<PAGE>   1
===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------


                                    FORM 10-Q


(Mark one)

[x]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the quarterly period ended March 31, 2001
                                                            --------------
                                       or

[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the transition period        to
                                                       ------    ------

                        COMMISSION FILE NUMBER 000-29809


                               OTG SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                 <C>                                <C>
            DELAWARE                           7372                         52-1769077
 (state or other jurisdiction of    (Primary Standard Industrial           (IRS Employer
 incorporation or organization)     Classification Code Number)        Identification Number)
</TABLE>


                       6701 DEMOCRACY BOULEVARD, SUITE 800
                            BETHESDA, MARYLAND 20817
                                 (301) 897-1400

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)


    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 YES [X] NO [ ]


    As of April 30, 2001, there were outstanding 31,433,216 shares of OTG
Software, Inc. common stock, $0.01 par value per share.


===============================================================================

<PAGE>   2

                               OTG SOFTWARE, INC.
                                    Form 10-Q
                      Quarterly Period Ended March 31, 2001

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>                                                                                      <C>
PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements                                                              1

         Condensed Consolidated Balance Sheets as of March 31, 2001 and
         December 31, 2000                                                                 1

         Condensed Consolidated Statements of Operations for the three months
         ended March 31, 2001 and 2000                                                     2

         Condensed Consolidated Statements of Cash Flows for the three months
         ended March 31, 2001 and 2000                                                     3

         Notes to Condensed Consolidated Financial Statements                              4

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                             8

Item 3.  Quantitative and Qualitative Disclosures about Market Risk                       25

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                                25

Item 2.  Changes in Securities and Use of Proceeds                                        25

Item 3.  Defaults Upon Senior Securities                                                  25

Item 4.  Submission of Matters to a Vote of Security Holders                              25

Item 5.  Other Information                                                                25

Item 6.  Exhibits and Reports on Form 8-K

         (a)   Exhibits                                                                   25
         (b)   Reports on Form 8-K                                                        25

SIGNATURES                                                                                26
</TABLE>




<PAGE>   3


PART I  FINANCIAL INFORMATION
Item 1.  Financial Statements


                               OTG SOFTWARE, INC.
                      Condensed Consolidated Balance Sheets
               (in thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                                     March 31,       December 31,
                                                                       2001              2000
                                                                       ----              ----
                                                                                   (As restated)
                                                                             (unaudited)
<S>                                                                    <C>              <C>
    ASSETS
Current assets
    Cash and cash equivalents                                          $ 102,819        $ 102,197
    Accounts receivable, net of allowance
        of $1,390 and $1,541, respectively                                18,389           20,613
    Deferred income taxes                                                  2,656            2,066
    Other current assets                                                   3,878            2,919
                                                                       ---------        ---------
        Total current assets                                             127,742          127,795
Other assets
    Property and equipment, net                                            5,015            4,744
    Goodwill, net                                                          2,365            2,510
    Other intangibles, net                                                 1,080            1,212
    Deferred income taxes                                                  1,221            1,302
    Other noncurrent assets, net                                             767              759
                                                                       ---------        ---------
        Total other assets                                                10,448           10,527
                                                                       ---------        ---------
           Total assets                                                $ 138,190        $ 138,322
                                                                       =========        =========
    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
    Accounts payable                                                   $   3,551        $   4,080
    Income taxes payable                                                      --            1,143
    Accrued expenses                                                       8,602            7,572
    Current portion of long-term debt                                         61               61
    Current portion of notes payable                                         847              225
    Current portion of notes payable to stockholder                           68               67
    Deferred revenues                                                      7,505            7,586
                                                                       ---------        ---------
        Total current liabilities                                         20,634           20,734
Other liabilities
    Long-term debt, net of current portion                                     8               23
    Note payable, net of current portion                                      --              225
    Notes payable to stockholder, net of current portion                      --               18
    Noncurrent deferred revenues                                             490              446
                                                                       ---------        ---------
        Total other liabilities                                              498              712
                                                                       ---------        ---------
           Total liabilities                                              21,132           21,446
Commitments and contingencies
Shareholders' equity
    Preferred stock, $0.01 par value; 5,000,000 shares
      authorized, none issued                                                 --               --
    Common stock, $0.01 par value; 65,000,000 shares authorized,
        31,432,216 and 30,883,477 shares issued and outstanding,
        respectively                                                         314              309
    Additional paid-in capital                                           141,425          140,025
    Deferred compensation, net                                            (1,467)          (1,637)
    Accumulated other comprehensive loss                                     (62)             (28)
    Accumulated deficit                                                  (22,080)         (20,741)
                                                                       ---------        ---------
    Total shareholders' equity before stock subscriptions
      receivable                                                         118,130          117,928
           Less: stock subscriptions receivable                           (1,072)          (1,052)
                                                                       ---------        ---------
               Total shareholders' equity                                117,058          116,876
                                                                       ---------        ---------
                  Total liabilities and shareholders' equity           $ 138,190        $ 138,322
                                                                       =========        =========
</TABLE>


See accompanying Notes to Condensed Consolidated Financial Statements.

<PAGE>   4


                               OTG SOFTWARE, INC.
                 Condensed Consolidated Statements of Operations
                    (in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                             Three Months
                                                            Ended March 31,
                                                         2001           2000
                                                         ----           ----
                                                                    (As restated)
                                                            (unaudited)
<S>                                                  <C>           <C>
Revenues
    Software licenses                                $ 10,286        $  8,488
    Services                                            3,637           2,195
                                                     --------        --------
        Total revenues                                 13,923          10,683

Cost of revenues
    Software licenses                                     909             473
    Services                                            1,574           1,078
                                                     --------        --------
        Total cost of revenues                          2,483           1,551
                                                     --------        --------
           Gross profit                                11,440           9,132

Operating expenses
    Sales and marketing                                 6,682           4,743
    Research and development                            4,053           2,523
    General and administrative                          2,122           1,642
    Merger-related costs                                1,585              --
    Amortization of acquired intangible assets            208              --
                                                     --------        --------
        Total operating expenses                       14,650           8,908
                                                     --------        --------
Income (loss) from operations                          (3,210)            224

Other income (expense)
    Interest income                                     1,406             211
    Interest expense                                      (19)           (624)
    Foreign exchange gain (loss)                          (38)             55
                                                     --------        --------
        Total other income (expense)                    1,349            (358)
                                                     --------        --------
Loss before income taxes                               (1,861)           (134)
Income tax benefit                                       (502)             --
                                                     --------        --------
Net loss                                             $ (1,359)       $   (134)
                                                     ========        ========

Net loss per common share
    Basic and Diluted                                $  (0.04)       $  (0.01)

Shares used for computation
    Basic and Diluted                                  31,127          21,444
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

                                       2

<PAGE>   5

                               OTG SOFTWARE, INC.
                Condensed Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                          Three Months
                                                                        Ended March 31,
                                                                      2001           2000
                                                                      ----           ----
                                                                                (As restated)
                                                                          (unaudited)
<S>                                                               <C>              <C>
Cash and cash equivalents at beginning of period                  $ 102,197        $   4,296
                                                                  ---------        ---------
Cash flows from operating activities:
Net loss                                                             (1,359)            (134)
    Adjustments to reconcile net income (loss) to cash
        provided by (used for) operating activities
           Amortization of acquired intangible assets                   208               --
           Depreciation and amortization                                519              325
           Stock compensation expense                                   168              210
           Tax benefit from exercise of stock options                   450               --
           Provision for bad debts and returns                          200              272
           Deferred income taxes                                       (509)              --
           Changes in certain assets and liabilities
               Accounts receivables, net                              2,025           (2,176)
               Other current assets                                    (291)            (769)
               Accounts payable and accrued expenses                    (27)             121
               Income taxes payable                                  (1,143)              --
               Deferred revenues                                        (36)             856
                                                                  ---------        ---------
                  Net cash (used for) provided by operating
                    activities                                          205           (1,295)

Cash flows from investing activities
    Purchases of property and equipment                                (736)            (767)
    Acquisition of intangible assets                                     --             (380)
                                                                  ---------        ---------
                  Net cash used for investing activities               (736)          (1,147)

Cash flows from financing activities
    Net proceeds from initial public offering                            --           88,142
    Direct costs of secondary public offering                          (133)              --
    Proceeds from other issuances of common stock                       955               --
    Borrowings under note payable to bank                               397               --
    Repayments on note payable to bank                                   --           (5,005)
    Borrowings under long-term debt                                      --                6
    Repayments on long-term debt                                        (15)          (1,761)
    Repayments on stockholders' notes                                   (17)          (9,813)
    Distributions to stockholders                                        --           (1,160)
                                                                  ---------        ---------
                  Net cash provided by financing activities           1,187           70,409
                                                                  ---------        ---------

Effect of changes in foreign exchange rates                             (34)              20
                                                                  ---------        ---------
Net increase in cash and cash equivalents                               622           67,987
                                                                  ---------        ---------
Cash and cash equivalents at end of period                        $ 102,819        $  72,283
                                                                  =========        =========
</TABLE>



See accompanying Notes to Condensed Consolidated Financial Statements.

                                       3

<PAGE>   6


                               OTG SOFTWARE, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

1.   Basis of Presentation and Nature of Operations

     The accompanying condensed consolidated financial statements include the
accounts of OTG Software, Inc. (OTG Software), Smart Storage, Inc. (Smart
Storage), OTG Sales, Inc. (OTG Sales) and OTG E-Mail Corp. (OTG E-Mail). OTG
Software, Smart Storage, OTG Sales and OTG E-Mail are collectively referred to
as "the Company." References such as "we," "our," and "us" also refer to OTG
Software and its wholly-owned subsidiaries. The statements have been prepared in
accordance with generally accepted accounting principles (GAAP) and the
applicable rules and regulations of the United States Securities and Exchange
Commission (SEC). These interim financial statements should be read in
conjunction with the audited consolidated financial statements and accompanying
notes thereto contained in our Annual Report on Form 10-K filed with the SEC on
March 7, 2001. The interim financial statements contained in this report are
unaudited and, as permitted by GAAP as well as SEC rules and regulations, do not
include certain information and disclosures normally included in audited
financial statements filed annually with the SEC.

     In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the periods presented. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements in conformity with GAAP
requires management to make certain assumptions and estimates that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates. In addition, our
operating results for interim periods may not be indicative of the results of
operations for a full fiscal year.

     Headquartered in Bethesda, Maryland, we are a provider of on-line data
storage, data access and e-mail management software. Our products enable
enterprises to store, track and retrieve data over a variety of network
architectures, including the Web and storage area networks. Through our
application-centric product suite, we offer business, Web and e-commerce
solutions that provide robust functionality across industries. Our products
empower storage by combining storage with access and e-mail management. Our
products are available through a worldwide network of value-added resellers
(VARs), distributors and original equipment manufacturers (OEMs) as well as
directly from us. Our primary product line is sold under the name
"XtenderSolutions."

     OTG E-Mail reflects the activity of the former xVault, Inc. (xVault), a
company that we acquired on April 25, 2000. The acquisition of xVault was
accounted for using the "purchase" method of accounting; therefore, the assets
acquired and liabilities assumed from xVault were adjusted to fair value as of
April 25, 2000 and consolidated with our balance sheet as of that date. Activity
of the former xVault entity is recognized in our financial results beginning
April 26, 2000.

     We acquired Smart Storage on March 29, 2001. The acquisition of Smart
Storage was accounted for using the "pooling of interests" method of accounting.
Accordingly, our statements of operations, balance sheets and statements of cash
flows and related information for all periods presented in this report include
the results of Smart Storage as if Smart Storage had always been a part of the
Company. See Note 2 for additional information.


                                       4

<PAGE>   7

2.   Acquisition of Smart Storage

     On March 29, 2001, we acquired Smart Storage in a transaction accounted for
using the "pooling of interests" method of accounting. Pursuant to the merger
agreement with Smart Storage, we issued 3,081,108 shares of our Common Stock to
the former Smart Storage stockholders in exchange for all the outstanding shares
of Smart Storage's capital stock (of the shares issued, 308,087 are being held
in escrow for a period of twelve months to secure certain indemnification
obligations of certain former Smart Storage stockholders). In addition, we
reserved 468,219 shares of Common Stock for issuance upon the exercise of the
outstanding options to purchase Smart Storage common stock, which we assumed as
part of the merger agreement. In connection with our acquisition of Smart
Storage we incurred merger and acquisition related expenses of approximately
$1.6 million in the first quarter of 2001.

     Smart Storage is a provider of standards-based DVD and CD storage
management software. Smart Storage, founded in 1992, develops innovative storage
management software that enhances business productivity by providing long-term,
cost effective access to information. Smart Storages offerings enable companies
to increase the availability of information to their employees and customers by
utilizing networking architectures such as LANs, SANs, and the Internet;
networked servers such as Windows NT, UNIX and NetWare; and storage devices
including CD-ROM, CD-R, DVD-ROM, DVD-R and DVD-RAM media.

     For the period January 1, 2001 through the day immediately preceding the
consummation of the acquisition, Smart Storage's revenues and net loss were $1.8
million and $1.9 million, respectively. These amounts are based upon certain
assumptions and estimates that the Company believes are reasonable. Smart
Storage's pro forma stand-alone results for this period include merger-related
costs (e.g., attorney's and accountants' fees) of approximately $0.9 million. As
mentioned above, the Company's results and related information for all periods
presented in this report reflect the activity of Smart Storage as if Smart
Storage had always been a part of the Company. The Smart Storage results
provided above do not necessarily represent the results that would have occurred
if the merger had taken place at a date earlier than the actual consummation
date of the merger.

     For the period January 1, 2000 through March 31, 2000, Smart Storage's
revenues and net income were $2.4 million and $0.2 million, respectively.

3.   Shareholders' Equity

     (a) Common Stock

         As discussed in Note 2, on March 29, 2001, we issued 3,081,108 shares
     of Common Stock, $0.01 par value (Common Stock), to acquire Smart Storage,
     including 308,087 shares that are being held in escrow for twelve months.
     In addition, we have reserved 468,219 shares of Common Stock for issuance
     upon the exercise of the outstanding options to purchase Smart Storage
     common stock, which we assumed as part of the merger agreement.

         During the three months ended March 31, 2001, employee exercises of
     stock options resulted in proceeds of $1.0 million and the issuance of
     548,740 shares of Common Stock.

     (b)  Stock-based compensation

         In February 2001, the number of awards available under our stock-based
     compensation program was increased by 834,071 shares to 1,094,123 under the
     "evergreen" provisions of our 2000 Stock Incentive Plan.


                                       5
<PAGE>   8

4.   Lease Commitment

     In April 2001, we entered into an amendment to our lease agreement, dated
June 20, 2000, relating to our new headquarters facility. The primary purpose of
the amendment was to change the occupancy date to June 1, 2001 from April 15,
2001.

5    Software Revenue Recognition

     Revenues are generated from licensing software and providing services,
including maintenance and technical support, training and consulting.

     In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements" (SAB 101), as amended by SAB 101A
and SAB 101B, which expresses the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We adopted
the accounting and disclosure requirements of this SAB in the fourth quarter of
2000. The application of this SAB did not have a material impact on our
financial statements and related disclosures.

     In October 1997, the American Institute of Certified Public Accountants
(the AICPA) issued Statement of Position (SOP) No. 97-2, "Software Revenue
Recognition." SOP 97-2 requires that revenue recognized from sales arrangements
that include software licenses be allocated to the various elements of the
arrangement based on the relative fair values of the constituent elements, such
as maintenance and technical support, training and consulting services. The
relative fair value of each element of a multi-element sales arrangement is
based on "vendor specific objective evidence" (VSOE). Subsequently, in March
1998 and December 1998, the AICPA issued SOP 98-4 and SOP 98-9, respectively,
which defer until the Company's fiscal year beginning January 1, 2000, the
application of several paragraphs and examples in SOP 97-2 that limit the
definition of VSOE for determining fair value of various elements in a multiple
element arrangement. The provisions of SOP 97-2 have been applied to
transactions entered into beginning January 1, 1998. Prior to 1998, our revenue
recognition policy was in accordance with the preceding authoritative guidance
provided by SOP No. 91-1, "Software Revenue Recognition." The adoption of the
provisions of SOP 97-2 did not have a material impact on our financial
statements. We adopted the remaining portions of SOP 97-2, which were deferred
by SOP 98-4 and SOP 98-9, as of January 1, 2000. The adoption of the remaining
portions of SOP 97-2 did not have a material impact on our financial statements.

     Software license revenues consist of fees for licenses of our software
products. We sell software products primarily through value-added resellers,
distributors and original equipment manufacturers. We offer extended payment
terms to certain customers. For such arrangements in which payment terms are
within six months, we recognize the revenue when the agreement is signed, the
arrangement fee is fixed and determinable, delivery of the software has occurred
and collectibility of the fee is considered probable. For arrangements in which
payment terms extend beyond six months, we recognize revenue when payment by the
customer is made or becomes due, if all other revenue recognition criteria have
been met.

     Services revenues consist of maintenance and technical support, training
and consulting. Revenues from maintenance and technical support, which consists
of unspecified when-and-if-available product updates and customer telephone
support services, are recognized ratably over the term of the service period.
Other services revenues are recognized as the related services are provided or,
in cases where customer acceptance occurs at defined project "milestones" or at
completion of the project, when those milestones have been reached and satisfied
or when the customer has accepted the work.


                                       6

<PAGE>   9

6.   Net Loss Per Common Share

     Net loss per common share is presented on both a basic and diluted basis in
accordance with SFAS No. 128, "Earnings per Share." Basic net loss per common
share is computed by dividing net loss by the weighted average number of shares
of Common Stock outstanding during the period. Diluted net loss per common share
reflects the maximum dilution that would result after giving effect to dilutive
securities.

     The table below presents the computation of basic and diluted net loss per
common share. Because we recognized net losses in both periods, the inclusion of
incremental shares from the assumed conversion of stock options and warrants
into common stock is anti-dilutive. Therefore, such amounts have been excluded
from the calculations.

<TABLE>
<CAPTION>
                                                                          Three Months
                                                                        Ended March 31,
                                                                      2001           2000
                                                                      ----           ----
                                                                         (in thousands,
                                                                    except per share amounts)
                                                                          (unaudited)
<S>                                                                   <C>             <C>
Net loss:
    Net loss (basic and diluted)                                      $ (1,359)       $   (134)
                                                                      ========        ========

Shares used for computation:
    Weighted average shares of Common Stock outstanding (basic)         31,127          21,444
    Incremental shares related to outstanding stock options                 --              --
    Incremental shares related to outstanding warrants                      --              --
                                                                      --------        --------
    Weighted average equivalent shares of Common Stock
        outstanding (diluted)                                           31,127          21,444
                                                                      ========        ========

Net loss per common share-basic and diluted                           $  (0.04)       $  (0.01)
                                                                      ========        ========
</TABLE>


7.   Comprehensive Income (Loss)

     We recognized a comprehensive loss of $1.4 million and $0.1 million for the
three months ended March 31, 2001 and 2000, respectively. Comprehensive income
or loss encompasses net income or loss and "other comprehensive income or loss,"
which includes all other non-owner transactions and events that change
shareholders' equity. Our other comprehensive loss reflects the effect of
foreign currency translation adjustments on the accounts of our foreign
operations.

8.   Segment Information and Related Disclosures

     Our operations consist of one business segment providing on-line data
storage, data access ands e-mail management software and related services. For
the three months ended March 31, 2001 and 2000, our revenues from foreign
countries represented 25% and 16%, respectively, of our total revenues.

9.   Related Party Transactions

     In the first quarter of 2001, we made payments totaling $48,000 to the
estate of a former employee pursuant to an agreement entered into on behalf of
that employee in 1998. Also, in the first quarter of 2001, the Company recorded
interest expense on notes payable to a stockholder totaling $11,000.




                                       7

<PAGE>   10

10.  Supplemental Information - Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                        Three months
                                                                       ended March 31,
                                                                     2001           2000
                                                                     ----           ----
                                                                       (in thousands)
                                                                        (unaudited)
<S>                                                                  <C>          <C>
Cash paid during the period for:
     Income taxes                                                    $  962       $   16
     Interest                                                        $    9       $  679

Material non-cash transactions:
     Issuance of Common Stock related to the March 2001
         acquisition of Smart Storage (reflected at par value)       $   31       $   --
     Conversion of all outstanding convertible
         subordinated notes payable (including
         related accrued interest) into 4,161,506
         shares of Common Stock in March 2000                        $   --       $8,833
     Issuance of note payable related to acquisition of
         Intangible assets                                           $   --       $  450
</TABLE>


11.  Subsequent Event

     In April 2001, we retired a note payable to a bank with a payment of $0.4
million. The obligation had previously been classified on our balance sheet as a
current liability.

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     The following discussion of OTG Software's financial condition and results
of operations should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in our
Annual Report on Form 10-K filed with the SEC on March 7, 2001 (Form 10-K). The
information contained herein is not a comprehensive discussion and analysis of
the financial condition and results of operations, but rather updates
disclosures made in our Form 10-K filing.

     Certain information contained herein should be considered "forward-looking
information" within the meaning of the Federal Private Securities Litigation
Reform Act of 1995. Forward-looking information is subject to a number of
substantial risks and uncertainties that can cause actual results to differ
materially. These risks and uncertainties include, but are not limited to, the
timely development and market acceptance of our products and the risk that such
domestic and/or international market acceptance might not happen, the risk that
we may not be able to maintain the quality of our relationships with our end
users or customers, that there may occur adverse changes in the general economic
conditions of our markets or in the specific economic conditions of the
information technology spending market, or that we may not be able to manage our
growth. Statements contained herein that are not statements of historical fact
may be deemed to be forward-looking information. Without limiting the foregoing,
words such as "anticipates," "believes," "could," "estimate," "expect,"
"intend," "may," "might," "should," "will," and "would" and other forms of these
words or similar words are intended to identify forward-looking information. For
example, and not by way of limitation, our forward-looking statements may
include statements regarding:


                                       8

<PAGE>   11

   -    revenue growth or variations in gross margin
   -    development, deployment and acceptance of new products;
   -    technological changes;
   -    use of the proceeds from our initial public offering and follow-on
        public offering;
   -    expansion plans, both international and domestic;
   -    spending on research and development;
   -    levels of expenditures generally, including investments in property and
        equipment;
   -    changes in accounts receivable, including collections activities, and;
   -    sufficiency of our liquidity and capital resources.

     Such forward-looking statements including, but not limited to, information
about expected trends and related information, are made only as of the date of
this report. Important factors known to us that could cause such material
differences are discussed under the caption "Risk Factors" below. In light of
these risks, uncertainties and assumptions, the future events, developments, or
results described by the forward-looking statements in this report could turn
out to be materially different from those discussed or implied. We undertake no
obligation to update or revise any forward-looking information, whether as a
result of new information, future events or otherwise.

                                    Overview

     We are a provider of online data storage, data access and e-mail management
software. Our software enables enterprises to move, store, manage and access
data and e-mail quickly and efficiently over a variety of network architectures,
including the Web and storage area networks. Our software supports many
different types of storage devices, is easy to install and use, and can manage
storage systems ranging in size from a single storage device to an
enterprise-wide data storage network.

     We were founded in March 1992. In March 2000, we acquired xVault, and in
March 2001, we acquired Smart Storage, as discussed below. We acquired xVault
for consideration of 159,996 shares of our Common Stock and $1.75 million in
cash. xVault was a provider of e-mail management and archiving solutions. We
renamed xVault as "OTG E-Mail Corp." We have recorded net losses in certain
prior periods, including a net loss for 1999 and for 1998, but we were
profitable for the year ended December 31, 2000. For the three months ended
March 31, 2001, we recognized a net loss of approximately $50,000 before giving
effect to approximately $1.8 million in pre-tax expenses associated with
one-time merger and acquisition costs of Smart Storage and with the
amortization of acquisition costs associated with our acquisition of xVault.
As of March 31, 2001, we had an accumulated deficit of $22.1 million.

     We generate revenues principally from licensing our software products and
providing related professional services including maintenance and technical
support, consulting and training.

     We derive software license revenues from licenses of our software programs
to customers primarily through indirect sales channels, including original
equipment manufacturers, value-added resellers and distributors. We also sell
through our direct sales force. Original equipment manufacturers (OEMs) either
bundle our products with the products they offer or resell our products under
their own label. We receive software license revenues each time an original
equipment manufacturer licenses a copy of its products that incorporates one or
more of our products. Our license agreements with original equipment
manufacturers generally contain no minimum sales requirements, and we cannot
assure you that any original equipment manufacturer will either commence or
continue shipping our products in the future. Moreover, following the execution
of new OEM license agreements, a significant period of time may elapse before
any revenues are generated due to the development work which we often undertake
under these OEM agreements and the time needed for the sales and marketing
groups within these original equipment manufacturers or other customers and
resellers to become familiar with our products.


                                       9

<PAGE>   12

     We offer extended payment terms to certain customers, primarily select OEMs
and resellers. Extended payment terms are offered to these customers as part of
market penetration programs that are designed to increase the presence of our
products in the marketplace and attract targeted customers and industries, gain
forecast visibility and solidify long-term relationships with these selected
OEM's and resellers. For arrangements with payment terms within six months, we
recognize the revenue when the agreement is signed, the arrangement fee is fixed
and determinable, delivery of the software has occurred and collectibility of
the fee is considered probable. As of March 31, 2001, net amounts due from such
arrangements totaled $7.7 million, a decrease of approximately 15.4% from $9.1
million due from such arrangements as of December 31, 2000. For arrangements in
which payment terms extend beyond six months, we recognize revenue when payment
by the customer is made or becomes due, if all other revenue recognition
criteria listed above have been met.

     Our services revenues consist of fees derived from annual maintenance
agreements, consulting and training and other professional services. The
maintenance agreements covering our products provide for technical support and
minor unspecified product upgrades for fees based on the number of software
licenses purchased and the level of service chosen by the customer. We recently
began to require that at least one year of customer maintenance support be
purchased with new license purchases. Customers have the option of renewing
maintenance agreements annually. Maintenance fees are recognized ratably over
the term of the maintenance contract. We provide consulting and other
professional services, for which we charge a fee based upon the amount of time
worked and the cost of the materials used in providing the services. We provide
classroom and on-site training to our customers on a daily fee basis.
Professional services and training services typically have lower gross margins
than sales of software licenses and customer support.

     We currently have sales and services offices in the United States and
provide sales and services support in Europe and Asia through employees located
in England, Germany, Netherlands, Japan and China. We also have a subsidiary in
India, which is primarily devoted to research and development activities. We
plan to continue to expand our international operations by establishing
additional foreign offices, hiring additional personnel and recruiting
additional international resellers. Our international sales are primarily
generated through indirect sales channels. Revenues derived from customers
located outside the United States and Canada, most of which are denominated in
U.S. dollars, accounted for approximately 25% and 16% of our total revenues for
the three months ended March 31, 2001 and 2000, respectively.

     As part of maintaining our current growth plans, we expect to incur
significant sales and marketing, research and development and general and
administrative expenses. As a result, we will need to generate significant
revenues to maintain consistent profitability. Although the acquisition of Smart
Storage is expected to have an accretive effect on our earnings by the end of
2001, excluding one-time costs of the merger, there will be an integration
period that includes certain transition costs. This transition period may
include additional one-time costs of the transaction, including the possible
write-down of redundant assets or assets determined to be of limited strategic
value to the combined company. Although our revenues have grown substantially in
recent years, we may not be able to sustain the year over year growth rates we
have historically achieved. In addition, we may not be able to generate
sufficient revenues in future periods to be profitable for those periods. In
addition, we are moving our headquarters to a new facility in June 2001. We
expect to incur substantial one-time costs associated with the move, including a
possible lease termination fee related to our current headquarters facility. The
new headquarters facility represents a significant increase in our monthly lease
obligations. Finally, we have scheduled our annual partners' conference for May
2001, which resulted in an acceleration in costs from the quarter ended
September 30, 2001 to the quarter ended March 31, 2001.

                                       10

<PAGE>   13

                          Acquisition of Smart Storage

     On March 29, 2001, we acquired Smart Storage in a transaction accounted for
as a pooling of interests. Pursuant to the merger agreement, we issued 3,081,108
shares of Common Stock to the former Smart Storage stockholders in exchange for
all the outstanding shares of Smart Storage's capital stock (of the shares
issued, 308,087 are being held in escrow for a period of twelve months to secure
certain indemnification obligations of certain former Smart Storage
stockholders). In addition, we have reserved 468,219 shares of Common Stock for
issuance upon the exercise of the outstanding options to purchase Smart Storage
common stock, which we assumed as part of the merger agreement. Our financial
results and related information include the activities of Smart Storage for all
periods presented.

     Smart Storage is a provider of standards-based DVD and CD storage
management software. Smart Storage, founded in 1992, develops innovative storage
management software that enhances business productivity by providing long-term,
cost effective access to information. Smart Storage's offerings enable companies
to increase the availability of information to their employees and customers by
utilizing networking architectures such as LANs, SANs, and the Internet;
networked servers such as Windows NT, UNIX and NetWare; and storage devices
including CD-ROM, CD-R, DVD-ROM, DVD-R and DVD-RAM media.

     The acquisition of Smart Storage is expected to provide significant
benefits to the Company, particularly with respect to employees, technology and
infrastructure. Smart Storage has a highly respected and proven research and
development staff, including a dedicated research and development arm in India.
Smart Storage offers the combined company access to one of the fastest growing
sectors of the storage market-rich media and streaming video. In addition, Smart
Storage has a well-developed international infrastructure and sales channel. As
mentioned above, we believe the acquisition of Smart Storage will be accretive
to our earnings by the end of this year, excluding certain one-time costs.

                            Products Released in 2001

     In April 2001, we announced the availability of "VideoXtender," a new
automated digital content management solution designed to meet the rapidly
growing storage and data accessibility requirements of the professional video
and broadcasting industries. VideoXtender provides broadcasters, media asset
management organizations and digital media application developers with direct
and fast access to rich media assets and streaming video on managed storage
devices, and a scalable, open systems architecture that utilizes cost-effective
and secure DVD-RAM, Magnetic Optical (MO) and tape storage media. VideoXtender
supports both digital broadcasting and media asset management. In video
broadcasting or real-time applications, VideoXtender integrates with playback
video servers and broadcast automation systems to provide online access to
secondary storage. For media asset management or non-real-time applications,
VideoXtender integrates with media asset management and video production
solutions to provide direct access to an organization's vast archive resource of
digital content that would normally be kept off-line.

     In March 2001, we announced that we had internationalized our DiskXtender
and EmailXtender products. By internationalizing our products, we empower
enterprises worldwide with the ability to localize or port our proven and
reliable online data storage, access and e-mail management solutions into other
languages. This is part of our ongoing strategy to be a leading worldwide player
in the e-mail and storage management industry. DiskXtender, which is currently
available in English and Japanese, provides intelligent, automated and virtually
infinite storage management and enables companies to readily access critical
enterprise data. This improves employee productivity and lowers the cost of
ownership for mission critical business

                                       11

<PAGE>   14

information. EmailXtender is currently available in English, German and Italian,
and provides a secure, cost-effective system for efficiently capturing, storing
and retrieving e-mail messages. This solution enables organizations to reduce
e-mail server backup time and bottlenecks, eliminate message- and mailbox-size
restrictions and protect business-critical e-mail from virus attacks.
EmailXtender will soon be available in French and Spanish.

RESULTS OF OPERATIONS

     The following section pertains to activity included in our Condensed
Consolidated Statements of Operations (which are contained in Part I, Item 1 of
this report), comparing results of operations for the three months ended March
31, 2001 with the three months ended March 31, 2000. As mentioned previously,
the Company's historical results, together with related information, have been
revised to include the activity of Smart Storage for all periods presented.

     The table below presents the line items included in our Condensed
Consolidated Statements of Operations as a percentage of total revenues. This
table excludes merger-related costs related to our acquisition of Smart Storage
incurred during the three months ended March 31, 2001 ($1,585,000), amortization
expenses associated with certain intangible assets resulting from our
acquisition of xVault in April 2000 ($208,000) and amortization expenses
associated with Smart Storage's acquisition of certain intangible assets in
January 2000 ($46,000).

<TABLE>
<CAPTION>
                                             Three Months
                                            Ended March 31,
                                          2001           2000
                                          ----           ----
                                        (unaudited and restated)
<S>                                     <C>           <C>
Revenues
    Software licenses                        74 %        79%
    Services                                 26          21
                                           ----        ----
        Total revenues                      100         100

Cost of revenues
    Software licenses                         6           4
    Services                                 11          10
                                           ----        ----
        Total cost of revenues               17          14
                                           ----        ----
           Gross profit                      83          86

Operating expenses
    Sales and marketing                      48          44
    Research and development                 29          24
    General and administrative               16          15
                                           ----        ----
        Total operating expenses             93          83
                                           ----        ----
Income (loss) from operations               (10)          3

Other income (expense)
    Interest income                          10           2
    Interest expense                         --          (6)
    Foreign exchange gain (loss)             --          --
                                           ----        ----
        Total other income (expense)         10           4
                                           ----        ----
Income (loss) before income taxes            --          (1)
Provision (credit) for income taxes          --          --
                                           ----        ----
Net income (loss)                            --%         (1)%
                                           ====        ====
</TABLE>

                                       12

<PAGE>   15

               COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001
                   WITH THE THREE MONTHS ENDED MARCH 31, 2000

Revenues

     Our revenues consist of software license revenues and services revenues.
Software license revenues are derived primarily from licenses of our software
products. Services revenues are derived primarily from contracts for software
maintenance and technical support and, to a lesser extent, consulting, training
and other professional services.

     Total revenues increased 30% to $13.9 million for the three months ended
March 31, 2001 from $10.7 million for the comparable period in 2000. We believe
that the percentage increase in total revenues achieved on a year over year
basis may not necessarily be indicative of future results.

     Software license revenues-Software license revenues increased 21% to $10.3
million for the three months ended March 31, 2001 from $8.5 million for the
three months ended March 31, 2000 and represented 74% of total revenues for the
three months ended March 31, 2001 as compared to 79% of total revenues for the
comparable period in 2000. The increase in software license revenues was
primarily due to an increase in overall demand for data storage management
products, increased market acceptance of our products, introduction of new
products and continued expansion of sales through our indirect distribution
channels. Software license revenues for the three months ended March 31, 2001
decreased slightly compared with the three months ended December 31, 2000. We
believe this sequential decrease in software license revenues reflects several
factors, including changes in general economic conditions and reported lower
discretionary business spending, including spending on storage management
software.

     For the three months ended March 31, 2001, we recognized revenues of $3.7
million, or 36% of our software license revenues during that period, under
arrangements with payment terms extending up to six months. The comparable
amounts for the three months ended March 31, 2000, September 30, 2000, and
December 31, 2000, were $2.5 million and 30%, $5.3 million and 51%, and $4.6
million and 50%, respectively. As mentioned above, extended payment term
contracts are primarily with select OEMs and resellers.

     Services revenues-Services revenues increased 66% to $3.6 million for the
three months ended March 31, 2001 from $2.2 million for the comparable period in
2000. The increase was primarily due to increased sales of maintenance and
technical support contracts on new license sales, increased renewals of
maintenance contracts by our installed base of licensees and, to a lesser
extent, increased demand for consulting, training and other professional
services. In 2000, we began to require that at least one year of customer
maintenance support be purchased with new license purchases. This policy became
effective in September 2000 for sales attributable to OTG Software and in
January 2000 for sales generated by Smart Storage. Services revenues increased
to 26% of total revenues for the three months ended March 31, 2000, from 21% for
the comparable period in 2000. This change reflects the general economic
conditions prevalent during early 2001, particularly the decrease of business
purchasing activities leading to lower software license revenues, and the
relative increase in services revenues discussed above.


                                       13

<PAGE>   16


Cost of revenues

     Cost of software license revenues consists primarily of royalties, media,
manuals and distribution costs. Cost of services revenues consists primarily of
personnel-related costs in providing maintenance and technical support,
consulting and training to customers. Gross margin on software license revenues
is substantially higher than gross margin on services revenues, reflecting the
low materials, packaging and other costs of software products compared with the
relatively high personnel costs associated with providing maintenance and
technical support, consulting and training services. Cost of services revenues
varies based upon the mix of maintenance and technical support, consulting and
training services.

     Cost of software license revenues-Excluding certain amortization expense
associated with intangible assets acquired by Smart Storage in February 2000,
the cost of software license revenues increased 92% to $0.9 million for the
three months ended March 31, 2001 from $0.5 million for the three months ended
March 31, 2000, due primarily to an increase in sales of products, including
products with higher royalty expenses. Gross margin on software license revenues
decreased to 92% for the three months ended March 31, 2001, from 94% for the
three months ended March 31, 2000. The gross margin on software license revenues
may vary from period to period based on changes in the mix of products
comprising software license revenues with certain products having higher royalty
rates than other products. We do not expect any significant improvements in
gross margin on future software license revenues.

     Cost of services revenues-Cost of services revenues increased 46% to $1.6
million for the three months ended March 31, 2001 from $1.1 million for the
three months ended March 31, 2000 due primarily to personnel additions in our
customer support, training and consulting organizations in response to increased
demand for the related services. Gross margin on services revenues increased to
57% for the three months ended March 31, 2001 from 51% for the three months
ended March 31, 2000 due primarily to efficiencies gained in the customer
support area. The gross margins on services revenues may vary from period to
period related to changes in the mix of maintenance and technical support,
consulting and training comprising services revenues.

     Operating Expenses

     Sales and marketing-Sales and marketing expenses consist of salaries,
related benefits, commissions, consultant fees, tradeshow, advertising and other
costs associated with our sales and marketing efforts. Sales and marketing
expenses increased 41% to $6.7 million for the three months ended March 31,
2001, from $4.7 million for the three months ended March 31, 2000. The increase
in sales and marketing expenses is attributable to an increase in the number of
sales and marketing employees and increases in spending on marketing programs.
As a percentage of total revenues, sales and marketing expenses increased to 48%
for the three months ended March 31, 2001, from 44% for the three months ended
March 31, 2000. The increase in sales and marketing expenses as a percentage of
total revenues was due primarily to these expenses increasing at a higher rate
than the increase in total revenues. We intend to continue to expand our global
sales and marketing infrastructure, and, accordingly, we expect the absolute
dollar amount of sales and marketing expenses to increase in future periods.

     Research and development-Research and development expenses consist
primarily of salaries, related benefits and other software engineering-related
costs. Research and development expenses increased 61% to $4.1 million for the
three months ended March 31, 2001, from $2.5 million for the three months ended
March 31, 2000. The increase was primarily due to an increase in the number of
research and development personnel. As a percentage of total revenues, research
and development expenses increased to 29% for the three months ended March 31,
2001 from 24% for the three months ended March 31, 2000. We believe that a
significant level of research and development

                                       14

<PAGE>   17

investment is required to remain competitive, and expect the absolute dollar
amount of these expenses will continue to increase in future periods.

     General and administrative-General and administrative expenses consist
primarily of salaries, related benefits, fees for professional services, such as
legal and accounting services, and bad debt expenses. General and administrative
expenses increased 29% to $2.1 million for the three months ended March 31,
2001, from $1.6 million for the three months March 31, 2000, primarily due to
additional personnel costs and other expenses associated with our efforts to
support the continued expansion of our operations. As a percentage of total
revenues, general and administrative expenses increased to 16% for the three
months ended March 31, 2001, from 15% for the three months ended March 31, 2000.
The increase as a percentage of total revenues was due primarily to the expenses
reflected in this line item increasing at a higher rate than the increase in
total revenues. We expect general and administrative expenses to decrease as a
percentage of total revenues by the end of 2001, but we expect the absolute
dollar amount of general and administrative expenses to continue to increase as
our operations expand.

     Other income (expense)-Other income (expense) increased on a net basis to
other income of $1.3 million for the three months ended March 31, 2001, from
other expense of $0.4 million for the three months ended March 31, 2000. This
change is due to a number of factors. First, we used proceeds from our initial
public offering in March 2000 to repay outstanding balances under our credit
facility, retire our senior subordinated notes and retire all notes payable to
certain stockholders. Further, the conversion of our convertible subordinated
notes into Common Stock in conjunction with our initial public offering
eliminated related interest expense. In addition, the remaining proceeds from
our initial public offering as well as the net proceeds of our follow-on public
offering in November 2000 increased our levels of cash and cash equivalents
available for investment, resulting in increased interest income. For at least
the near future, we believe falling interest rates will negatively affect
interest income earned on our cash and cash equivalents.

     Provision for income taxes-OTG Software was treated as a subchapter S
corporation for federal and state income tax purposes prior to its initial
public offering in March 2000. Under subchapter S of the Internal revenue Code,
OTG Software's income was allocated and taxable to its stockholders.
Accordingly, OTG Software did not recognize any federal or state income taxes
prior to the consummation of its initial public offering. Upon consummation of
the initial public offering, OTG Software ceased to be treated as a subchapter S
corporation. Accordingly, OTG Software has been subject to federal and state
income taxes since our initial public offering. Smart Storage was subject to
regular income taxes for all periods presented.

     We assumed net operating loss carryforwards (NOLs) of approximately $2.1
million through our acquisition of Smart Storage. We expect to use these NOLs,
which are subject to certain limitations on use, in future periods dependent on
future levels of taxable income.

     We expect our effective income tax rate for full-year 2001 to be
approximately 40%.

     Net income (loss) per common share-For the three months ended March 31,
2001, we recorded a net loss per common share of $0.04 on both a basic and a
diluted basis. For the three months ended March 31, 2000, we recognized a net
loss per common share of $0.01 on both a basic and diluted basis. The increase
in the loss per common share reflects a substantial increase in operating
expenses, as discussed above, partially offset by higher interest income, an
income tax benefit and more shares of Common Stock outstanding for the three
months ended March 31, 2001. As discussed above, we recognized certain one-time
costs in both 2001 and 2000, including costs of our merger with Smart Storage,
purchase accounting adjustments associated with our acquisition of xVault and
purchase accounting adjustments related to Smart Storage's acquisition of
certain intangible assets in February 2000. Excluding such merger and
acquisition

                                       15


<PAGE>   18

related costs, our pro forma net income per common share for both the three
months ended March 31, 2001 and 2000 would have been break-even on both a basic
and diluted basis.

     Recently issued accounting standards-In January 2001, the Emerging Issues
Task Force (EITF), a body with authority to establish generally accepted
accounting principles, issued a tentative conclusion on EITF Issue No. 00-14,
"Accounting for Certain Sales Incentives." This issue addresses when
consideration from a vendor to an entity that resells the vendor's products is
an adjustment of the selling prices of the vendor's products to the reseller, a
net adjustment to revenues, or a cost incurred by the vendor for assets or
services provided by the retailer and, therefore, an element of cost or expense
in the vendor's statement of operations. Examples of activities that fall within
the scope of this issue include cooperative marketing arrangements and certain
types of price protection, product introduction and brand development
arrangements. We are reviewing the potential impact of the EITF's tentative
conclusion on this issue on our financial position and results of operations and
will adopt the provisions of the EITF's definitive conclusion on this issue in
the appropriate period, if and when the EITF reaches such a consensus. Based on
the tentative conclusion, as written, we do not believe the effect of adopting
this standard would have a material impact on our financial condition or results
of operations.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2001, our cash and cash equivalents totaled $102.8 million,
representing 74% of total assets. As of December 31, 2000, our cash and cash
equivalents totaled $102.2 million, which also represented 74% of total assets.
As of March 31, 2001, we had interest-bearing debt outstanding of $1.0 million
related primarily to notes payable to certain stockholders and banks ($0.9
million of the total). As of December 31, 2000, we had interest-bearing debt
outstanding of $0.6 million related primarily to notes payable to certain
stockholders and banks.

     For the first three months of 2001, net cash provided by operating
activities was approximately $0.2 million. For the first three months of 2000,
operating activities used net cash of $1.3 million. The increase in cash
provided by operating activities primarily reflects an increase in cash receipts
from accounts receivable, partially offset by payments totaling $0.9 million for
federal and state income taxes. One of the factors affecting our ability to
generate positive cash flows from operating activities is our ability to collect
on accounts receivable when they become due, including sales with extended
payment terms. In addition, even if our collections efforts are ultimately
successful, the timing of receipts may impact cash flows during a quarterly
period. In March 2001, we were obligated to begin making income tax payments.
The timing and extent of any future income tax payments are dependent on the
amount of our taxable income, if any. As mentioned above, we assumed certain tax
benefits through our acquisition of Smart Storage. Payments of income taxes
could have a material adverse affect on our net cash flows from operating
activities in future periods.

     For the first three months of 2001, net cash used for investing activities
decreased to $0.7 million from $1.1 million for the first three months of 2000.
The results for the first three months of 2000 include a payment of $0.4 million
to acquire certain intangible assets. We expect to continue to invest in
property and equipment in the ordinary course of business as required.

     For the first three months of 2001, net cash provided by financing
activities was $1.2 million, including proceeds from employee exercises of stock
options of $1.0 million and proceeds resulting from a note payable with a bank
of $0.4 million. For the first three months of 2000, net cash provided by
financing activities was $70.4 million, including proceeds of $88.1 million from
our initial public offering offset by repayments of certain debt obligations
totaling $16.6 million and distributions to certain shareholders of $1.2
million. In April 2001, we retired a note payable to a bank with a payment of
$0.4 million.


                                       16

<PAGE>   19

     In October 2000, we amended and restated our commercial credit facility
with PNC Bank. Under the amended loan agreement, the maximum available borrowing
under the revolving line of credit was increased from $5 million to $10 million,
including a $5 million sub-line of credit for establishing letters of credit.
The maximum borrowings under the loan agreement at any time, including amounts
under the revolving line of credit and the sub-line of credit, are limited to
the lesser of $10 million or 80% of qualified accounts receivable, as defined in
the agreement. Borrowings under the line of credit bear interest at the prime
rate or LIBOR rate plus 2.5%, as selected by us, and are secured by certain of
our assets.

     We believe that our current cash, cash equivalents and anticipated cash
flows from future operating activities, collectively, will satisfy our
anticipated working capital and capital expenditure requirements for at least
the next twelve months.

RISK FACTORS

     There are a number of important factors that could affect our business and
future operating results, including, without limitation, the factors set forth
below, and the information contained in this report should be read in light of
such factors. Any of the following factors could harm our business and our
future operating results.

We may not be able to sustain our current revenue growth rates

     Although our revenues have grown rapidly in recent years, we may not be
able to maintain this rate of revenue growth because of the difficulty of
maintaining high percentage increases as our base of revenue increases. In
addition, general economic conditions, growing competition, lower-than-expected
market acceptance of Microsoft products, such as Windows NT or Windows 2000, or
the failure of the markets for storage area networks, storage service providers
or network attached storage to develop, could also affect our revenue growth.

Our operating results have fluctuated in the past, and they are likely to
fluctuate significantly in the future. Quarterly comparisons of our financial
results are not necessarily meaningful and you should not rely on them as an
indication of our future performance.

     Our revenues in any quarter will depend substantially on orders we receive,
ship and determine to be collectable in that quarter. In addition, we typically
receive a significant portion of orders during the last month of each quarter,
and we cannot predict whether those orders will be placed, fulfilled and shipped
in that period. If we have lower revenues than we expect, we probably will not
be able to reduce our operating expenses in time to compensate for any revenue
shortfall. Therefore, any significant shortfall in revenues or delay of customer
orders could have an immediate adverse effect on our operating results in that
quarter.

     In addition to changes in general economic conditions, factors that could
affect our operating results include:

   -    the unpredictability of the timing and level of sales through our
        indirect sales channels;
   -    the timing and magnitude of large orders;
   -    changes in the mix of our sales, including the mix between higher margin
        software licenses and lower margin services;
   -    the timing and amount of our marketing, sales and product development
        expenses;
   -    the cost and time required to develop new software products and new
        versions of our existing software products;

                      (list is continued on following page)


                                       17

<PAGE>   20


                     (list is continued from preceding page)

     -  the introduction, timing and market acceptance of new products
        introduced by us or our competitors;
     -  changes in data storage and networking technology or the introduction of
        new operating system upgrades, which could require us to modify our
        products or develop new products;
     -  the growth rate of Windows NT;
     -  the rate of adoption of Windows 2000;
     -  the rate of adoption of storage area networks;
     -  pricing policies, including levels of discounts, payment terms and
        distribution terms;
     -  the failure of customers, especially those to whom we have granted
        extended payment terms, to pay amounts owed when due, and;
     -  the timing and size of additional acquisitions, if any.

     In addition, our efforts to expand our software product suite, sales and
marketing activities, direct and indirect distribution channels and maintenance
and technical support functions and to pursue strategic relationships or
acquisitions may not succeed or may prove more expensive than we anticipate. As
a result, we cannot predict our future operating results with any degree of
certainty and our operating results may vary significantly from quarter to
quarter.

     Fluctuations in our operating results are likely to affect our stock price
in a manner that may be unrelated to our long-term operating performance.

Our business depends on the acceptance of Windows NT and Windows 2000 to run
computer networks, and a decrease in their rates of acceptance could cause our
revenues to decline

     For the foreseeable future, we expect a substantial majority of our
revenues to continue to come from sales of our Windows NT-based data storage
software products. As a result, we depend on the growing use of Windows NT for
computer networks. If the deployment of Windows NT does not increase as we
anticipate, or if it decreases, our revenues could decline. In addition, if
users do not accept Windows 2000, or if there is a wide acceptance of other
existing or new operating systems, our business would suffer.

     Windows 2000 may not gain market acceptance. In addition, users of previous
versions of Windows NT may decide to migrate to another operating system due to
these delays or improved functionality of another operating system. We have
expended significant resources on the development of Windows 2000-compatible
versions of our product suite and our future success depends upon sales of this
product suite. If users of Windows 2000 networks do not widely adopt and
purchase our products, our revenue and business will suffer.

In the future, our business may depend upon the development of the emerging
market for storage area networks, and if this market fails to develop, or
develops more slowly than we anticipate, or if our products are not widely
accepted in this market, our business will suffer

     Our future growth and profitability will depend upon the widespread
acceptance of storage area networks as an enterprise-wide data storage method
and the acceptance of our products for use in such networks. Accordingly,
widespread adoption of storage area networks is critical to our future success.
The market for storage area networks has only recently begun to develop and
evolve. Because this market is new, it is difficult to predict its potential
size or growth rate. Potential customers that have invested substantial
resources in their existing data storage management systems may be reluctant or
slow to adopt a new approach like storage area networks. Our success in
generating revenues in this emerging market will depend, among other things, on
our ability to educate potential original equipment manufacturers and system

                                       18

<PAGE>   21

integrators, as well as potential end-users, about the benefits of storage area
networks and our data storage management solutions when deployed in the storage
area network environment. Furthermore, although we are attempting to position
our products as a standard for data storage management on storage area networks,
if we are unsuccessful in doing so, competing standards may emerge that will be
preferred by original equipment manufacturers, systems integrators or end-users.

We have experienced significant growth in our business and our failure to manage
this growth or any future growth could harm our business

     We continue to increase the scope of our operations and have grown our
headcount substantially. As of March 31, 2001, we had 408 employees. Our
employees totaled 385 and 233 as of December 31, 2000 and 1999, respectively.
Our productivity and the quality of our products may be adversely affected if we
do not integrate and train our new employees quickly and effectively, including
work forces obtained by acquiring other companies. We also cannot be sure that
our revenues will continue to grow at a rate sufficient to absorb the costs
associated with a larger overall headcount.

     Our future success and our ability to sustain our revenue growth also
depend upon the continued service of our executive officers and other key sales
and research and development personnel. The loss of any of our executive
officers or key employees, especially Richard A. Kay, F. William Caple and
Ronald W. Kaiser, could adversely affect our business and slow our product
development processes. Although we have employment agreements with these
executives, these agreements do not obligate them to remain employed by us. We
do not have key person life insurance policies covering any of our employees.
Furthermore, we must continue to hire large numbers of highly qualified
individuals. Competition for these individuals is intense, and we may not be
able to attract, assimilate or retain additional highly qualified personnel in
the future.

     To achieve our business objectives, we may recruit and employ skilled
technical professionals from other countries to work in the United States.
Limitations imposed by federal immigration laws and the availability of visas
could compromise our ability to attract necessary qualified personnel. This may
have a negative effect on our business and future operating results.

Our revenues depend primarily on sales of licenses for one product line, our
XtenderSolutions product suite, and a decline in sales of licenses for this
product suite could cause our revenues to fall

     We have derived the substantial majority of our revenue from the sale of
our XtenderSolutions product suite. Sales of our XtenderSolutions products
represent a substantial portion of our total revenues. We expect that these
products will continue to account for a large portion of our revenues for the
foreseeable future. Accordingly, our business and future operating results
depend on the continued market acceptance of our XtenderSolutions products and
future enhancements to these products. Any factors adversely affecting the
pricing of demand for or market acceptance of our XtenderSolutions products,
including competition or technological change, could cause our revenues to
decline and our business and future operating results to suffer.

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<PAGE>   22


Our multiple distribution channels are subject to many risks that could
adversely affect our sales

     Direct sales: We have increased our efforts to grow our direct sales force
to sell our products, especially to large customers. Direct sales involve a
number of risks, including:

     -  longer sales cycles, typically three to six months;
     -  our need to hire, train, retain and motivate our sales force; and
     -  the length of time it takes our new sales representatives to begin
        generating sales.

     Indirect sales: We expect that a significant portion of our revenues will
continue to come from indirect sales. These include sales to original equipment
manufacturers that incorporate our data storage management software into systems
they sell. We also expect future revenues from distributors and value-added
resellers that sell our software, often bundled with their own software or
services. We have no control over the shipping dates or volumes of our original
equipment manufacturers, value-added resellers or distributors ship, and they
have no obligation to ship systems incorporating our software. They generally
have no minimum sales requirements and can terminate their relationship with us
on short notice. We develop customized versions of our products for some of our
original equipment manufacturers to be included in their systems software and
other products. Developing products for these original equipment manufacturers
causes us to divert resources from other activities that are also important to
our business. If these versions do not result in substantial revenues, our
business and financial results could be adversely affected.

Our original equipment manufacturers could choose to compete with us or with
each other, which could harm our business

     Our original equipment manufacturers, value-added resellers and
distributors could choose to develop their own data storage management products
and incorporate those products into their systems or product offerings in lieu
of our products. In addition, the original equipment manufacturers that we do
business with may compete with one another. To the extent that one of our
original equipment manufacturer customers views the products we have developed
for another original equipment manufacturer as competitive, it may decide to
stop doing business with us, which could harm our business.

Overlapping sales efforts may lead to inefficiencies and may adversely affect
our relationships with those who sell our products

     Our original equipment manufacturers, value-added resellers, distributors
and direct sales force might target the same sales opportunities, which could
lead to an inefficient allocation of sales resources. This would result in us
marketing similar products to the same end-users. These overlapping sales
efforts could also adversely affect our relationships with our original
equipment manufacturers, value-added resellers, distributors and other sales
channels and result in them being less willing to market our products
aggressively, and could compromise margins on products we sell directly.

The market for outsourced data storage software over the Web is new and
evolving, and if this market fails to develop, or if our products are not widely
accepted in this market, our business could suffer

     Part of our strategy is to offer outsourced data storage software to
customers over the Web. In this business model, customers who wish to reduce
their in-house hardware and maintenance costs would pay us or a third party
using our products to provide metered or leased data storage capacity and
management. If this business model does not gain acceptance among potential
customers, we will not be able to implement this strategy successfully. The
market for electronic


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<PAGE>   23


outsourced data storage software has only recently begun to emerge and we cannot
be sure that it will develop or grow. Among other things, the development of
this market could be limited by:

     -  concerns over the reliability and security of the Web, especially as a
        means of moving data that is critical to the customer's business; and
     -  customer reluctance to cede control over the hardware and network
        infrastructure used to store important data and to rely on systems
        provided by a third party.

     We have only recently begun to provide outsourced data storage service
through OnlineStor.com and do not have any significant experience in the market
for these services. We are expending significant resources to develop the market
for these services and if this market fails to develop, or if we are not able to
penetrate it successfully, we will not realize any return on this investment,
and our business may suffer.

If we encounter system failures or other difficulties in providing outsourced
data storage services, we could be exposed to liability and our reputation could
suffer

     We depend upon a hardware and networking infrastructure to deliver
outsourced data storage capacity to our customers. If this infrastructure fails,
or customers otherwise experience difficulties or delays in retrieving data, we
could face liability claims from them and our reputation could be damaged. We
currently do not develop the hardware and networking infrastructure ourselves,
but rather contract with third parties, such as storage service providers and
application service providers, to supply these components on our behalf. For
this reason, we are dependent on the performance of the systems deployed and
maintained by these parties, whom we will not control. In some cases, we might
contract directly with the customer to provide the outsourced services; in other
cases, we might act as a reseller for application service providers, storage
service providers or others. In either case, we would expect to include
contractual provisions limiting our liability to the customer for system
failures and delays, but we cannot be sure that these limits will be enforceable
or will be sufficient to shield us from liability. We also expect that we would
carry liability insurance to cover problems of this nature, but we cannot
guarantee that insurance will be available or that the amounts of our coverage
will be sufficient to cover all potential claims.

Other companies have developed or may choose to develop competing products and
potential customers for our products may choose to develop internal data storage
management capabilities or satisfy their needs with a traditional data back-up
solution, any of which could cause our revenues and our business to suffer

     We face a variety of competitors that offer products with some of our
products' features. Some potential customers may elect to internally develop
capabilities similar to those provided by our products rather than buying them
from us or another outside vendor. Although our products generally enhance
traditional data back-up capabilities offered by companies such as VERITAS
Software, Legato Systems, Computer Associates International and IBM, our
products may compete against traditional back-up solutions when a potential
customer seeks to address its storage needs with only a data back-up solution.
Furthermore, VERITAS Software has recently begun to offer a Windows NT-based
product that competes with DiskXtender and a Microsoft Exchange-based back-up
product for e-mail attachments that competes with EmailXtender. If potential
customers choose to develop their own capabilities, choose a traditional data
back-up solution or purchase a competing product, our revenues and business will
suffer.

     In addition, Microsoft could develop competing products. Windows 2000
includes basic data storage management capabilities. Microsoft could compete
with us by enhancing and expanding these capabilities to offer an integrated
storage management capability within their basic operating system. This would
reduce or eliminate the need to purchase our products, which


                                       21

<PAGE>   24

would cause our revenues and business to suffer.

Our products must remain compatible with operating system software, network
hardware and software configurations, which are currently undergoing, and will
likely continue to undergo, significant change that could render our products
obsolete

     The market for our data storage management software is characterized by
rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. Our products could be rendered obsolete if products based on new
technologies are introduced or new industry standards emerge. We have expended
significant resources to allow our products to take advantage of the release of
Windows 2000 and to prepare our products for the emergence of storage area
networks, and we expect to continue to do so. If Windows 2000 and storage area
networks are not widely adopted, our business and future operating results will
suffer.

     As the emergence of storage area networks demonstrates, the computing
environments in which our products must operate are complex and change rapidly.
As a result, we cannot accurately estimate the life cycles of our software
products. New products and product enhancements can require long development and
testing periods, and depend significantly on our ability to hire and retain
increasingly scarce technically competent personnel. Significant delays in new
product releases or significant problems in installing or implementing new
product releases could result in lost revenues and significant additional
expense.

     Our future success also depends, in part, on the compatibility of our
products with other vendors' software and hardware products, particularly those
provided by Microsoft and storage area network manufacturers. Microsoft or other
vendors may change their products so that they will no longer be compatible with
our products. These vendors may also decide to bundle their products with other
competing products for promotional purposes. If that were to happen, our
business and future operating results might suffer as we might be priced out of
the market or no longer be able to offer commercially viable products.

We have experienced errors in our products in the past, and any such errors in
the future could harm our reputation and could cause customers to demand refunds
from us or assert claims for damages against us, which could harm our business
and future operating results

     Because our software products are complex, they have in the past, and could
in the future, contain errors or bugs. Bugs can be detected at any point in a
product's life cycle. In the past, we have devoted significant resources to the
detection and correction of errors and we expect to do so in the future. While
we continually test our products for errors and work with customers through our
customer support services and engineering personnel to identify and correct bugs
in our software, we expect that errors in our products, especially new releases
of our current products and new product offerings, will continue to be found in
the future. Any of these errors could be significant and could harm our business
and future operating results. Detection of any significant errors may result in:

     -  the loss of or delay in market acceptance and sales of our products;
     -  diversion of development resources;
     -  injury to our reputation; or
     -  increased maintenance and warranty costs.

     Because customers use our products to store and retrieve critical
information, we may be subject to significant liability claims if our products
do not work properly. Our agreements with customers typically contain provisions
intended to limit our exposure to liability claims. However, these limitations
may not preclude all potential claims. Liability claims could require


                                       22

<PAGE>   25

us to spend significant time and money in litigation or pay significant damages.
Claims of this nature, whether or not successful, could seriously damage our
reputation and our business.

Our software products rely on our intellectual property, and any failure by us
to protect, or any misappropriation of, our intellectual property could enable
our competitors to market products with similar features that may reduce demand
for our products

     Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use our products or technology.
Policing unauthorized use of our products is difficult, and we cannot be certain
that the steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where we are seeking to expand our operations
and where the laws may not protect our proprietary rights as fully as those in
the United States. Our success and ability to compete depend substantially upon
our internally developed technology, which is incorporated in the source code
for our products. We protect our intellectual property through a combination of
copyright, trade secret and trademark law. We have registered, or are in the
process of registering, all of our trademarks under applicable law. We generally
enter into confidentiality or license agreements with our employees, consultants
and corporate partners, and control access to our source code and other
intellectual property and the distribution of our software, documentation and
other proprietary information. These measures afford only limited protection and
may be inadequate, especially because employees such as ours are highly sought
after and may leave our employ with significant knowledge of our proprietary
information. Others may develop technologies that are similar or superior to our
technology or design around the copyrights and trade secrets we own.

Our products employ technology that may infringe the proprietary rights of
others, and we may be liable for significant damages as a result

     We expect that our software products may be increasingly subject to
third-party infringement claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. We do not conduct comprehensive patent searches to determine whether
technologies used in our products infringe upon patents or patent applications
held by others. In addition, we hire employees who may be privy to the
proprietary information of their prior employers. Although we believe that our
products do not employ technology that infringes any proprietary rights of third
parties, third parties nevertheless may claim that we infringe their
intellectual property rights. Regardless of whether these claims have any merit,
they could:

     -  be time-consuming to defend;
     -  result in costly litigation;
     -  divert our management's attention and resources;
     -  cause product shipment delays; or
     -  require us to enter into royalty or licensing agreements, which may not
        be available on terms acceptable to us, if at all.

     A successful claim of product infringement against us or our failure or
inability to license the infringed or similar technology could damage our
business because we would not be able to sell our products without redeveloping
them or incurring significant additional expenses.


                                       23

<PAGE>   26
The expansion of our international operations subjects our business to
additional economic and other risks that could have an adverse impact on our
revenue and business

     For the three months ended March 31, 2001 and 2000, our revenues from
foreign countries represented 25% and 16%, respectively, of our total revenues.
We plan to continue to increase our international sales activities, but these
activities are subject to a number of risks, including:

     -  greater difficulty in accounts receivable collection and longer
        collection periods;
     -  political and economic instability;
     -  greater difficulty in attracting distributors that market and support
        our products effectively;
     -  the need to comply with varying employment policies and regulations
        which could make it more difficult and expensive to manage our headcount
        if we need to establish more direct sales staff outside the United
        States;
     -  weaker operating results from our international operations in our
        quarters ending each September 30 due to the summer slowdown in Europe;
     -  increased difficulty in managing international management, distribution
        and research operations that are increasingly international in nature
        and significant to our growth and success
     -  the effects of currency fluctuations.

     As we seek to expand our international operations, if any of these risks
materialize, our revenues and our business could be adversely affected.

We may not be able to achieve the benefits that we hope to obtain from our
acquisitions or mergers.

     We cannot be certain that we will achieve any or all of the benefits that
we hope to receive as a result of the acquisitions or mergers we have
undertaken, including but not limited to the anticipated accretion to our
earnings and targeted revenue expectations. Acquisitions, including our
acquisition of Smart Storage, involve a number of special risks and challenges,
including:

     -  diversion of management attention from our core business;
     -  integration of acquired company operations and employees with our
        existing business, including coordination of geographically dispersed
        operations;
     -  incorporation of acquired company technology into our existing product
        lines, including consolidating technology with duplicative functionality
        or designed on different technological architecture;
     -  loss or termination of employees, including potentially costly
        litigation resulting from the termination of those employees;
     -  dilution of our then-current stockholders' percentage ownership;
     -  assumption of liabilities of the acquired company, including potentially
        costly litigation related to alleged liabilities of the acquired
        company;
     -  and the presentation of a unified corporate image to our customers and
        our employees.

     Also, we have limited experience in significant acquisitions, and our
integration of the operations of Smart Storage may take longer and be more
difficult than we anticipated, which could harm our business.


                                       24

<PAGE>   27

If we undertake additional acquisitions, they may be expensive and disruptive to
our business and could have an adverse effect on our business, future operations
and market price of our stock

     We may continue to make investments in complementary companies, products or
technologies. We could have difficulty in integrating an acquired company's
personnel and operations. In addition, the key personnel of the acquired company
may decide not to work for us. If we make other types of acquisitions, we could
have difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. We also expect that we would
incur substantial expenses if we acquired other businesses or technologies. If
we issue additional equity securities, our stockholders could experience
dilution and the market price of our stock may decline. As of the date of this
report, we have no agreements or understandings regarding any future
acquisitions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We do not currently hold any derivative financial instruments and do not
invest in derivative financial instruments. We invest excess cash in short-term,
highly-liquid investments. In addition, excluding a note payable that was
retired in early April 2001, our only long-term indebtedness totals $69,000
related to certain office equipment acquired under a capital lease. As a result,
we believe that that our exposure to interest rate risk is not material to our
financial condition or results of operations.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

     We are involved in legal proceedings arising from time to time through the
normal course of business. We are not currently party to any legal proceedings
in which an unfavorable outcome would have a material effect on our results of
operations or financial position.

Item 2.  Changes in Securities and Use of Proceeds

    On March 29, 2001, we acquired Smart Storage in a transaction accounted for
as a pooling of interests. Smart Storage is a provider of standards-based DVD
and CD storage management software. Pursuant to the merger agreement, we issued
3,081,108 shares of our Common Stock to the former Smart Storage stockholders in
exchange for all the outstanding shares of Smart Storage's capital stock (of the
shares issued, 308,087 are being held in escrow for a period of twelve months to
secure certain indemnification obligations of certain former Smart Storage
stockholders). In addition, we reserved 468,219 shares of Common Stock for
issuance upon the exercise of the outstanding options to purchase Smart Storage
common stock, which we assumed as part of the merger agreement. See Note 2 to
Notes to Condensed Consolidated Financial Statements for additional information
related to our purchase of Smart Storage.

    Each of the Smart Storage stockholders who were issued shares of our Common
Stock was either an accredited investor as defined in Rule 501 of the Securities
Act of 1933 or received information required to be provided by Rule 506. These
securities were issued in reliance on the exemption from registration set forth
under Rule 506 of the Securities Act of 1933. No underwriters were involved in
the foregoing sales of securities.

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<PAGE>   28

Item 3.  Defaults Upon Senior Securities

    None.

Item 4.  Submission of Matters To a Vote of Security Holders

    None.

Item 5.  Other Information

    None.

Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits

        10.1   Agreement and Plan of Merger By and Among OTG Software, Inc., OTG
               Acquisition Corp. and Smart Storage, Inc. and the Principal
               Stockholders Named Herein dated March 22, 2001 (incorporated
               herein by reference to Exhibit 2.1 filed with our Current Report
               on Form 8-K, dated April 12, 2001)

        10.2   Amendment No. 1 to lease agreement for facilities at 2600 Tower
               Oaks Boulevard in Rockville, Maryland

     (b) Reports on Form 8-K

<TABLE>
<S>                          <C>
         April 25, 2001      Items 5 and 7; related to our earnings release for the three
                             months ended March 31, 2001.

         April 25, 2001      Item 7; related to our acquisition of Smart Storage.

         April 12, 2001      Items 2 and 7; related to our acquisition of Smart Storage.

         March 27, 2001      Items 5 and 7; announcement that we were acquiring Smart Storage.
</TABLE>




                                       26



<PAGE>   29


                                   SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




By: /s/ Richard A. Kay                                     Date: May 15, 2001
    ----------------------------------------
        Richard A. Kay
        President, Chairman and Chief Executive Officer



By: /s/ Ronald W. Kaiser                                   Date: May 15, 2001
    ----------------------------------------
        Ronald W. Kaiser
        Chief Financial Officer and Treasurer
        (Principal Financial Officer)









                      (this space intentionally left blank)




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