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By | Chris Mellor 6th October 2008 09:25

Nasdaq threatens Overland with de-listing

Reverse stock-split coming

Overland Storage's share price has fallen so low that Nasdaq is threatening a de-listing. The company will carry out a reverse stock split to boost the value of its shares.

Under Nasdaq Global Market listing rules Overland Storage must have a minimum stock price of $1. On August 19 the firm's share price sank to $0.98 and has slumped since then to Friday's close of $0.41.

The Nasdaq exchange sent Overland a deficiency letter on October 3 after 30 days of trading under the dollar mark. It gave Overland 180 days - until March 30 next year - to get its stock price back up. If it doesn't it will have to de-list from the main Nasdaq market and transfer to another one.

Overland is trying to recover from a disastrous period under a previous CEO, Chris Calisi, which left the company making a loss. Full fiscal year 2008 revenues were $127.7m with a net loss of $24.6m, which was an improvement on 2007's $44.1m net loss on revenues of $160.4m. Annual net revenues have fallen steadily since 2004's high point of $238m and Overland has been making a loss since 2006.

From June towards the end of fiscal 08, Overland bought the SnapServer NAS business from Adaptec for $3.8m. The acquisition led to a need to reduce costs further.

At the end of August, after a failure to find additional financing, Overland replaced its VP for worldwide sales, terminated 53 employees and cut spending across the board. Its share price was then $0.80 and has since almost halved.

Overland had no long-term debt at the close of fiscal 08. At that point cash, cash equivalents and short-term investments amounted to $9.7m, down from the previous year's $22.8m. Money was spent expanding the sales channel to compensate for lost OEM contracts, paying for the SnapServer acquisition, and putting $4.2m of auction rate securities into long-term assets.

The cash buffer against a significant sales slump, were that to happen, is smaller than it was.

There is little prospect of Overland trading its way out of its Nasdaq listing bind, which explains the reverse split idea. The firm is proposing to exchange several existing shares for one new share which at, say, a one-to-four split would have four times the original share's value: $1.64 at Friday's closing price. This would meet Nasdaq requirements. It would not affect the company's market capitalisation, currently $5.23m.

The board has to agree a target stock value that is sustainable because if the revalued shares then slumped back down below $1, the company's market capitalisation would be drastically lower and another reverse stock split would probably not succeed. In effect Overland would be finished.

Overland is asking shareholders to give its board powers to effect a reverse split at a ratio from one-for-two to one-for-ten, depending on the conditions at the time of the split. The vote takes place on December 9 and the stakes for Overland's recovery just got a whole lot higher. ®

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