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By | Chris Mellor 16th May 2014 15:45

Overland Storage, 'miracle' flirty virty Sphere 3D jump in bed

Strange couple agree to merge – what does it all mean?

Perennial loss-making Overland Storage will merge with Canadian company Sphere 3D.

The combined companies will take the name of Sphere 3D, whose Glassware software apparently does the seemingly impossible: “Enable mobile device users the full functionality of any software program or application on any device, anywhere.”

Overland Storage was a tape vendor that evolved into disk arrays and then scale-out NAS boxes. Its continuing failure to turn acquisitions and products into profit has been catalogued over many, many quarters. It has avoided Nasdaq ejections by the skin of its teeth, and share splits.

It bought recovering-from-near-death tape storage and data protection biz Tandberg in November, which was seen as a logical effort to gain critical mass for manufacturing and infrastructure efficiencies; the acquisition was driven by a common investor in both companies, Cyrus Capital.

Before that, in September, Overland president and CEO Eric Kelly became chairman of Sphere 3D. At the time the two organisations claimed they had developed the first integrated solution that delivers the full functionality of hardware, operating systems, and applications via the cloud to any device.”

In short, Overland wanted stuff to pump through its channel, and Sphere 3D needs a distribution deal.

Let’s briefly look at Overland’s latest financial figures [PDF], and then move on to the Sphere 3D deal.

Overland’s third quarter

Revenues in the third fiscal 2014 quarter, ended March 31, were increased by Tandberg sales, and totalled $20.2m, a 74 per cent hike on the year-ago Q3 and near doubling of the second 2014 quarter’s $10.6m.

Despite the revenue boost, it lost $6.6m, compared to a $5.4m loss in the same quarter a year ago, and negative $4.3m in the previous quarter; so the losses deepened annually and sequentially.

Kelly said in response: “We continue to make good progress with our integration activities which are projected to be complete by the end of the calendar year. Through this process, we remain focused on leveraging the increased scale and resources of the combined company to maximise the growth opportunities we see with our expanded product and service portfolio, as well as the launch of our integrated virtualisation [Sphere 3D] and storage solutions, which we expect to occur in the next few months. We … believe that once fully integrated, we will achieve the operational efficiencies to enable us to become a profitable and growing company."

The classic jam tomorrow story.

Sphere 3D merger

Sphere 3D and Overland are merging in an all-stock deal, with each outstanding share of Overland common stock being exchanged for 0.510594 common shares of Sphere 3D. Today, holders of Overland Shares will own approximately 28.8 per cent of Sphere 3D on a fully diluted basis. Kelly said: “Sphere 3D has agreed to acquire 100 per cent of the outstanding shares of Overland’s common stock for a total consideration of approximately $81 million, or $4.43 per share."

Sphere 3D’s CEO Peter Tassiopoulos stated: "This transformational deal allows us to immediately gain the scale, infrastructure and resources required to become a leading global virtualisation company and strengthens Sphere's ability to service and support partners and customers globally. In addition, this transaction provides greater certainty in leveraging Overland's existing global distribution network as well as their significant Tier One OEM relationships."

We are told the two companies have been “working in tandem to develop an integrated application virtualisation and data storage platform, as well as a virtual desktop infrastructure (VDI) solutions, which are already installed at select strategic customers and partners”.

The Sphere 3D application virtualisation software “allows native third-party applications to be delivered in the cloud or on-premise[s] on a multitude of endpoint devices independent of their operating system”.

Let’s just think. Imagine a biz using Android, iOS and Windows 8 smartphones, tablets and maybe even smart TVs; Windows and OS X laptops and desktops, possibly Linux, too; and servers running some flavour of Unix or Windows and data-centre-grade software.

Whatever the access protocols used by the endpoint devices and whatever the access protocols, Glassware 2.0 will – in this case – allow "native third-party applications to be delivered … on a multitude of endpoint devices independent of their operating system".

On the face of it, this is hard to believe

A FAQ on Sphere 3D’s website says: "We have emulators for a number of various chipsets including X86, ARM, RISC and others." Sphere 3D’s website admits: “Clearly unbelievable, right?”

But Sphere 3D says it can be done: “With GLASSWARE 2.0’s platform, web-enabled devices can access any digital content or software, anytime, anywhere, in their native form.”

Here’s what Overland and Sphere 3D say:

The combination of Sphere 3D's Glassware 2.0 virtualisation solution and Overland's data storage solutions will enable mobile device users the full functionality of any software program or application on any device, anywhere, eliminating the application limitations, data management and security problems for enterprises created by the BYOD (Bring Your Own Device) phenomenon.

Mobile users that need productivity applications such as word processing, spreadsheets, presentations and collaborations, specialised software for computer-aided design (CAD), magnetic resonance imaging (MRI), software development, video production or customised legacy applications can now experience full application functionality via the cloud or in the data centre.

It would be good to see independent evaluation by analysts.

Sphere 3D also has a V3 Systems VDI appliance product, acquired in February with V3 Systems [PDF]. There are, we’re told, more than 200 deployments worldwide. Kelly said: “We believe the application virtualisation platform that allows native third-party applications to be delivered in the cloud or in the data centre on any device, independent of operating system or hardware, is an industry-first solution.”

Indeed it would be.

In a Streetsweeper article on Wednesday, investigative reporter Sonya Colberg claimed:

  • There is “currently no real commercial product", though Sphere 3D has been working on it for about five years now.
  • The company has little or no organic sales.

It goes on to say much worse. But bear in mind we're told Streetsweeper “hold[s] a short position in ANY.V [Sphere3D's stock price] and stand[s] to profit on any future declines in the stock price”.

The article claims Sphere 3D bought V3 “only by signing a $5 million debt deal with Cyrus Capital Partners”, apparently the same firm that encouraged Overland and Tandberg to merge. Sphere 3D paid, the article reports, $9.7m for V3, which had sales of $532,256 in 2013.

Overland’s conference call with investors revealed that the Sphere 3D merger is expected to close in the third quarter.

Kelly said Sphere 3D’s virtualisation technology can be used on Tandberg and Overland Storage products, adding: “When you have applications that are driving storage requirements, you’re going to move more storage products. So the combination was one that actually helps us drive the storage growth as well as leverage our infrastructure to quickly broaden the reach for the Sphere 3D product line.”

Net net

The net-net here is that Overland is digesting Tandberg and integrating it with savings and possible profitability in mind. It is also merging with a Canadian startup with, almost literally, fantastic-sounding technology that can achieve a miracle; web-enabled devices accessing any digital content or software, anytime, anywhere, in their native form.

Tassiopoulos’ Sphere 3D, the developer and possessor of technology that could be worth billions, has decided to merge with Overland Storage and not seek an acquisition or partnership with Cisco EMC, Dell, HP, IBM, or any other mainstream IT systems vendor that would surely just love to have such technology and pay very well for it.

Why is that? It is a mystery. ®

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