gross margin decreased to 26.4% during fiscal 2013 from 28.4% during fiscal 2012.
Product Revenue.
Gross profit on product revenue during fiscal 2013 was $14.2 million compared to $16.9 million during fiscal 2012. The decrease of $2.7
million, or 16.0%, was primarily due to the decrease in net product revenue related to decreased sales volumes of both tape automation, tape drives, tape media. Revenue and margins on RDX products rose slightly in 2013, compared to 2012 due
customers shifting from tape- to removable disk-based storage systems. Gross margin on product revenue was 25.3% for fiscal 2013, a decrease from 27.4% for fiscal 2012. This reduction in margin is primarily due to heightened price competition.
Service Revenue.
Gross
profit on service revenue remained relatively constant during fiscal 2013 at $1.8 million compared to $1.7 million during fiscal 2012.
Royalty Revenue.
Gross
profit on royalty revenue during fiscal 2013 was $0.3 million compared to $0.6 million during fiscal 2012, a decrease of $0.3 million, or 50.0%. This decrease was primarily due to decreased revenue due to a decline in sales of RDX products by third
parties. Gross margin on royalty revenue was 27.3% for fiscal 2013 which decreased from 35.3% for fiscal 2012.
Sales and Marketing
Expense. Sales and marketing expense in fiscal 2013 of $13.1 million was fairly consistent with the $13.0 million for fiscal 2012.
Research and Development Expense. Research and development expense in fiscal 2013 increased to $3.5 million from
$3.3 million during fiscal 2012. The increase of $0.2 million, or 6.1%, was primarily a result of an increased spending on contract development costs of the BizNAS product line partially offset by decreased headcount.
General and Administrative Expense. General and administrative expense in fiscal 2013 increased to $13.2 million from
$10.4 million during fiscal 2012. The increase of $2.8 million, or 26.9%, was primarily a result of costs associated with the acquisition by Overland.
5
Interest Expense. Interest expense increased to $5.1 million during fiscal 2013
compared to $4.2 million in 2012. The increase of $0.9 million, or 21.4%, was primarily due to additional borrowings from a related party in 2013.
Other Income (Expense), Net. During fiscal 2013, Tandberg incurred other expense of $0.2 million compared with other income of
$0.3 million during fiscal 2012. The change of $0.5 million was primarily due to the currency fluctuation between USD and EUR, and USD and JPY.
Provision for Income Taxes. During fiscal 2013, Tandberg realized an income tax benefit of $0.3 million compare to a minimal
income tax expense in fiscal 2012. The tax benefit in fiscal 2013 and tax expense for fiscal 2012 was minimal as Tandberg has recorded a valuation allowance against deferred tax assets generated from historical net operating losses as Tandberg has
determined that it is more likely than not that it will ultimately realize the tax benefit associated with these assets.
Liquidity and Capital
Resources
During fiscal 2013, Tandberg used cash in operating activities of $8.4 million, compared to cash provided from operating
activities of $1.1 million in fiscal 2012. The cash used during fiscal 2013 was primarily a result of a net loss of $18.5 million offset by $8.3 million in non-cash items, which were primarily accrued interest expenses for existing loans and
depreciation and amortization. In addition, Tandberg had cash generated in from inventory of $1.3 million and cash generated from other operating assets and liabilities of $0.5 million during 2013.
Tandberg used cash in investing activities of $0.1 million during fiscal 2013, compared to $0.7 million in fiscal 2012. The decrease of $0.6
million in fiscal 2013 was due primarily to reduced expenditures for machinery, equipment and software.
Tandberg generated cash from
financing activities of $8.4 million during fiscal 2013, compared to $0.5 million during fiscal 2012. In fiscal 2013, the amount was primarily the net result of a $9.5 million loan from its shareholder, compared to $1.5 million borrowed from
the shareholder in 2012. Tandberg repaid $1.1 million of the RDX obligation in 2013, compared to $1.2 million of the RDX obligation repaid in 2012.
At December 31, 2013, the Company had a deficit working capital of $53.0 million, deficit equity of $32.0 million and incurred a net loss
of $18.5 million for the year ended December 31, 2013. These conditions raise a question about the entitys ability to continue as a going concern for the next twelve months.
As a result of Tandbergs recurring losses from operations and negative cash flows, the report from its independent public audit firm
regarding Tandbergs consolidated financial statements for the year ended December 31, 2013 includes an explanatory paragraph expressing that Tandbergs ability to continue as a going concern is dependent upon continued funding from
its shareholders.
On January 21, 2014, Tandberg was acquired by Overland Storage, Inc. Immediately prior to closing of the
acquisition by Overland, Tandbergs debt to related party, including accrued interest with a December 31, 2013 balance of $58.8 million, was converted to equity and the Companys revolving credit facility was repaid. The accompanying
financial statements do not include any adjustments from this recapitalization or if the Company is unable to continue as a going concern.
As a result of the acquisition, Tandberg may be dependent upon Overlands capital and financing capabilities to fund Tandbergs cash
needs over the next twelve months.
Research and Development, patents and licenses
Research and development activity at Tandberg has been focused on the continuous development of current product lines of RDX related products
and tape automation products to meet the needs of customers. A development project was undertaken in 2012 and 2013 to develop a new range of NAS products that began shipping in the second quarter of fiscal 2013.
Trend Information
See discussion under
Results of Operations and Liquidity and Capital Resources.
6
Off-Balance Sheet Arrangements
Tandberg has no off-balance sheet arrangements or significant guarantees to third parties that are not fully recorded in its consolidated
balance sheet or fully disclosed in the notes to the consolidated financial statements.
Contractual Obligations
The following schedule summarizes Tandbergs contractual obligations to make future payments at December 31, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations |
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
4-5 years |
|
Total debt including to related parties, including interest (1) |
|
$ |
58,778 |
|
|
$ |
58,778 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Operating lease obligations (2) |
|
|
1,856 |
|
|
|
1,021 |
|
|
|
835 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
60,634 |
|
|
$ |
59,799 |
|
|
$ |
835 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1): Includes $57.5 million of debt and accrued interest to Tandbergs shareholder. As discussed above, this amount was
converted into equity of Tandberg immediately prior to the acquisition transaction closing.
(2): This represents contractual lease obligations under
non-cancellable operating leases on Tandbergs premises in China, Norway, Colorado, Japan, and Singapore.
Inflation
Inflation has not had a significant impact on Tandbergs operations during the periods presented. Historically, Tandberg has been able to
pass on to its customers increases in raw material prices caused by inflation. If at any time Tandberg cannot pass on such increases, its margins could suffer.
Recently Issued Accounting Pronouncements
See Note 1 to Tandbergs consolidated financial statements.
Quantitative and Qualitative Disclosures about Market Risk.
Market risk represents the risk of loss that may impact Tandbergs financial position, results of operations or cash flows due to adverse
changes in financial and commodity market prices and rates. Tandberg is exposed to market risk from changes in foreign currency exchange rates as measured against the U.S. dollar. These exposures are directly related to Tandbergs normal
operating and funding activities. Historically, Tandberg has not used derivative instruments or engaged in hedging activities.
Foreign Currency Risk.
Tandberg conducts business on a global basis and essentially all of its products sold in international markets are denominated in U.S. dollars.
Historically, export sales have represented a significant portion of Tandbergs sales and are expected to continue to represent a significant portion of sales. Tandbergs wholly-owned subsidiaries in Germany, Japan, Norway, France,
Singapore, Hong Kong, and China incur costs that are denominated in local currencies. As exchange rates vary, these results may vary from expectations when translated into U.S. dollars, which could adversely impact overall expected results. The
effect of exchange rate fluctuations on Tandbergs results of operations resulted in a loss of $0.3 million in 2013 and a gain of $0.3 million for fiscal 2012.
7
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