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                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, DC  20549

                                      FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                       FOR THE FISCAL YEAR ENDED: JUNE 30, 1998

                                          OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                    For the transition period from _____ to _____


                         Commission File Number: 0-22071

                               OVERLAND DATA, INC.
             (Exact name of registrant as specified in its charter)


                        CALIFORNIA 95-3535285 (State or other jurisdiction of
      incorporation) (IRS Employer Identification No.)

              8975 Balboa Avenue, San Diego, California 92123-1599
          (Address of principal executive offices, including zip code)

                                 (619) 571-5555
              (Registrant's telephone number, including area code)
                           ---------------------------

           Securities registered pursuant to Section 12(b)of the Act:

                                      None

           Securities registered pursuant to Section 12(g)of the Act:
                           Common Stock, no Par Value

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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 15, 1998 was $34,924,000 based on the closing price
reported on such date by the NASDAQ National Market System. Shares of Common
Stock held by officers and directors and by persons who hold 5% or more of the
outstanding Common Stock have been excluded from the calculation of this amount
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive.

As of June 30, 1998, the number of outstanding shares of the registrant's Common
Stock was 10,550,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement to be filed in connection with registrant's
Annual Meeting of Shareholders to be held on November 12, 1998 (the "Proxy
Statement") are incorporated herein by reference into Part III of this Report.


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                                     PART I

         THIS REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE PERFORMANCE OF THE COMPANY. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS,
PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS IDENTIFIED IN
THIS REPORT, INCLUDING THE MATTERS SET FORTH BELOW UNDER THE CAPTION "RISK
FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

ITEM 1.  BUSINESS

         Overland Data, Inc. (herein "Overland Data", "Overland" or the
"Company") designs, develops, manufactures, markets and supports magnetic tape
data storage systems used by businesses for backup, archival and data
interchange functions with mini-computers, workstations, PC/LAN (Microsoft
Windows NT and Novell Netware) and UNIX client/server networks, and personal
computers. The Company's primary products, automated tape libraries, combine
electro-mechanical robotics, electronic hardware and firmware which are
developed by the Company with an emphasis on efficiency of design, functionality
and reliability. The Company offers three product lines which are all based on
one-half inch, linear magnetic tape technologies and, with the exception of the
tape drives in its LibraryXpress product line, are designed and manufactured
in-house. It also distributes products manufactured by other original equipment
manufacturers ("OEM's") and markets various other products, including controller
cards which connect its tape drives to personal computers, interchange software
developed by the Company, storage management software supplied by third parties,
spare parts and tape media. The Company also licenses a proprietary tape
encoding technology which it developed and patented under the name Variable Rate
Randomizer or "VR2".

PRODUCTS

         The Company produces tape drives, tape loaders and automated tape
libraries based on removable tape technologies. It currently provides turnkey
data storage solutions to customers in distinct markets through three product
lines that utilize three generations of half-inch magnetic tape technologies.
The network backup market is served by LibraryXpress, the Company's DLT-based
automated tape library/loader product line, which provides automated backup as
companies migrate to enterprise-wide client/server networks. The mid-range data
interchange and backup market is served by TapeXpress, the Company's 18/36-track
product line. The desktop data interchange market is served by TapePro, the
Company's 9-track product line, which targets personal computer and workstation
users who need access to data created on legacy systems. The Company's VR2
encoding technology is licensed to tape drive manufacturers to enable them to
significantly improve drive performance.

-    LIBRARYXPRESS - The LibraryXpress product line of automated tape 
     libraries is based on DLT technology and tape drives supplied by Quantum 
     Corporation. In March 1996, the Company commenced shipment of the LXB 
     base unit, which consists of one or two DLT drives and a ten-cartridge 
     removable magazine. In March 1997, the Company commenced shipment of (i) 
     the LXG global control module which provides an additional 16-cartridge 
     magazine, library control from a single point and the ability to 
     modularly stack up to eight LXB or LXC capacity modules, and (ii) the 
     LXC capacity module which consists of a 16-cartridge magazine and no 
     drives. The LXG enables users to pass cartridges from module to module 
     as one integrated unit, providing true scalability and allowing 
     end-users to expand their storage capacity to meet their growing 
     business needs while protecting their original LXB investment. In May 
     1997, the Company began shipping the LXS MiniLibrary, a single-drive, 
     15-cartridge, non-scalable version of the LibraryXpress to serve the 
     lower end of the network market. In February 1998, the Company commenced 
     shipment of the LoaderXpress, a single-drive DLT tape loader which 
     offers a five or ten cartridge magazine, designed for the commercial 
     distribution channel. The Company currently offers the LXB, the LXS Mini 
     Library, and the LoaderXpress with DLT4000 or DLT7000 tape drives.

-    TAPEXPRESS - The TapeXpress product line of 18/36-track drives and loaders
     is based on IBM's 3480/3490/3490E technologies. The Company's single-drive,
     single-cartridge T490E and its one-drive, ten-cartridge L490E MiniLibrary
     are compatible with the 36-track IBM 3490E format, are used extensively on
     AS400 and RS6000 minicomputers, and are the first products in the
     marketplace that are capable of reading and writing in both 18 and 36-track
     formats. Overland's products connect easily to numerous hardware platforms
     and are supported by many popular backup and hierarchical storage
     management ("HSM") software packages. During fiscal year 1997, IBM selected
     the Company to be its supplier of 36-track products. During fiscal year
     1998, the Company announced end-of-life on all of its 18-track products and
     its L60E 36-track data vault.

                                       2
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-    TAPEPRO - The TapePro product line consists of compact, lightweight and
     low-cost desktop tape drives, and a legacy tape drive sold primarily to
     Digital Equipment Corporation/Compaq ("DEC/CPQ") for replacement purposes.
     Nine-track tape once was the only tape technology used for archive, backup
     and data interchange functions. Today, 9-track tape is used only for data
     interchange, a limited function used to access data that generally was
     stored when 9-track was the only tape technology. Data interchange
     continues to be important for end-users who need to access data on the
     estimated 250 million 9-track reels available worldwide. Although new
     information currently is not stored on 9-track tape, end-users need to
     access information stored on these tapes periodically and it generally is
     not cost-efficient to transfer this information to another storage medium.
     The Company has not recently, and will not in the future, invest additional
     research and development resources in the 9-track product line.

-    Variable Rate Randomizer - In December 1997, the Company introduced its VR2
     encoding technology, an implementation based on Partial Response Maximum
     Likelihood ("PRML"). The technology, which can be embedded in an ASIC chip,
     is capable of producing up to two times the native capacity and native data
     transfer rate performance of existing linear tape technologies without
     requiring any changes in tape path design, recording heads, and/or media.
     This performance is accomplished by achieving encoding efficiency of
     greater than 99%. In April 1998, the Company licensed VR2 to Tandberg Data
     ASA for use in their Scaleable-Channel Linear Recording ("SLR") tape
     drives. The Company plans to license VR2 to other customers.

         The Company's drives, loaders and libraries are installed on specific
computer platforms with the appropriate backup, data interchange or storage
management software. Overland actively works with a number of backup and storage
management software companies to confirm that its products are properly
supported. Currently, more than 80 different software packages support the
Company's products. For instance, on the Novell Netware and Microsoft Windows NT
platforms, the software packages include products from Cheyenne Software,
Seagate Software, Inc. (Arcada and Palindrome), Legato Systems Incorporated
("Legato Systems"), and STAC Inc. On UNIX platforms, the software packages
include products from Legato Systems, IBM, Cheyenne Software and Peripheral
Device Corporation.

SALES AND MARKETING

         The Company sells its products primarily through three channels: (i)
original equipment manufacturers ("OEMs"), (ii) commercial distributors, and
(iii) volume, consisting of systems integrators, technical distributors and
value added resellers ("VARs"). Overland's products are sold both domestically
and internationally. Regardless of the channel through which they are sold, all
of Overland's products are designed and manufactured to meet OEM level
requirements and reliability standards. Because the OEM qualification process
can take six to 18 months to complete, the Company's initial sales of new
products are often made to other non-OEM customers, who typically evaluate,
integrate and adopt new technologies and products more quickly. After
qualification and acceptance, OEM sales generally represent an increasing
proportion of a product's unit sales and are important to the Company in terms
of validating its products in the marketplace and achieving desirable production
volume.

-    OEM CHANNEL - The Company currently has supply agreements with DEC (now
     part of Compaq Computer Corporation and hereafter referred to as DEC/CPQ),
     IBM, Siemens Nixdorf Informationssysteme AG, Groupe Bull S.A., Intergraph
     Corporation, NCR Corporation and Symbios Logic, Inc., all of which
     incorporate Overland's products into their system offerings. Although DEC
     had been an OEM customer of the Company since 1993, the relationship was
     expanded twice during fiscal year 1998. In July 1997, DEC added the
     Company's 36-track products to its offerings and in September 1997, added
     the LibraryXpress. Overland often works with its OEM customers early in a
     new product development cycle in order to design its products to meet their
     specifications. The OEM sales cycle is often lengthy and typically consists
     of a general technology evaluation, qualification of product
     specifications, verification of product performance against these
     specifications, integration testing of the product within the customers'
     systems, product announcement and volume shipment. As is typical in the
     industry, the Company's OEM contracts provide for annual price reviews and
     the customers are not required to purchase minimum quantities. DEC/CPQ has
     been the Company's largest customer, accounting for approximately 25%, 14%
     and 23% of sales in fiscal years 1998, 1997 and 1996, respectively.
     Shipments to IBM, who became a customer during fiscal year 1997, accounted
     for 15% and 10% of sales in fiscal years 1998 and 1997, respectively. No
     other customer accounted for more than 10% of sales in any year during the
     three-year period. The Company supports this channel through a field sales
     office and other Company field representatives.

                                       3
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-    COMMERCIAL DISTRIBUTION CHANNEL - In April 1998 the Company signed
     distribution agreements with two commercial distribution customers: Bell
     Microproducts and Tech Data Corp. Both distributors will sell the Company's
     DLT LibraryXpress products to resellers nationwide. Tech Data is the
     preferred master distributor for Overland in Latin America. The agreements
     include provisions for stock rotation and price protection, common terms in
     the commercial distribution area. To guard against exposure to returned
     product or price adjustments, the Company does not record revenue in this
     channel until the related inventory is sold by the distributor.

-    VOLUME CHANNEL - The Company's volume channel includes systems integrators,
     technical distributors and VARs, each of which sells to both resellers and
     end-users. Certain of the Company's volume channel customers specialize in
     the insurance, banking, financial, geophysical or medical industries, and
     offer a variety of value-added services relating to the Company's products.
     Overland's products frequently are packaged by these customers as part of a
     complete data processing system or combined with other storage devices,
     such as redundant array of independent disks ("RAID") systems, to deliver a
     complete storage subsystem. These customers also recommend the Company's
     products as replacement solutions when backup systems are upgraded, and
     bundle its products with storage management software specific to the
     end-user's system. The Company supports this channel through a field sales
     office and other field representatives.

-    INTERNATIONAL BUSINESS - The Company has a wholly-owned subsidiary located
     in Wokingham, England which provides sales, technical support, repair and
     manufacturing integration for the European marketplace, and a sales office
     in Paris, France. The Company assigns to its international distributors the
     right to sell Overland's products in a country or group of countries. These
     distributors then sell the Company's products to systems integrators, VARs
     and end-users. In addition, many domestic customers ship a portion of the
     Company's products to their overseas customers. Sales personnel are located
     in various cities throughout Europe, while sales personnel located in the
     Company's corporate offices serve the Pacific Rim, South America,
     Australia, New Zealand and Mexico. Export sales by the Company, principally
     in Europe, for the years ended June 30, 1998, 1997 and 1996 were
     approximately $20,175,000, $14,391,000 and $12,775,000, respectively.


     Overland supports its sales efforts with various marketing programs
designed to build the Company's brand name and attract new customers. Its
channel partners are provided with a full range of marketing materials,
including product specification literature, software connectivity information
and application notes. The Company's management and engineering personnel work
with the channel partners to provide support and, in certain instances, visit
potential customer sites to explain and demonstrate the technical advantages of
the Company's products. In addition, the Company holds two conferences each year
to inform its channel partners of new product developments and programs and to
discuss emerging trends in their markets. The Company also maintains press
relations both domestically and in Europe, advertises in computer systems
publications targeted to its channels and offers market development funds to all
of its channel partners except for OEM customers. Overland participates in
national and regional trade shows both domestically and internationally
including displaying its products at the CEBIT show in Europe and domestically
at COMDEX, NetWorld/InterOp and AIIM. The Company also maintains a World Wide
Web site (http://www.overlanddata.com), which features marketing information,
product specifications, news releases and application, service and technical
support notes and investor relations information.

                                       4
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CUSTOMER SERVICE AND SUPPORT

         Overland's technical support personnel, located both in its
headquarters facility and its U.K. office, are trained with respect to the
Company's products and assist customers with "plug-and-play" compatibility
between multiple hardware platforms, operating systems and backup, data
interchange and storage management software. The Company's application engineers
are available to solve more complex customer problems and visit customer sites
when necessary. Customers that need service and support can contact the Company
through its toll-free telephone lines, facsimile and Internet e-mail.

         The Company's standard warranty is a three-year (two years for
non-LibraryXpress products) return-to-factory policy which covers both parts and
labor. For products that it distributes and for drives and tapes used in the
Company's products that are manufactured by a third party, the Company passes on
to the customer the warranty provided by the manufacturer. The Company also
offers on-site service for certain of its products, including 24-hour service,
seven days a week, for which it contracts with third-party service providers.

         In addition, the Company has instituted the Guaranteed Up Time Service
(GUTS(TM)) program for its LibraryXpress products. The guarantee has two
features. First, the end-user customer will receive an additional year of return
to factory warranty if the customer experiences more than 1% down-time during
any one year period. Second, all data written to tape using a covered Overland
product will be recoverable or the customer can return the product for a full
refund.


COMPETITION

         The worldwide tape storage market is intensely competitive as a large
number of manufacturers of alternative tape technologies compete for a limited
number of customers and barriers to entry are relatively low in the library
category. The Company currently participates in three market areas which are
defined by different tape technologies: (i) network data storage; (ii) data
backup and interchange based on IBM compatible 3480/3490 technology; and (iii)
data interchange based on 9-track reel-to-reel technology. In each of these
areas, many of the Company's competitors have substantially greater financial
and other resources, larger research and development staffs, and more experience
and capabilities in manufacturing, marketing and distributing products than the
Company. For network data storage, the LibraryXpress products currently compete
with products made by Advanced Digital Information Corporation ("ADIC"), ATL
Products, Inc. ("ATL") (now part of Quantum), Breece Hill Technologies, Inc.
("Breece Hill"), Hewlett-Packard Company ("Hewlett-Packard"), Quantum and
Storage Technology Corporation ("Storage Technology"), and the Company believes
that additional competitors can be expected to enter the market. For the data
backup and interchange market, which is based on IBM compatible 3480/3490
technology, the Company offers a product line of 36-track products, which the
Company believes compete primarily with products made by Fujitsu Computer
Products of America, Inc. ("Fujitsu"), Hitachi Data Systems Corporation
("Hitachi"), Laser Magnetic Storage and Storage Technology. For the 9-track data
interchange market, the Company believes it competes with Anritsu American
Incorporated, Hewlett-Packard and M4 Data, Inc.


                                       5
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RESEARCH AND DEVELOPMENT

         The Company currently employs 35 people in its research and development
("R&D") department, including 22 engineers who have extensive experience in the
tape industry. Many of these engineers are former employees of tape drive
companies such as Cipher Data Products, Archive Corporation and Conner
Peripherals, Inc., and have developed significant expertise in electrical,
mechanical and firmware design. Martin D. Gray, the Company's co-founder and
Chief Technical Officer, formerly served as Manager of R&D at Cipher, has over
25 years of experience in the tape industry, is the inventor of several tape
patents and leads the Company's R&D efforts to develop new technologies.

         The Company's R&D department is capable of developing both tape 
drives and robotic mechanisms, including the development of various aspects 
of data channels, data compression, intelligent interfaces and firmware 
(embedded systems software). This includes the ability to develop and test a 
tape path, which is the core of any tape technology. Overland believes that 
these capabilities distinguish the Company from its competitors by providing 
it with a better understanding of tape technologies in general and enabling 
the Company to provide higher value-added content by designing reliable 
products that better utilize the advantages of specific technologies.

         Current R&D efforts are focused on the joint development with Tandberg
Data to implement the Company's new VR2 tape encoding technology on Tandberg's
SLR tape drives. Other projects include the development of automated tape
libraries using other tape technologies, new software and hardware solutions to
enhance the value of the Company's products and enhancements to certain of its
36-track products to increase their speed and performance. The Company's R&D
expenditures amounted to $4.1 million, $4.1 million and $3.7 million in fiscal
years 1998, 1997 and 1996, respectively, representing 5.4%, 7.0% and 7.8% of net
sales, respectively. The Company intends to spend between 5% and 6% of sales on
R&D on a sustained basis. Despite its R&D focus, there can be no assurance that
the Company will be able to identify, develop, manufacture, market or support
new or enhanced products successfully or on a timely basis or that new products
will gain market acceptance.

MANUFACTURING

         The Company has a fully integrated factory in San Diego, California
with three separate production lines. Its newest line, set up in January 1996,
was established for the production of the LibraryXpress products. A second line
is used for the production of its 36-track products and a third line is used for
9-track products. All of the Company's production lines and manufacturing
processes have been certified by major OEM customers. Overland performs product
assembly, integration and testing, while leaving component and piece-part
manufacturing to its supplier partners. The Company works closely with a group
of regional, national and international suppliers, which are carefully selected
based on their ability to provide quality parts and components that meet the
Company's specifications and present and future volume requirements. A number of
the Company's parts and components are not available off the shelf, and are
specifically designed by the Company for integration into its products. The
number of suppliers is kept to a minimum to utilize their specific capabilities
across several product lines. Management of this supply chain is critical,
because the average material content of the Company's products represents
approximately 80% of cost of goods sold.

         In general, products are built to an intermediate stage or standard
module and are customized at the end of the manufacturing process to meet
specific customer needs or variations in product profiles. The Company believes
that this capability represents an effective way for the Company to minimize its
inventory levels while maintaining the ability to fill specific customer orders
in short lead times. Inventory planning and management are coordinated closely
with suppliers and customers to match the Company's production to market demand.
The Company receives rolling 90-day forecasts from its major OEM customers and
monitors inventory levels at those customers on a weekly basis. Product orders
from other channel customers are confirmed and, in most cases, shipped to the
customer within two weeks. During fiscal year 1998, the Company's OEM sales 
grew significantly and, as a result, backlog became a more important factor to
its overall business. At June 30, 1998, backlog amounted to $10.3 million,
which is expected to be filled in the fiscal quarter ending September 30, 1998.

         In its current facility, the Company believes that it has the capacity
to support unit output several times greater than its current run rate. The
Company currently uses a single shift which is capable of greater production
levels, and could expand further by adding multiple shifts or moving to a
full-time factory. Staffing levels are carefully controlled and adjusted to meet
the requirements at any specific time.

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PROPRIETARY RIGHTS

         The Company believes that, because of the rapid pace of technological
change in the tape storage industry, patent, copyright, trademark and trade
secret protection are less significant than factors such as the knowledge,
ability and experience of the Company's personnel, new product introductions and
product enhancements. Notwithstanding the foregoing, the Company relies on a
combination of patent, copyright, trademark and trade secret protection,
non-disclosure agreements and licensing arrangements to establish and protect
its proprietary rights. Such rights, however, may not preclude competitors from
developing substantially equivalent or superior products to those of the
Company. In addition, there can be no assurance that any patents held by, or
that may be issued to, the Company will not be challenged, invalidated or
circumvented, or that any rights granted thereunder would provide proprietary
protection to the Company.

         The Company has entered into a five-year cross-license agreement with
IBM, effective January 1, 1996. Pursuant to the terms of the agreement, the
Company may use any of the patents owned by IBM within certain designated areas
of technology and IBM may use any of the patents of the Company that were in
existence at the effective date of the agreement or which are issued during the
term of the agreement. In consideration for this agreement, the Company is
required to pay royalty fees to IBM in an amount equal to 2.7% of world-wide
revenues generated from the Company's 18 and 36-track product sales, exclusive
of those sold to IBM.


EMPLOYEES

         The Company had 233 employees as of June 30, 1998, including 50 in
sales and marketing, 35 in research and development, 116 in manufacturing and
operations and 32 in finance, information systems, human resources and other
management. There are no collective bargaining contracts covering any of the
Company's employees and management believes that its relationship with its
employees is good.


                                       7
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                                  RISK FACTORS

         AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS, THE ACCURACY OF WHICH IS SUBJECT TO
MANY RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THE
FOLLOWING RISK FACTORS, WHICH SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND ITS BUSINESS..


RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON NEW PRODUCT DEVELOPMENT

         The market for the Company's products is generally characterized by
rapid technological change and evolving industry standards and is highly
competitive with respect to timely innovation. The future success of the Company
will depend on its ability to anticipate changes in technology, to develop new
and enhanced products on a timely and cost-effective basis and to introduce,
manufacture and achieve market acceptance of such new and enhanced products. In
particular, the Company's future success is dependent on its LibraryXpress
product line. Certain products within the line, such as the LoaderXpress, are
relatively new and have not yet achieved widespread market acceptance.
LibraryXpress is facing increasing competition both from competitive automated
tape library products, and can be expected to face competition from other
storage devices that may be developed in the future. The DLT tape drives used by
the Company in its LibraryXpress products are obtained from a sole supplier,
Quantum Corporation ("Quantum"). From time to time, Quantum customers such as
the Company (and its competitors) have been unable to obtain as many DLT tape
drives as needed due to drive shortages or quality issues. See "Dependence on
Certain Suppliers." Development schedules for high technology products are
inherently subject to uncertainty and there can be no assurance that the Company
will be able to meet its product development schedules, including those for
products based on its new VR2 tape coding technique, or that development costs
will be within budgeted amounts. If the products or product enhancements that
the Company develops are not deliverable due to developmental problems, quality
issues or component shortage problems or if such products or product
enhancements do not achieve market acceptance or are unreliable, the Company's
business, financial condition and results of operations may be materially and
adversely affected. The introduction (whether by the Company or its competitors)
of new products embodying new technology such as new sequential or random access
mass storage devices and the emergence of new industry standards can render
existing products obsolete or not marketable.


COMPETITION AND PRICE PRESSURE

         The worldwide tape storage market is intensely competitive as a large
number of manufacturers of alternative tape technologies compete for a limited
number of customers and barriers to entry are relatively low in the library
category. The Company currently participates in three market areas which are
defined by different tape technologies: (i) network data storage; (ii) data
backup and interchange based on IBM compatible 3480/3490 technology; and (iii)
data interchange based on 9-track reel-to-reel technology. In each of these
areas, many of the Company's competitors have substantially greater financial
and other resources, larger research and development staffs, and more experience
and capabilities in manufacturing, marketing and distributing products than the
Company. For network data storage, the LibraryXpress products currently compete
with products made by ADIC, ATL, Breece Hill, Hewlett-Packard, Quantum and
Storage Technology, and the Company believes that additional competitors can be
expected to enter the market. For the data backup and interchange market, which
is based on IBM compatible 3480/3490 technology, the Company offers a line of
36-track products, which the Company believes compete primarily with products
made by Fujitsu, Hitachi, Laser Magnetic Storage and Storage Technology. For the
9-track data interchange market, the Company believes it competes with Anritsu
American Incorporated, Hewlett-Packard and M4 Data, Inc. Except for the 9-track
data interchange market, the markets for the Company's products are
characterized by significant price competition, and the Company anticipates that
its products will face increasing price pressure. This pressure could result in
significant price erosion, reduced profit margins and loss of market share,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

                                       8
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DEPENDENCE ON CERTAIN SUPPLIERS

         The Company's products have a large number of components and
subassemblies produced by outside suppliers and it is highly dependent on such
suppliers for components and subassemblies, including DLT tape drives,
read-write heads, printed circuit boards and integrated circuits, which are
essential to the manufacture of the Company's products. In addition, for certain
of these items, the Company qualifies only a single source, which can magnify
the risk of shortages and decrease the Company's ability to negotiate with its
suppliers on the basis of price. If such shortages occur, or if the Company
experiences quality problems with suppliers, shipments of products could be
significantly delayed or costs significantly increased, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. Specifically, the Company's new LibraryXpress automated
tape libraries incorporate DLT tape drives manufactured by Quantum, which is
also a competitor of the Company in that Quantum markets its own tape drives and
tape loader products. Although Quantum announced on September 9, 1998 that it
had signed an agreement with Tandberg Data to become a second source
manufacturer of DLT tape drives within a year, currently, there are no
alternative sources for DLT drives. The Company does not have a long-term
contract with Quantum, which could cease supplying DLT tape drives directly to
the Company. From time to time in the past, the Company has not been able to
obtain as many drives as it has needed from Quantum due to drive shortages or
quality issues. Any prolonged inability to obtain adequate deliveries could
require the Company to pay more for components, parts and other supplies, seek
alternative sources of supply, delay shipment of products and damage
relationships with current and prospective customers. Any such delay or damage
could have a material adverse effect on the Company's business, financial
condition and results of operations. During fiscal 1997 and in the first quarter
of fiscal 1998, the Company experienced problems with the supply of DLT7000
drives and such problems adversely affected the Company's sales and earnings.
While the Company believes that these problems relating to the supply of DLT7000
drives have been solved by Quantum, no assurance can be given that such problems
will not re-occur, or that the Company will not experience similar or more
serious disruptions in supply in the future with the DLT7000 drive or any future
DLT drive version.

FLUCTUATION IN RESULTS

         The Company's results can fluctuate substantially from time to time for
various reasons. All of the markets served by the Company are volatile and
subject to market shifts, which may or may not be discernible in advance by the
Company. A slowdown in the demand for workstations, mid-range computer systems
and networks could have a significant adverse effect on the demand for the
Company's products in any given period. The Company has experienced delays in
receipt of purchase orders and, on occasion, anticipated purchase orders have
been rescheduled or have not materialized due to changes in customer
requirements. The Company's customers may cancel or delay purchase orders for a
variety of reasons, including the rescheduling of new product introductions,
changes in their inventory practices or forecasted demand, general economic
conditions affecting the computer market, changes in pricing by the Company and
its competitors, new product announcements by the Company or others, quality or
reliability problems related to the Company's products, or selection of
competitive products as alternate sources of supply. In addition, because a
large portion of the Company's sales are generated by its European channel, the
first fiscal quarter (July through September) has been impacted by seasonally
slow European orders, reflecting the summer holiday period in Europe. The
Company's operations may reflect substantial fluctuations from period to period
as a consequence of such industry shifts, price erosion, general economic
conditions affecting the timing of orders from customers, the supply of DLT
drives, as well as other factors discussed herein. In particular, the Company's
ability to forecast sales to distributors, integrators and VARs is especially
limited as such customers typically provide the Company with relatively short
order lead times or are permitted to change orders on short notice. A portion of
the Company's expenses are fixed and difficult to reduce should revenues not
meet the Company's expectations, thus magnifying the material adverse effect of
any revenue shortfall. The Company's gross profit has fluctuated and will
continue to fluctuate quarterly and annually based upon a variety of factors
such as the level of utilization of the Company's production capacity, changes
in product mix, average selling prices, manufacturing yields, increases in
production and engineering costs associated with initial production of new
programs, changes in the cost of or limitations on availability of materials and
labor shortages. Generally, new products have higher gross margins than more
mature products. Therefore, the Company's ability to introduce new products in a
timely fashion is an important factor to its profitability. Based upon all of
the foregoing, the Company believes that period-to-period comparisons of its
revenues and operating results will continue to fluctuate and are not
necessarily meaningful and should not be relied on as indications of future
performance. Furthermore, in some future quarter the Company's revenues and
operating results could be below the expectations of public market analysts or
investors, which could result in a material adverse effect on the price of the
Common Stock.

                                       9
<PAGE>



RISKS RELATED TO FOREIGN SOURCING AND FOREIGN SALES

         Because certain of the Company's key components are currently 
manufactured in Singapore and Malaysia, its results of operations can be 
affected by fluctuations in currency exchange rates, either positive or 
negative. The Company's international procurement is also subject to certain 
other risks common to foreign operations in general, including government 
regulation and import restrictions. However, during fiscal year 1998, only 
approximately 4% of the Company's cost of goods sold consisted of materials 
purchased from suppliers in Singapore and Malaysia. Because of the Company's 
use of components produced overseas, the sale of the Company's products to 
domestic federal or state agencies may be restricted by limitations imposed 
by the Buy American Act or the Trade Agreement Act.

         Direct international sales accounted for 27% of sales in fiscal year
1998, and the Company expects that international sales will continue to grow and
represent an even greater proportion of the Company's revenues in the future.
Sales to customers outside the U.S. are subject to various risks, including the
imposition of governmental controls, the need to comply with a wide variety of
foreign and U.S. export laws, political and economic instability, trade
restrictions, changes in tariffs and taxes, longer payment cycles typically
associated with international sales, as well as the greater difficulty of
administering business overseas. Furthermore, although the Company endeavors to
meet standards established by foreign regulatory bodies, there can be no
assurance that the Company will be able to comply with changes in foreign
standards in the future. The inability of the Company to design products that
comply with foreign standards could have a material adverse effect on the
Company.

DEPENDENCE ON KEY EMPLOYEES

         The Company's future success depends in large part on its ability to
retain certain key executives and other key personnel, many of whom have been
instrumental in developing new technologies and setting strategic plans. The
Company's growth will also depend in large part on its continuing ability to
hire, motivate and retain highly qualified management, technical, sales and
marketing team members. Competition for such personnel is intense and there can
be no assurance that the Company will be able to retain its existing personnel
or attract additional qualified personnel in the future.

TECHNOLOGY AND INTELLECTUAL PROPERTY

         The Company believes that, because of the rapid pace of technological
change in the tape storage industry, patent and trade secret protection are less
significant than factors such as the knowledge, ability and experience of the
Company's personnel, new product introductions and product enhancements.
Nonetheless, the Company's ability to compete effectively depends in part on its
ability to develop and maintain proprietary aspects of its technology. There can
be no assurance that any future patents will be granted or that any patents will
be valid or provide meaningful protection for the Company's product innovations.
In addition, the laws of certain foreign countries may not protect the Company's
intellectual property to the same extent as U.S. laws. Furthermore, there can be
no assurance that competitors will not independently develop similar products,
duplicate the Company's products or, if patents are issued to the Company,
design around the patents issued to the Company. The Company also relies on a
combination of copyright, trademark, trade secret and other intellectual
property laws to protect its proprietary rights. Such rights, however, may not
preclude competitors from developing substantially equivalent or superior
products to those of the Company's. In addition, many aspects of the Company's
products are not subject to significant intellectual property protection. While
the Company is not currently engaged in any intellectual property litigation or
proceedings, there can be no assurance that it will not become so involved in
the future or that its products do not infringe any intellectual property or
other proprietary right of any third party. An adverse outcome in litigation or
similar proceedings could subject the Company to significant liabilities to
third parties, require disputed rights to be licensed from others or require the
Company to cease marketing or using certain products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

                                       10
<PAGE>


RISKS ASSOCIATED WITH POSSIBLE MERGERS AND ACQUISITIONS

         The Company may in the future pursue mergers and acquisitions of
complementary businesses, products or technologies as it seeks to expand and
increase the value-added component of its product offerings. Mergers and
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations and personnel of the acquired business, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no direct prior experience, and the potential loss of
key employees of the acquired business. In addition, future mergers and
acquisitions by the Company may result in potentially dilutive issuances of
equity securities and the incurrence of additional debt and amortization
expenses related to goodwill and other intangible assets which could adversely
affect the Company's business, financial condition and results of operations.

WARRANTY EXPOSURE

         The Company generally provides three-year (two years for
non-LibraryXpress products), return-to-factory warranty on its products. For
certain products, it provides or offers for sale a two-year on-site warranty
which is supplied by a third party service provider. The Company pays the
negotiated price of the contract to the service provider in advance and the
service provider is then responsible for the costs of providing warranty service
during the term of the contract. For products which the Company distributes and
for tape drives used in the Company's products but manufactured by a third
party, the Company passes on to the customer the related manufacturer's
warranty. Although the Company has established reserves for the estimated
liability associated with product warranties, there can be no assurance that
such reserves will be adequate or that the Company will not incur substantial
warranty expenses in the future with respect to new or established products.

ITEM 2.  PROPERTIES

         The Company leases all facilities used in its business. Its
headquarters are located in San Diego, California in a 3-building light
industrial complex comprising approximately 121,000 square feet. The lease
expires in August 2002. The San Diego facility houses all of the Company's
research and development and administrative functions as well as a major portion
of manufacturing, sales, sales administration, marketing and customer support.
The Company also leases a small facility located in Wokingham, England which
houses some light manufacturing, sales, sales administration and customer
support for the European marketplace, and a small sales office located in Paris,
France to service Southern European customers. Two other small facilities are
leased in Longmont, Colorado and in Nashua, New Hampshire for the development of
R&D prototypes and an OEM sales office, respectively. The Company believes that
its facilities are suitable for their uses and are, in general, adequate for the
Company's current and identified future needs.

ITEM 3.  LEGAL PROCEEDINGS

         The Company, its directors and certain of its officers were named as
defendants in two putative class action lawsuits filed on April 21, 1997 and May
2, 1997 in the U.S. District Court for the Southern District of California. In
both cases, the plaintiffs purported to represent a class of all persons who
purchased the Company's Common Stock between February 21, 1997 and March 14,
1997. The complaints alleged that the defendants violated various federal
securities laws through material misrepresentation and omissions in connection
with the Company's initial public offering and its registration statement on
Form S-1 which was declared effective by the Securities and Exchange Commission
on February 21, 1997. The suits seek rescission of their share purchases or
rescissory damages if their shares have been sold, as well as attorneys' fees
and other costs and expenses.

         On September 16, 1997, the Court entered an Order permitting the
voluntary dismissal of the first-filed lawsuit without prejudice and the
plaintiff in the second lawsuit was appointed as the Lead Plaintiff in this
litigation. That person now has resigned as the Lead Plaintiff, and the
shareholder who had filed the first of the two lawsuits has petitioned the Court
for permission to intervene and serve as the Lead Plaintiff. That application is
pending.

         The defendants have answered the second complaint, have denied the
material allegations and have disavowed any wrongdoing. The litigation currently
is in the discovery phase, and trial has been scheduled for Summer of 1999.
Although the outcome of the lawsuit cannot be determined, management believes it
has meritorious defenses and intends to defend against the lawsuit vigorously.
The Company maintains directors' and officers' liability insurance to provide
coverage against suits of this nature, and other than legal fees incurred to
date, no amounts have been recorded in the financial statements for any losses
which may result from this litigation.

                                       11
<PAGE>


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         The Company's Common Stock commenced trading on the Nasdaq National
Market under the symbol "OVRL" on February 21, 1997, the effective date of its
initial public offering. As of September 11, 1998, there were approximately 112
shareholders of record. The Company has not paid any dividends on its Common
Stock and does not anticipate paying any dividends in the foreseeable future.
The high and low closing prices of Overland Data Common Stock from June 1, 1997
through June 30, 1998 were as follows:

PRICE RANGE OF COMMON STOCK:


<TABLE>
<CAPTION>

                                        HIGH        LOW
                                        ----        ---
<S>                                    <C>          <C>  
              Fiscal 1998:
                 First quarter         $7.88        $5.38
                 Second quarter         8.44         4.88
                 Third quarter          6.41         5.00
                 Fourth quarter         6.31         4.75

              Fiscal 1997:
                 Third quarter         13.00         4.75
                 Fourth quarter         7.00         4.75

</TABLE>

                                       12

<PAGE>




ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data has been derived from the audited
consolidated financial statements of the Company and the notes thereto. This
information should be read in conjunction with Item 7 of this Report -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and with the consolidated financial statements of the Company and
the related notes thereto set forth at the pages indicated in Item 14(a)(1).

<TABLE>
<CAPTION>

                                          AT OR FOR YEARS ENDED JUNE 30,
                           ------------------------------------------------------
                               1998          1997       1996       1995     1994
                           ----------      -------     -------   -------  -------
                              (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S>                        <C>             <C>         <C>       <C>      <C>    
SUMMARY OF OPERATIONS
Net sales                  $   75,164      $59,146     $47,226   $38,156  $34,044
Gross profit                   23,199       20,371      16,081    11,115   11,154
Income from operations          3,640        4,736       3,541       980      587
Income before income taxes      4,543        4,987       3,413       770      356
Net income (1)                  2,792        3,100       3,159       501      137
Net income per share (2):
   Basic                          .27          .44         .71       .13      .04
   Diluted                        .25          .33         .41       .07      .02

BALANCE SHEET DATA
Cash and cash equivalents   $  15,550      $18,926     $    19   $   101  $ 1,332
Working capital                39,498       36,733      10,307     6,430    5,097
Total assets                   53,996       48,260      19,771    14,453   14,329
Long-term debt,
  net of current portion           --           --       1,500     1,400      747
Convertible redeemable
  preferred stock                  --           --       5,200     5,567    5,879
Shareholders' equity           43,368       40,317       5,858     1,767      900
</TABLE>

--------------------------
(1)  The Company's effective tax rate for the year ended June 30, 1996 was
     affected in the fourth quarter of the year by a one-time tax valuation
     allowance adjustment, which reduced income tax expense and correspondingly
     increased net income by $997,000, or $.13 per share. Without this
     adjustment, for the year ended June 30, 1996 net income and net income per
     share would have been $2,162,000 and $.28, respectively.

(2)  See Note 1 of Notes to Consolidated Financial Statements for an explanation
     of shares used in computing net income per share.

                                       13
<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

         THIS REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE PERFORMANCE OF THE COMPANY. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS,
PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS IDENTIFIED IN
THIS REPORT, INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS,"
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY
SUCH FORWARD-LOOKING STATEMENTS.

GENERAL

         Overland Data designs, develops, manufactures, markets and supports
magnetic tape data storage systems used by businesses for backup, archival and
data interchange functions. The Company's primary products are currently based
on three different half-inch magnetic tape technologies: (i) DLT, (ii) 18 &
36-track and (iii) 9-track. In March 1996, the Company introduced the
LibraryXpress, a scaleable automated tape library system incorporating DLT tape
drives, and began shipping the LXB base module. In the second half of fiscal
1997, the Company introduced two additional modules: the LXG global control unit
and the LXC capacity module. In May 1997, the LXS MiniLibrary, a single-drive,
non-scalable version of the LibraryXpress, was introduced to serve the lower end
of the network market. In February 1998, the Company commenced shipment of the
LoaderXpress, a single-drive DLT tape loader which offers a five or ten
cartridge magazine, designed for the commercial distribution channel. The
Company's second product line, TapeXpress, consists of 18 and 36-track products
based on the IBM 3480/3490/3490E technologies. During fiscal year 1998, the
Company announced end-of-life on all of its 18-track products and its L60E
36-track data vault. Its third product line, TapePro, consists of 9-track
reel-to-reel tape drives which are used exclusively for data interchange. The
Company also distributes products manufactured by other OEM's and markets other
items supplied by third parties including controller cards, interchange
software, storage management software, spare parts and tape media. Finally, the
Company licenses a new proprietary tape encoding technology which it developed
and patented under the name Variable Rate Randomizer or "VR2". One license
agreement was announced during fiscal year 1998; however, because the licensee
has not completed the development project which uses VR2, no royalty revenues
have yet been received.

                                       14
<PAGE>



RESULTS OF OPERATIONS

         The following tables set forth certain data as a percentage of net
sales:


        STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>

                                            FISCAL YEARS ENDED JUNE 30,
                                            ---------------------------
                                              1998      1997     1996
                                            -----     -----     ----- 
<S>                                         <C>       <C>       <C>   
     Net sales                              100.0%    100.0%    100.0%
     Cost of goods sold                      69.2      65.6      65.9
                                            -----     -----     ----- 
     Gross profit                            30.8      34.4      34.1
                                            -----     -----     ----- 
     Operating expenses:
       Sales and marketing                   12.2      12.3      12.6
       Research and development               5.5       7.0       7.8
       General and administrative             8.3       7.1       6.2
                                            -----     -----     ----- 
                                             26.0      26.4      26.6
                                            -----     -----     ----- 
     Income from operations                   4.8       8.0       7.5
     Interest and other, net                  1.3        .4       (.3)
                                            -----     -----     ----- 
     Income before income taxes               6.1       8.4       7.2
     Provision for income taxes               2.4       3.2        .5
                                            -----     -----     ----- 
     Net income                               3.7%      5.2%      6.7%
                                            -----     -----     ----- 
                                            -----     -----     ----- 

</TABLE>



     PRODUCT MIX TABLE

<TABLE>
<CAPTION>
                                             FISCAL YEARS ENDED JUNE 30,
                                             ---------------------------
                                               1998      1997      1996
                                              -----     -----     ----- 
<S>                                            <C>       <C>       <C> 
          Company products:
             LibraryXpress                      49.9%     28.6%      2.6%
             36-track                           26.1      28.1      19.6
             18-track                            2.8       9.7      15.3
             9-track                             7.4      18.2      29.4
             Spare parts, controllers, other     7.2       8.4      10.3

          Other parts:
             DLT distributed products            6.6       6.9      21.5
             Other distributed products          0.0       0.1       1.3
                                               -----     -----     ----- 
                                               100.0%    100.0%    100.0%
                                               -----     -----     ----- 
                                               -----     -----     ----- 
</TABLE>

                                       15
<PAGE>

FISCAL 1998 COMPARED TO FISCAL 1997

         NET SALES. The Company's net sales of $75.2 million in fiscal year 1998
grew by $16.1 million or 27.2% over net sales of $59.1 million in fiscal year
1997. Significant growth in sales of the Company's flagship LibraryXpress
product line, together with modest growth of 36-track product sales, more than
offset declines in other mature product lines. LibraryXpress sales grew by 122%
to $37.5 million compared to $16.9 million in fiscal year 1997, due principally
to strong demand from DEC/CPQ for the LXB7110 model. Although DEC had been a
buyer of the Company's 9-track products since 1993, it did not begin ordering
LibraryXpress products until late in the first quarter of fiscal year 1998. Also
contributing to the LibraryXpress growth were sales of several new products. The
LXG global control unit, the LXC capacity module and LXS MiniLibrary were all
introduced late in fiscal year 1997, but contributed a full year of revenues in
1998. Another new product, the LoaderXpress, was introduced in February 1998,
and made a small contribution to fiscal year 1998 revenues. Sales of the
Company's 36-track products grew by 18.1% to $19.6 million in fiscal year 1998
compared to $16.6 million in fiscal year 1997. This growth resulted principally
from increased sales to IBM of the L490E model pursuant to a new supply
agreement entered into in the second quarter of fiscal year 1997. Sales of
18-track products of $2.1 million in fiscal year 1998 fell by $3.6 million or
63.2% from $5.7 million in the prior year. This decline was the result of an
upward migration by the Company's customers from 18-track products to its
36-track products and the Company's announced end-of-life on all 18-track
products at the end of fiscal year 1998. Sales of 9-track products of $5.6
million in fiscal year 1998 fell by $5.3 million or 48.6% from $10.9 million in
fiscal year 1997. This reflects the general maturity of the 9-track technology,
a trend which the Company expects will continue. As of the end of fiscal 1998,
the 9-track product line has been narrowed to two products.

         GROSS PROFIT. The Company's gross profit amounted to $23.2 million in
fiscal year 1998, up from $20.4 million in fiscal year 1997, as a result of the
higher sales volumes. The gross margin, however, fell from 34.4% in fiscal year
1997 to 30.9% in fiscal year 1998 due principally to a higher concentration of
OEM business, which is typically at lower margins compared to other channel
business. Sales to OEM customers rose from 23% of revenues in fiscal year 1997
to 40% of revenues in fiscal year 1998. Also contributing to lower margins was
the effect of competitive pressures which resulted in reduced selling prices for
certain products.

         SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to
$9.2 million or 12.2% of net sales in fiscal year 1998 compared to $7.3 million
or 12.3% of net sales in 1997. This increase in total expenditures resulted
primarily from a higher level of advertising and promotional programs,
additional personnel and greater travel expenses. The Company's marketing
efforts are focused on creating an awareness in the marketplace at both the
reseller and end-user level for the Overland name and the Company's new
products, including the LoaderXpress. The goal is to create pull-through for the
new commercial distribution channel and for the existing volume sales channel.

         RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses were flat with the
prior year and amounted to $4.1 million or 5.5% of net sales in fiscal year 1998
compared to $4.1 million or 7.0% of net sales in 1997. In fiscal year 1998, the
R&D efforts included the design and support of the new LoaderXpress product,
design of a new automated tape library based on a new tape technology, and the
joint development project with Tandberg Data announced in April 1998 to
implement the Company's VR2 technology onto Tandberg's SLR tape drives.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses amounted to $6.2 million or 8.3% of net sales in fiscal year 1998
compared to $4.2 million or 7.1% of net sales in 1997. The higher level of
expenses in 1998 included an increase in depreciation for the Company's new ERP
system, increased legal fees, increased MIS staffing levels, higher facility 
costs and other incremental costs incidental to being a public company for 
a full year.

         INTEREST INCOME/EXPENSE. In fiscal year 1998, the Company generated net
interest income of $940,000, compared to net interest income of $223,000 in
fiscal 1997. The higher income in fiscal 1998 resulted from earnings on
investment of funds generated by the Company's initial public offering and the
elimination of interest expense on bank borrowings. Immediately following the
IPO in February 1997, the Company fully repaid the borrowings under its
revolving bank line of credit.

         INCOME TAXES. The Company's fiscal year 1998 provision for state and 
federal income taxes amounted to $1.8 million, or an effective tax rate of 
38.5%. The effective rate in 1998 was higher than the fiscal year 1997 rate 
of 37.8% due primarily to reduced state R&D tax credits.

                                       16
<PAGE>



FISCAL 1997 COMPARED TO FISCAL 1996

         NET SALES. The Company's net sales of $59.1 million in fiscal year 1997
grew by $11.9 million or 25.2% over net sales of $47.2 million in fiscal year
1996. Sales growth in certain of the Company's products were partially offset by
declines in other product lines. The strongest growth over the prior year was
experienced in the LibraryXpress product line, which began shipping in March
1996. Sales of LibraryXpress in fiscal year 1997, the first full year of
shipments, amounted to $16.9 million compared to $1.2 million in 1996. Although
the majority of the growth was generated by sales of the LibraryXpress LXB base
module, additional sales were generated in the last half of the year when the
Company introduced three new products: the LXG global control unit, the LXC
capacity module and the LXS MiniLibrary. Offsetting this growth, however, was a
$6.1 million decline in sales of DLT distributed product, due principally to a
replacement of sales of Quantum DLT loaders by sales of the Company's own
LibraryXpress products. Sales of the Company's 36-track products of $16.6
million in fiscal year 1997 grew by $7.3 million or 78.5% from $9.3 million in
1996. This growth resulted principally from increased sales to IBM of the L490E
model pursuant to a new supply agreement entered into in the second quarter of
fiscal year 1997. Sales of 18-track products of $5.7 million fell by $1.5
million or 20.8% from $7.2 million in the prior year. This decline was the
result of an upward migration by the Company's customers from 18-track products
to its 36-track products and to a general decline in the use of 18-track
products in favor of other technologies. Sales of 9-track products of $10.9
million in fiscal year 1997 fell by $3.5 million or 24.3% from $14.4 million in
1996. This reflects the general maturity of the 9-track technology, a trend
which the Company expects to continue in the foreseeable future. Additionally,
during fiscal year 1997, the Company made end-of-life announcements on certain
of its 9-track products to narrow its 9-track product offerings.

         GROSS PROFIT. The Company's gross profit amounted to $20.4 million in
fiscal year 1997, up from $16.1 million in fiscal year 1996, which represented
gross margins of 34.4% and 34.1%, respectively. The gross margins were improved
by the shift from sales of DLT distributed product at lower margins, to sales of
LibraryXpress products at relatively higher margins. However, this was offset by
growth in sales to the Company's OEM customers, which are typically at
relatively lower margins than offered to its other customers.

          SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to
$7.3 million or 12.3% of net sales in fiscal year 1997 compared to $5.9 million
or 12.6% of net sales in 1996. This increase in total expenditures resulted from
costs needed to support the higher sales level, including salaries and benefits,
sales commissions, advertising and promotion and travel and related costs.

         RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses amounted to $4.1
million or 7.0% of net sales in fiscal year 1997 compared to $3.7 million or
7.8% of net sales in 1996. The R&D efforts during 1997 and the increased
expenses compared to 1996 related to the development of the LXG, LXC and LXS
products within the LibraryXpress product family. The Company also incurred
expenses in both years related to the development of its new tape recording
technology and coding scheme using the concept of partial response maximum
likelihood.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses amounted to $4.2 million or 7.1% of net sales in fiscal year 1997
compared to $2.9 million or 6.2% of net sales in 1996. The higher level of
expenses in 1997 included an increase in support personnel, computer related
expenses, legal fees related to the class action lawsuits filed against the
Company and to patent work related to the Company's new tape coding technique,
increased bad debt reserves related to the higher level of sales and increased
facility costs.

         INTEREST INCOME/EXPENSE. In fiscal year 1997, the Company generated net
interest income of $223,000, compared to fiscal year 1996 when net interest
expense amounted to $154,000. The net interest income in 1997 resulted from
earnings on investment of funds generated by the Company's initial public
offering and elimination of interest expense after repayment of bank borrowings.
The interest expense in 1996 included $124,000 related to borrowings under the
Company's revolving bank line of credit and $30,000 of interest expense related
to an installment note which was repaid in full in November 1995. Average
borrowings under the Company's bank line of credit in fiscal year 1996 amounted
to $1.4 million.

         INCOME TAXES. The Company's fiscal year 1997 provision for state and
federal income taxes amounted to $1.9 million or an effective tax rate of 37.8%.
In fiscal year 1996, the tax provision amounted to $254,000, resulting in an
abnormally low effective tax rate of 7.4%. The low tax rate in 1996 was the
result of the release of a deferred tax valuation allowance of $997,000 in the
fourth fiscal quarter which is discussed below and in Note 5 to the Consolidated
Financial Statements.

                                       17
<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

         During fiscal year 1998, the Company used $1.5 million to fund its
operating activities, primarily to build receivables and inventories in support
of the higher sales levels. An additional $2.1 million was invested in capital
expenditures, primarily for the Company's new enterprise wide computer system,
network computers, leasehold improvements and tooling.

         At June 30, 1998, the Company had $15.6 million of cash and cash
equivalents, $39.5 million of net working capital, an unused bank line of credit
of $5 million and no other funded debt. The Company believes that these
resources will be sufficient to fund its operations and to provide for its
growth for the foreseeable future.

INFLATION

         Inflation has not had a significant negative impact on the Company's
operations during the periods presented. With the exception of its OEM
contracts, which contain fixed pricing for up to one year, the Company has
historically been able to pass on to its customers increases in raw material
prices caused by inflation. There can be no assurance, however, that the Company
will be able to continue to pass on any future increases should they occur.
Although the Company's exposure to the effects of inflation will be magnified by
the expected increase in OEM business, the Company believes that its continuous
efforts at material and labor cost reductions will minimize such effects.

YEAR 2000

         Many computer systems experience problems handling dates in and beyond
the year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. During fiscal
year 1998 the Company replaced its internal enterprise wide computer system and
believes that the system is year 2000 compliant. The Company's internally
manufactured products have no date functionality built into them with the 
exception that certain products have a display-only date/time function. This
function, which is year 2000 compliant, allows the operator to set the LCD 
front panel display date and time from the front panel. Although not used in
any way when reading/writing data or otherwise operating the products, it is
also used for date/time stamping entries into the internal history and error
logs.

          The Company is also assessing and addressing the possible effects on
the Company's operations of the year 2000 readiness of its other internal 
systems and the systems of its key suppliers and subcontractors. The Company's
reliance on suppliers and subcontractors, and therefore, on the proper
functioning of their information systems and software, means that their failure
to address year 2000 issues could have a material impact on the Company's
operations and financial results. The potential impact and related costs of
year 2000 readiness for both the remaining internal and external systems are
not known at this time.

           It is unknown how customer spending patterns may be impacted by year
2000 programs. As customers focus on preparing their business for the year 2000
in the near term, capital budgets may be spent on remediation efforts, 
potentially delaying the purchase and implementation of new systems, thereby
creating less demand for the Company's products and services. Conversely, 
demand for the Company's products could accelerate as customers focus on
the need to protect their stored data by enhancing their backup capabilities.
The impact on the Company's revenues is not known at this time.



                                    18
<PAGE>

SELECTED QUARTERLY FINANCIAL DATA

         The following table presents selected quarterly financial information
for the periods indicated. This information has been derived from unaudited
consolidated financial statements which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period.



<TABLE>
<CAPTION>


                                                                        QUARTERS ENDED
                                ---------------------------------------------------------------------------------------------
                                                 FISCAL YEAR 1997                            FISCAL YEAR 1998
                                ---------------------------------------------    --------------------------------------------
                                SEPT. 30      DEC. 31     MAR. 31     JUNE 30    SEPT. 30    DEC. 31     MAR. 31      JUNE 30
                                    1996       1996        1997        1997        1997       1997        1998         1998
                                --------     --------    --------    --------    --------   --------    --------     --------
<S>                             <C>          <C>         <C>         <C>         <C>        <C>         <C>          <C>     
Net sales                       $ 12,013     $ 15,220    $ 15,404    $ 16,509    $ 13,998   $ 18,071    $ 18,659     $ 24,436
Gross profit                       4,440        5,372       5,237       5,322       4,660      5,704       5,469        7,366
Income from operations               593        1,817       1,317       1,009          76      1,014         515        2,035
Income before income taxes           541        1,740       1,329       1,377         286      1,272         808        2,177
Net income                           324        1,044         797         935         177        789         501        1,325

Net income per share:
     Basic                          $.06         $.20        $.11        $.09        $.02       $.07        $.05         $.13
     Diluted                         .04          .13         .09         .08         .02        .07         .05          .12

</TABLE>



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements and supplementary data of the
Company required by this item are set forth at the pages indicated in Item
14(a)(1).


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         Not applicable.

                                       19
<PAGE>



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

The information required by this item is included under the captions entitled
"Election of Directors" and "Information Concerning Directors and Executive
Officers" in the Company's Proxy Statement and is incorporated herein by
reference.


ITEM 11.    EXECUTIVE COMPENSATION

         The information required by this item is included under the caption
entitled "Executive Compensation" in the Company's Proxy Statement and is
incorporated herein by reference.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item is included under the caption
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement and is incorporated herein by reference.


ITEM 13.    CERTAIN TRANSACTIONS

         The information required by this item is included under the caption
entitled "Certain Relationships and Transactions" in the Company's Proxy
Statement and is incorporated herein by reference.

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)(1) FINANCIAL STATEMENTS. The following Consolidated Financial
Statements of Overland Data, Inc. and Report of Independent Accountants are
included in a separate section of this Report at the page numbers so indicated:


<TABLE>

<S>                                                                <C>
      Consolidated Balance Sheet as of June 30, 1998 and 1997 . . .F1
      Consolidated Statement of Operations for the Years
          Ended June 30, 1998, 1997 and 1996. . . . . . . . . . . .F2
      Consolidated Statement of Shareholders' Equity for the
          Years Ended June 30, 1998, 1997 and 1996. . . . . . . . .F3
      Consolidated Statement of Cash Flows for the Years Ended
          June 30, 1998, 1997 and 1996. . . . . . . . . . . . . . .F4
      Notes to Consolidated Financial Statements. . . . . . . . . .F5 to F13
      Report of Independent Accountants . . . . . . . . . . . . . .F14

</TABLE>


         (a)(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule of Overland Data, Inc. for the years ended June 30, 1998, 1997 and 1996
is filed as part of this Report on the page number so indicated and should be
read in conjunction with the Consolidated Financial Statements of Overland Data,
Inc.:

         Schedule II - Valuation and Qualifying Accounts...................S-1

 Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.

                                       20
<PAGE>



<TABLE>
<S>   <C>         
(a)(3) EXHIBITS
 3.1  Registrant's Amended and Restated Articles of Incorporation.* 
 3.2  ByLaws.*
 4.1  Specimen stock certificate.*
 4.2  Investors' Rights Agreement, dated May 21, 1993, between the Registrant
      and the parties named therein.*
10.1  Basic Order Agreement #16529, dated July 1, 1993 and as amended through
      November 10, 1995, between the Registrant and Digital Equipment
      Corporation.*
10.2  Production Procurement Agreement #RMSS-ODI-96-01-0, dated October 25, 1996,
      between the Registrant and International Business Machines Corporation.*
10.3  Credit Agreement effective as of June 27, 1997 between the Registrant and
      Imperial Bank.**
10.4  Standard Industrial Lease-Multi-Tenant, dated May 26, 1993, between the
      Registrant and Mitsui/SBD America Fund 87-1.*
10.5  First Amendment to the 1995 Stock Option Plan dated January 21, 1997. *
10.6  1996 Employee Stock Purchase Plan adopted December 12, 1996.*
10.7  Agreement between Overland Data and Tandberg Data Concerning MLR
      and VR2 Technology***
11.1  Statement Re: Computation of Earnings Per Share. 
21.1  Subsidiaries of the Registrant. 
23.1  Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1  Power of Attorney (included on Signature Page). 
27.1  Financial Data Schedule (for EDGAR use only).

</TABLE>


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

*    Incorporated by reference to the Company's Registration Statement No.
     333-18583 dated February 21, 1997.

**   Incorporated by reference to the Company's Form 10-K dated June 30, 1997.

***  The Company has requested confidential treatment for certain portions
     of this Agreement.

         (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the
Company during the fourth quarter of the year ended June 30, 1998.

                                   SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.

                                                   OVERLAND DATA, INC.

                                                   By: /s/  SCOTT McCLENDON
                                                   -----------------------------
                                                   Scott McClendon
                                                   President & Chief Executive 
                                                   Officer

                                       21
<PAGE>


Dated:  September 25, 1998

                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott McClendon and Vernon A. LoForti,
jointly and severally, as his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Annual Report on Form 10-K and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>

     SIGNATURE                TITLE                              DATE
     ---------                -----                              ----

<S>                           <C>                                <C> 
/s/ SCOTT McCLENDON           President, Chief Executive         September 25, 1998
---------------------         Officer and Director
   Scott McClendon


/s/ MARTIN D. GRAY            Vice President, Chief Technical    September 25, 1998
---------------------         Officer, Asst. Secretary and
   Martin D. Gray             Director


/s/ VERNON A. LOFORTI         Vice President, Chief              September 25, 1998
---------------------         Financial Officer and
  Vernon A. LoForti           Secretary


/s/ WILLIAM W. OTTERSON       Director                           September 25, 1998
---------------------
 William W. Otterson


/s/ JOSEPH D. RIZZI           Director                           September 25, 1998
---------------------
   Joseph D. Rizzi


/s/ JOHN A. SHANE             Director                           September 25, 1998
---------------------
    John A. Shane

</TABLE>


                                       22
<PAGE>


                               OVERLAND DATA, INC.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

                                                                              JUNE 30
                                                                      ------------------------
                                                                          1998         1997
                                                                      ----------    ----------
                                                                         (IN THOUSANDS EXCEPT
                                                                           NUMBER OF SHARES)
<S>                                                                   <C>           <C>       
ASSETS
Current assets:
  Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . .  $   15,550    $   18,926
  Accounts receivable, less allowance for doubtful accounts
     and returns of $922 and $774, respectively. . . . . . . . . . .      15,683        11,151
  Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . .      16,077        12,101
  Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . .       1,558         1,743
  Other current assets . . . . . . . . . . . . . . . . . . . . . . .         873           607
                                                                      ----------    ----------
       Total current assets. . . . . . . . . . . . . . . . . . . . .      49,741        44,528

Property and equipment, net. . . . . . . . . . . . . . . . . . . . .       4,207         3,499
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . .          --            77
Intangible and other assets. . . . . . . . . . . . . . . . . . . . ..         48           156
                                                                      ----------    ----------
                                                                      $   53,996    $   48,260
                                                                      ----------    ----------
                                                                      ----------    ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . .   $   6,970    $    5,372
  Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . .       2,075         1,377
  Accrued payroll and employee compensation. . . . . . . . . . . . .       1,198         1,046
                                                                      ----------    ----------

       Total current liabilities . . . . . . . . . . . . . . . . . .      10,243         7,795

Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . .         187            --
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . .         198           148
                                                                      ----------    ----------
       Total liabilities . . . . . . . . . . . . . . . . . . . . . .      10,628         7,943

Commitments and contingencies (Note 8)

Shareholders' equity:
  Common stock, no par value, 25,000,000 shares
      authorized; 10,549,486 and 10,434,593 shares
      issued and outstanding in 1998 and 1997, respectively. . . . .      33,496        33,246
  Cumulative translation adjustment. . . . . . . . . . . . . . . . .          18             9
  Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . .       9,854         7,062
                                                                      ----------    ----------
   Total shareholders' equity. . . . . . . . . . . . . . . . . . . .      43,368        40,317
                                                                      ----------    ----------
                                                                       $  53,996       $48,260
                                                                      ----------    ----------
                                                                      ----------    ----------

</TABLE>

              See accompanying notes to consolidated financial statements.


                                       F-1
<PAGE>


                               OVERLAND DATA, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>

                                                              YEAR ENDED JUNE 30,
                                                    -------------------------------------
                                                     1998            1997           1996
                                                    --------       --------      --------
                                                   (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>            <C>           <C>     
Net sales. . . . . . . . . . . . . . . . . .        $ 75,164       $ 59,146      $ 47,226
Cost of goods sold . . . . . . . . . . . . .          51,965         38,775        31,145
                                                    --------       --------      --------
  Gross profit . . . . . . . . . . . . . . .          23,199         20,371        16,081

Operating expenses:
  Sales and marketing. . . . . . . . . . . .           9,245          7,298         5,935
  Research and development . . . . . . . . .           4,093          4,125         3,697
  General and administrative . . . . . . . .           6,221          4,212         2,908
                                                    --------       --------      --------
                                                      19,559         15,635        12,540
                                                    --------       --------      --------
Income from operations . . . . . . . . . . .           3,640          4,736         3,541

Other income (expense):
  Interest income. . . . . . . . . . . . . .             942            408             1
  Interest expense . . . . . . . . . . . . .              (2)          (185)         (155)
  Other income (expense), net. . . . . . . .             (37)            28            26
                                                    --------       --------      --------

Income before income taxes . . . . . . . . .           4,543          4,987         3,413

Provision for income taxes . . . . . . . . .           1,751          1,887           254
                                                    --------       --------      --------

Net income . . . . . . . . . . . . . . . . .        $  2,792       $  3,100      $  3,159
                                                    --------       --------      --------
                                                    --------       --------      --------


Net income per share:
     Basic . . . . . . . . . . . . . . . . .        $   0.27       $   0.44      $   0.71
                                                    --------       --------      --------
                                                    --------       --------      --------
     Diluted . . . . . . . . . . . . . . . .        $   0.25       $   0.33      $   0.41
                                                    --------       --------      --------
                                                    --------       --------      --------
Shares used in computing net income per share:

     Basic . . . . . . . . . . . . . . . . .          10,525          7,054         4,442
                                                    --------       --------      --------
                                                    --------       --------      --------
     Diluted . . . . . . . . . . . . . . . .          11,069          9,295         7,857
                                                    --------       --------      --------
                                                    --------       --------      --------

</TABLE>


                See accompanying notes to consolidated financial statements.

                                      F-2


<PAGE>


                              OVERLAND DATA, INC.

                  CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                        COMMON STOCK            CUMULATIVE
                                               ----------------------------     TRANSLATION      RETAINED
                                                    SHARES        AMOUNT        ADJUSTMENT       EARNINGS         TOTAL
                                               ------------    ------------    ------------    ------------   ------------
                                                               (IN THOUSANDS EXCEPT SHARE AMOUNTS)


<S>                                               <C>          <C>             <C>            <C>             <C>
Balance at June 30, 1995 . . . . . . . . . .      4,291,097    $        964                   $        803    $      1,767

    Preferred stock conversion . . . . . . .        318,397             367                                            367
    Exercise of stock options  . . . . . . .        280,481             220                                            220
    Issuance of common stock . . . . . . . .        172,350             345                                            345
    Net income . . . . . . . . . . . . . . .                                                         3,159           3,159
                                               ------------    ------------    ------------    ------------   ------------
Balance at June 30, 1996 . . . . . . . . . .      5,062,325           1,896                          3,962           5,858

    Preferred stock conversion . . . . . . .      2,336,574           5,200                                          5,200
    Exercise of stock options  . . . . . . .        168,630             142                                            142
    Issuance of common stock in
        initial public offering  . . . . . .      2,836,364          25,659                                         25,659
    Other issuances of common stock  . . . .         30,700              92                                             92
    Foreign currency translation . . . . . .                                    $         9                              9
    Tax benefits from exercise of
        stock options  . . . . . . . . . . .                            257                                            257
    Net income . . . . . . . . . . . . . . .                                                          3,100          3,100
                                               ------------    ------------    ------------    ------------   ------------
Balance at June 30, 1997 . . . . . . . . . .     10,434,593          33,246               9           7,062         40,317

    Exercise of stock options  . . . . . . .        135,287             152                                            152
    Exercise of stock warrants . . . . . . .          5,934              --                                             --
    Sale of stock through the Company's
        Employee Stock Purchase Plan . . . .         73,172             383                                            383
    Company repurchases of stock . . . . . .        (99,500)           (509)                                          (509)
    Foreign currency translation . . . . . .                                              9                              9
    Tax benefits from exercise of
        stock options  . . . . . . . . . . .                            224                                            224
    Net income . . . . . . . . . . . . . . .                                                          2,792          2,792
                                               ------------    ------------    ------------    ------------   ------------
Balance at June 30, 1998 . . . . . . . . . .     10,549,486    $     33,496    $         18    $      9,854   $     43,368
                                               ------------    ------------    ------------    ------------   ------------
                                               ------------    ------------    ------------    ------------   ------------


</TABLE>


            See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>

                              OVERLAND DATA, INC.
                     CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                      YEAR ENDED JUNE 30,
                                                                               --------------------------------
                                                                                 1998        1997         1996
                                                                               --------    --------    --------
                                                                                        (IN THOUSANDS)
<S>                                                                            <C>         <C>         <C>     
Operating activities:
     Net income                                                                $  2,792    $  3,100    $  3,159
     Adjustments to reconcile net income to
          net cash (used in) provided by operating activities:
               Deferred tax expense (benefit)                                       449        (487)     (1,237)
               Depreciation and amortization                                      1,479       1,050         862
               Loss on disposal of property and equipment                             9           7          50
               Changes in assets and liabilities:
                    Accounts receivable                                          (4,532)     (3,925)       (926)
                    Inventories                                                  (3,976)     (3,676)     (3,069)
                    Other assets                                                   (266)       (243)       (278)
                    Accounts payable and accrued liabilities                      2,346         813       1,931
                    Accrued payroll and employee compensation                       152          (1)        349
                                                                               --------    --------    --------
                         Net cash (used in) provided by operating activities     (1,547)     (3,362)        841
                                                                               --------    --------    --------
Investing activities:
     Capital expenditures, net                                                   (2,088)     (2,308)       (841)
                                                                               --------    --------    --------
                         Net cash used in investing activities                   (2,088)     (2,308)       (841)
                                                                               --------    --------    --------
Financing activities:
     Proceeds from issuance of common stock                                         383      25,751         345
     Proceeds from exercise of stock options/warrants                               152          60         220
     Stock repurchases                                                             (509)         --          --
     Net (payments) proceeds under bank line of credit                               --      (1,500)        100
     Principal payments on notes payable                                             --          --        (747)
     Tax benefits from exercise of stock options                                    224         257          --
                                                                               --------    --------    --------
                         Net cash provided by (used in) financing activities        250      24,568         (82)
                                                                               --------    --------    --------
Effect of exchange rate changes on cash                                               9           9          --
                                                                               --------    --------    --------
Net (decrease) increase in cash and cash equivalents                             (3,376)     18,907         (82)
Cash and cash equivalents, beginning of year                                     18,926          19         101
                                                                               --------    --------    --------
Cash and cash equivalents, end of year                                         $ 15,550    $ 18,926    $     19
                                                                               --------    --------    --------
                                                                               --------    --------    --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid for income taxes                                                $    854    $  2,314    $  1,150
                                                                               --------    --------    --------
                                                                               --------    --------    --------
     Cash paid for interest                                                    $      1    $    186    $    155
                                                                               --------    --------    --------
                                                                               --------    --------    --------
SUPPLEMENTAL NONCASH ACTIVITIES:
     Noncash common stock issuance                                             $     --    $     92    $     --
                                                                               --------    --------    --------
                                                                               --------    --------    --------
     Compensation recognized as equity upon exercise
     of common stock options                                                   $     38    $     82    $     --
                                                                               --------    --------    --------
                                                                               --------    --------    --------
     Conversion of Series A preferred stock to common stock                    $     --    $    367    $    367
                                                                               --------    --------    --------
                                                                               --------    --------    --------
     Conversion of Series B preferred stock to common stock                    $     --    $  1,281    $     --
                                                                               --------    --------    --------
                                                                               --------    --------    --------
     Conversion of Series C preferred stock to common stock                    $     --    $  3,552    $     --
                                                                               --------    --------    --------
                                                                               --------    --------    --------

</TABLE>



              See accompanying notes to consolidated financial statements.

                                      F-4



<PAGE>


                               OVERLAND DATA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Overland Data, Inc. (the "Company") was incorporated on September 8, 1980 under
the laws of the state of California. The Company designs, develops,
manufactures, markets and supports magnetic tape data storage systems used by
businesses for high performance network backup and archival solutions as well as
data interchange. The Company's fiscal year ends on the Sunday closest to June
30. For ease of presentation, the Company's year end is deemed to be June 30.
Fiscal years 1998, 1997 and 1996 each included 52 weeks.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Overland Data (Europe) Ltd., Overland Data SARL
and Overland Data Export Limited, a foreign sales corporation. All significant
intercompany accounts and transactions have been eliminated.

MANAGEMENT ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

REVENUE RECOGNITION

Sales to commercial distribution customers are subject to certain rights of
return, stock rotation privileges and price protection. Revenue from shipments
to these customers is not recognized until the related products are in turn sold
through by the commercial distributor. At June 30, 1998, there was approximately
$800,000 of deferred revenue that had been shipped to the Company's commercial
distributors, but not yet shipped to ultimate customers. Revenue on direct sales
to other customers is recognized upon shipment of products to such customers as
they are not generally subject to any specific right of return or price
protection, except for any defective product which may be returned under the
Company's warranty policy.

WARRANTY COSTS

The Company generally provides a three-year return-to-factory warranty on its 
LibraryXpress products and a two-year return-to-factory warranty on its other 
products. In addition, with the exception of sales to OEM customers, on-site 
warranties are provided for certain of the Company's line of LibraryXpress 
products. The Company records a provision for estimated future warranty costs 
at the time of shipment for both the return-to-factory and on-site 
warranties. Separately priced on-site warranties are offered for sale to 
customers of other product lines. The Company contracts with outside vendors 
to provide service relating to all on-site warranties. Warranty revenues and 
amounts paid in advance to outside service organizations are recognized in 
the financial statements in sales and cost of goods sold, respectively, over 
the warranty period.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS

It is management's belief that the carrying amounts shown for the Company's
financial instruments are reasonable estimates of their related fair values
based on their terms or short-term nature.

                                      F-5
<PAGE>


                               OVERLAND DATA, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


EXPORT SALES

Export sales by the Company, principally in Europe, for the years ended June 30,
1998, 1997 and 1996 were $20,175,000, $14,391,000 and $12,775,000, respectively.

CONCENTRATIONS OF CREDIT RISK

The Company's customers include original equipment manufacturers, 
integrators, distributors, and value added resellers. Financial instruments 
which potentially subject the Company to concentrations of credit risk are 
primarily accounts receivable. The Company performs ongoing credit 
evaluations of its customers, generally requires no collateral and maintains 
allowances for potential credit losses and sales returns. The Company's 
largest single customer accounted for approximately 25%, 14% and 23% of sales 
in fiscal 1998, 1997 and 1996, respectively, and approximately 28% and 12% of 
accounts receivable at June 30, 1998 and 1997, respectively. The second 
largest customer accounted for 15% and 10% of sales in 1998 and 1997, 
respectively, and 17% and 11% of accounts receivable at June 30, 1998 and 
1997, respectively. No other customer accounted for 10% or more of sales in 
any of the three years presented.

CASH EQUIVALENTS

Highly liquid investments with original maturities of three months or less are
classified as cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost (first-in-first-out method) or
market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable assets
(generally two to five years). Leasehold improvements are amortized on a
straight-line basis over the shorter of the useful life of the asset or the
lease term. Expenditures for normal maintenance and repair are charged to
expense as incurred, and improvements are capitalized. Upon the sale or
retirement of property or equipment, the asset cost and related accumulated
depreciation are removed from the respective accounts and any gain or loss is
included in the results of operations.

INTANGIBLE ASSETS

Intangible assets, resulting from the acquisition of assets relating to certain
product lines, are amortized using the straight-line method over five years (the
estimated life of the products). Accumulated amortization was $800,000 and
$690,000 in 1998 and 1997, respectively. These assets are fully amortized as of
June 30, 1998.

LONG-LIVED ASSETS

The Company assesses potential impairments to its long-lived assets when there
is evidence that events or changes in circumstances have made recovery of an
asset's carrying value unlikely. An impairment loss would be recognized when the
sum of the expected future net undiscounted cash flows is less than the carrying
amount of the asset. No such impairment losses have been recorded by the
Company.

FOREIGN CURRENCY TRANSLATION

The financial statements of the Company's foreign subsidiaries are translated
into U.S. dollars using period-end exchange rates for assets and liabilities and
weighted average exchange rates during the period for revenues and expenses.
Gains or losses from foreign currency transactions are recognized currently in
income. Such gains and losses were not significant in any year presented.

                                      F-6
<PAGE>


                               OVERLAND DATA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


INCOME TAXES

The Company provides for income taxes utilizing the liability method. Under the
liability method, a deferred tax asset and/or liability is computed for both the
expected future impact of differences between the financial statement and tax
bases of assets and liabilities, and for the expected future tax benefit to be
derived from tax credits and loss carryforwards. A valuation allowance is
established when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.

STOCK-BASED COMPENSATION

The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and earnings per share as if the fair value-based
method had been applied in measuring compensation expense (Note 6).

NET INCOME PER SHARE

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" as required in the second quarter of fiscal 1998. Basic
earnings per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share is
computed based on the weighted average number of shares of common stock
outstanding during the period increased by the weighted average number of common
stock equivalents outstanding during the period, using the treasury stock
method.

A reconciliation of the calculation of basic and diluted earnings per share 
is as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED
                                                         JUNE 30,
                                        ------------------------------------------
                                            1998           1997           1996
                                        ------------   ------------   ------------
                                         (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<S>                                         <C>           <C>             <C>
Net income                                  $2,792        $3,100         $3,159
                                            ------        ------          -----
                                            ------        ------          -----
Basic:

Weighted average number
  of common stock shares
  outstanding                               10,525         7,054          4,442
                                            ------        ------          -----
                                            ------        ------          -----
Basic earnings per share                    $ 0.27        $ 0.44          $0.71
                                            ------        ------          -----
                                            ------        ------          -----
Diluted:

Weighted average number of common 
  stock shares outstanding                  10,525         7,054          4,442
Weighted average number of 
  preferred stock shares 
  outstanding                                   --         1,478          2,336
Common stock equivalents from the 
  issuance of options using the 
  treasury stock method                        544           632            757
Cheap stock adjustment                          --           131            131
                                            ------        ------          -----
Shares used in computing net
  income per share                          11,069         9,295          7,666
                                            ------        ------          -----
                                            ------        ------          -----
Diluted earnings per share                   $0.25         $0.33          $0.41
                                            ------        ------          -----
                                            ------        ------          -----
</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. The
Company will adopt SFAS No. 130 as required in fiscal 1999. This statement
establishes standards for reporting and presenting comprehensive income and its
components in the financial statements. Comprehensive income is defined as "the
change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners or distributions to owners." The Company expects that
adoption will have no material impact on the Company's statement of operations.

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. The Company
will adopt SFAS No. 133 as required in fiscal 2000. The Company expects that
adoption will have no material impact on the Company's financial statements.


NOTE 2 - COMPLETION OF INITIAL PUBLIC OFFERING

On February 21, 1997, the Company completed its initial public offering of
3,450,000 shares of common stock (of which 2,836,364 shares were sold by the
Company and 613,636 shares were sold by certain shareholders) at a price to the
public of $10 per share. Net proceeds to the Company were $26,659,000 after
payment of the underwriters' commissions and deduction of offering expenses.

                                      F-7
<PAGE>


                               OVERLAND DATA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>

                                                  JUNE 30,
                                                  --------
                                              1998        1997
                                           ----------  ----------
                                               (IN THOUSANDS)
<S>                                       <C>          <C>       
      Inventories:
          Raw materials . . . . . . . .   $   10,195   $    8,160
          Work in process . . . . . . .        3,259        2,839
          Finished goods. . . . . . . .        2,623        1,102
                                           ----------  ----------
                                          $   16,077   $   12,101
                                           ----------  ----------
                                           ----------  ----------

      Property and equipment:
          Machinery and equipment . . .   $    3,226   $    3,171
          Computer equipment. . . . . .        3,792        2,288
          Furniture and fixtures. . . .          302          210
          Leasehold improvements. . . .        1,170          779
                                           ----------  ----------
                                               8,490        6,448
      Less accumulated depreciation
          and amortization. . . . . . .       (4,283)      (2,949)
                                           ----------  ----------
                                          $    4,207   $    3,499
                                           ----------  ----------
                                           ----------  ----------

</TABLE>

Depreciation expense was $1,371,000, $930,000 and $724,000 in 1998, 1997 and
1996, respectively.


NOTE 4 - LONG-TERM DEBT

The Company has a $5,000,000 unsecured revolving credit facility which expires
on November 5, 1999. Borrowings under the line may be in the form of working
capital loans, which bear interest at the bank's prime rate, or banker's
acceptances ("BA") priced at the bank's BA rate plus 2.25%. The Company is
required to maintain certain covenants and financial ratios including working
capital and net worth ratios, and pays a .5% annual commitment fee on the unused
credit. The Company is in compliance with all terms of the agreement. At June
30, 1998 and 1997, there were no borrowings outstanding under the credit line.

                                      F-8
<PAGE>


                               OVERLAND DATA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 5 - INCOME TAXES

The provision (benefit) for income taxes includes the following:


<TABLE>
<CAPTION>

                                      YEAR ENDED JUNE 30,
                                -----------------------------
                                  1998       1997      1996
                                --------   --------  --------
                                        (IN THOUSANDS)
<S>                             <C>        <C>        <C>    
Current:
     Federal  . . . . . . . .   $   757    $ 1,993    $ 1,246
     State  . . . . . . . . .       171        377        236
     Foreign  . . . . . . . .       374          4          9
                                -------    -------    -------
                                  1,302      2,374      1,491
                                -------    -------    -------
Deferred:
     Federal  . . . . . . . .       360       (347)    (1,053)
     State  . . . . . . . . .        89       (140)      (184)
                                -------    -------    -------
                                    449       (487)    (1,237)
                                -------    -------    -------
                                $ 1,751    $ 1,887    $   254
                                -------    -------    -------
                                -------    -------    -------

</TABLE>

A reconciliation of income taxes computed by applying the federal statutory
income tax rate of 34% to income before income taxes to the total income tax
provision reported in the Consolidated Statement of Operations is as follows:

<TABLE>
<CAPTION>


                                                         YEAR ENDED JUNE 30,
                                                     --------------------------
                                                     1998       1997       1996
                                                   -------    -------    -------
                                                            (IN THOUSANDS)
<S>                                                <C>        <C>        <C>    

U.S. Federal income tax at statutory rate  . . .   $ 1,545    $ 1,696    $ 1,160
Release of valuation allowance . . . . . . . . .        -           -       (997)
State income taxes, net of federal benefit . . .       172        156        165
Foreign sales corporation benefit  . . . . . . .       (37)       (68)       (65)
Permanent differences  . . . . . . . . . . . . .        28         32         --
Other  . . . . . . . . . . . . . . . . . . . . .        43         71         (9)
                                                   -------    -------    -------
Provision for income taxes . . . . . . . . . . .   $ 1,751    $ 1,887    $   254
                                                   -------    -------    -------
                                                   -------    -------    -------
</TABLE>


During fiscal 1996, the Company reduced the deferred tax valuation allowance
by $997,000 to recognize deferred tax assets. Based on management's assessment
and the Company's history of profitability, management believes it is more
likely than not that its deferred tax assets will be realized through future
taxable earnings or alternative tax strategies.

                                      F-9
<PAGE>


                               OVERLAND DATA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


Deferred income taxes at June 30, 1998 and 1997 comprised:

<TABLE>
<CAPTION>

                                                              JUNE 30,
                                                       --------------------
                                                          1998         1997
                                                       -------     --------
                                                           (IN THOUSANDS)
<S>                                                    <C>           <C>   
Deferred tax assets:
      Inventory. . . . . . . . . . . . . . . . . . . . $   791       $  805
      Reserve for doubtful accounts and returns. . . .       -          331
      Warranty reserves. . . . . . . . . . . . . . . .     261          202
      Vacation and deferred compensation . . . . . . .     228          193
      License fee accrual. . . . . . . . . . . . . . .      69           69
      Intangible assets. . . . . . . . . . . . . . . .     168          139
      State income taxes . . . . . . . . . . . . . . .      64          122
      Other. . . . . . . . . . . . . . . . . . . . . .       -           21
                                                       -------     --------
        Gross deferred tax asset . . . . . . . . . . .   1,581        1,882
                                                       -------     --------

Deferred tax liabilities:
      Lawsuit expenses . . . . . . . . . . . . . . . .     (18)           -
      Property and equipment depreciation. . . . . . .    (192)         (62)
                                                       -------     --------
        Gross deferred tax liability . . . . . . . . .    (210)         (62)
                                                       -------     --------

Net deferred income taxes. . . . . . . . . . . . . . . $ 1,371     $  1,820
                                                       -------     --------
                                                       -------     --------

</TABLE>


NOTE 6  - STOCK OPTIONS

The Company has a number of stock option plans, administered by the Compensation
Committee of the Board of Directors, which provide for the issuance of options
to employees, officers and directors. The exercise price of a stock option is
generally equal to the fair market value of the Company's common stock on the
date the option is granted. Certain of the plans permit options granted to
qualify as "Incentive Stock Options" under the Internal Revenue Code while other
plans are specified as non-qualified. Additionally, certain of the non-qualified
plans call for 100% vesting of outstanding options upon a change of control of
the Company. Options generally vest at a rate of 25 percent per year over a
period of four years from the date of grant and expire after a period not to
exceed ten years, except in the event of termination, whereupon vested shares
must be exercised within 30 days, or upon death or disability, where a six month
exercise period is specified.

                                      F-10
<PAGE>


                               OVERLAND DATA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


Option activity for the three years ended June 30, 1998 is summarized as
follows:


<TABLE>
<CAPTION>


                                                   SHARES       SHARE PRICE
                                                   ------       -----------
<S>                                             <C>          <C>
Options outstanding at June 30, 1995 . . . .    1,038,359    $    .12 -  .88
   Options granted . . . . . . . . . . . . .      184,810               2.00
   Options exercised . . . . . . . . . . . .     (280,481)        .12 -  .80
   Options canceled  . . . . . . . . . . . .      (94,092)        .80 - 2.00
                                                ---------
Options outstanding at June 30, 1996 . . . .      848,596         .12 - 2.00

   Options granted . . . . . . . . . . . . .      100,000        3.00 - 6.19
   Options exercised . . . . . . . . . . . .     (168,630)        .20 - 2.00
   Options canceled  . . . . . . . . . . . .      (23,775)        .80 - 6.19
                                                --------- 
Options outstanding at June 30, 1997 . . . .      756,191         .12 - 6.19

   Options granted . . . . . . . . . . . . .      572,768        5.31 - 8.25
   Options exercised . . . . . . . . . . . .     (135,287)        .12 - 3.00
   Options canceled  . . . . . . . . . . . .      (87,943)        .80 - 7.50
                                                ---------
Options outstanding at June 30, 1998 . . . .    1,105,729    $    .12 - 8.25
                                                ---------
                                                ---------

</TABLE>



The following table summarizes all options outstanding and exercisable by price
range as of June 30, 1998:

<TABLE>
<CAPTION>

                                    OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                    -----------------------------------------------        ------------------------------
                                         WEIGHTED-
                                          AVERAGE         WEIGHTED-                             WEIGHTED-
       RANGE OF         NUMBER           REMAINING         AVERAGE            NUMBER             AVERAGE
     EXERCISABLE    OUTSTANDING AT      CONTRACTUAL       EXERCISE         EXERCISABLE AT       EXERCISE
       PRICES       JUNE 30, 1998          LIFE             PRICE          JUNE 30, 1998         PRICE
     -----------    --------------      ------------      ---------        --------------       ----------
<S>                     <C>              <C>              <C>                 <C>                 <C>   
     $  .12 -  .88        392,303          4.8 years        $  .65              365,878             $  .63
       2.00 - 3.00        180,525          7.6                2.39               72,700               2.26
       4.50 - 6.63        152,000          9.1                6.43                2,500               4.67
       7.50 - 8.25        380,901          9.1                7.50               34,901               7.54
                    --------------                                         -------------- 
                        1,105,729                                               475,979
                    --------------                                         -------------- 
                    --------------                                         -------------- 
</TABLE>

Shares available for future grant were 592,500 and 446,457 at June 30, 1998 and
1997, respectively.

                                      F-11
<PAGE>


                               OVERLAND DATA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

1996 EMPLOYEE STOCK PURCHASE PLAN

In February 1997, the Company adopted the 1996 Employee Stock Purchase Plan (the
"ESPP") whereby 250,000 shares of common stock were reserved for issuance and
purchase by employees of the Company to assist them in acquiring a stock
ownership interest in the Company and to encourage them to remain employees of
the Company. The ESPP is intended to qualify under Section 423 of the Internal
Revenue Code and permits eligible employees to purchase common stock at a
discount through payroll deductions during specified six-month offering periods.
No employee may purchase more than $25,000 worth of stock in any calendar year
or 1,500 shares in any one offering period. The ESPP is administered by an
Administrative Committee appointed by the Board of Directors and provides
generally that the purchase price must not be less than 85% of the fair market
value of the common stock on the first or last day of the offering period,
whichever is lower. During fiscal 1998, 73,172 shares were issued for combined
proceeds of $383,000.

PRO FORMA INFORMATION

The Company accounts for stock-based compensation using the intrinsic value
method. No compensation expense has been recognized for purchase rights under
the ESPP or for its stock option grants, as they have been granted at the fair
market value at the date of grant. Had compensation expense for the Company's
stock-based compensation awards issued during 1998 and 1997 been determined
based on a fair value method, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below:


<TABLE>
<CAPTION>

                                YEAR ENDED JUNE 30,
                             ------------------------
                                1998          1997
                                ----          ----
                               (IN THOUSANDS EXCEPT
                                PER SHARE AMOUNTS)
<S>                          <C>         <C>   
     Net income:
          As reported        $   2,792   $   3,100
          Pro forma              2,343       3,022

     Net income per share:
          As reported        $     .25   $     .33
          Pro forma                .21         .33

</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. The weighted average estimated fair value of
employee stock options granted during 1998 and 1997 was $1.16 and $1.04 per
share, respectively. The weighted average assumptions used for grants during the
years ended June 30, 1998 and 1997 were: no dividend yield for both years,
average risk-free interest rates equal to the current yield on seven and five
year maturity Treasury Bills for the month of grant, respectively (range from
5.53 to 6.76%), expected volatility of 33% post-IPO and no volatility pre-IPO,
and expected lives of 7.0 and 5.0 years, respectively.

The fair value of each share purchase right under the ESPP is estimated at 
the inception of each offering period also using the Black-Scholes option 
pricing model. The weighted average estimated fair value of each share 
purchase right granted during 1998 and 1997 was $1.45 and $2.41 per share, 
respectively. The weighted average assumptions used during fiscal 1998 and 
1997 were: no dividend yield, risk-free interest rates of 5.9% and 5.1%, 
respectively, expected volatility of 33%, and an expected life of 6 months.

NOTE 7 - 401 (k) PLAN

In January 1994, the Company adopted an employee savings and retirement plan
(the "401(k) Plan") covering all of the Company's employees. The 401(k) Plan
permits but does not require matching contributions by the Company on behalf of
all participants. In January 1998, the company began matching employee
contributions at 50% for up to 6% of an employee's pretax income. The total of
these employer contributions was $118,000 in fiscal 1998. No contributions were
made during fiscal 1997 and 1996.

                                      F-12
<PAGE>

                               OVERLAND DATA, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 8 - COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases its office, production and sales facilities under
non-cancelable operating leases which expire in various years through fiscal
2003. The leases provide for annual rent escalations intended to approximate
increases in cost of living indices, and certain of the leases provide for rent
abatement. At June 30, 1998, future minimum lease payments under these
arrangements are as follows:


<TABLE>
<CAPTION>

                                MINIMUM
                YEAR ENDING      LEASE
                  JUNE 30,     PAYMENTS
                  --------     --------
                             (IN THOUSANDS)
<S>                           <C>   
               1999           $  937
               2000              964
               2001            1,003
               2002            1,043
               2003              160
                              ------
                              $4,107
                              ------
                              ------

</TABLE>


Rental expense is recognized ratably over the respective lease terms and
aggregated $1,001,000, $703,000 and $554,000 for fiscal 1998, 1997 and 1996,
respectively.

CONTINGENCIES

The Company, its directors and certain of its officers were named as defendants
in two putative class action lawsuits filed on April 21, 1997 and May 2, 1997 in
the U.S. District Court for the Southern District of California. In both cases,
the plaintiffs purported to represent a class of all persons who purchased the
Company's common stock between February 21, 1997 and March 14, 1997. The
complaints alleged that the defendants violated various federal securities laws
through material misrepresentation and omissions in connection with the
Company's initial public offering and its registration statement on Form S-1
filed with the Securities and Exchange Commission on February 21, 1997. The
suits seek rescission of their share purchases or rescissory damages if their
shares have been sold, as well as attorney's fees and other costs and expenses.

On September 16, 1997, the Court entered an Order permitting the voluntary
dismissal of the first-filed lawsuit without prejudice and the plaintiff in the
second lawsuit was appointed as the Lead Plaintiff in this litigation. That
person now has resigned as the Lead Plaintiff, and the shareholder who had filed
the first of the two lawsuits has petitioned the Court for permission to
intervene and serve as the Lead Plaintiff. That application is pending.

The defendants have answered the second complaint, have denied the material
allegations and have disavowed any wrongdoing. The litigation currently is in
the discovery phase, and trial has been scheduled for Summer of 1999. Although
the outcome of the lawsuit cannot be determined, management believes it has
meritorious defenses and intends to defend against the lawsuit vigorously. The
Company maintains directors' and officers' liability insurance to provide
coverage against suits of this nature, and other than legal fees incurred to
date, no amounts have been recorded in the financial statements for any losses
which may result from this litigation.


                                      F-13

<PAGE>


                               OVERLAND DATA, INC.

                        REPORT OF INDEPENDENT ACCOUNTANTS










To the Board of Directors and
    Shareholders of Overland Data, Inc.

In our opinion, the consolidated financial statements listed in the index 
appearing under Item 14(a)(1) of this Form 10-K present fairly, in all 
material respects, the financial position of Overland Data, Inc. and its 
subsidiaries at June 30, 1998 and 1997, and the results of their operations 
and their cash flows for each of the three years in the period ended June 30, 
1998, in conformity with generally accepted accounting principles. In 
addition, in our opinion, the financial statement schedule listed in the 
index appearing under Item 14(a)(2) of this Form 10-K presents fairly, in all 
material respects, the information set forth therein when read in conjunction 
with the related consolidated financial statements. These financial 
statements and financial statement schedule are the responsibility of the 
Company's management; our responsibility is to express an opinion on these 
financial statements and financial statement schedule based on our audits. 
We conducted our audits of these statements in accordance with generally 
accepted auditing standards which require that we plan and perform the audit 
to obtain reasonable assurance about whether the financial statements are 
free of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements, 
assessing the accounting principles used and significant estimates made by 
management, and evaluating the overall financial statement presentation. We 
believe that our audits provide a reasonable basis for the opinion expressed 
above.

PricewaterhouseCoopers LLP
San Diego, California
July 29, 1998

                                      F-14
<PAGE>


                               OVERLAND DATA, INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

                 FISCAL YEARS ENDED JUNE 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>

               BALANCE AT     ADDITIONS
               BEGINNING      CHARGED TO                  BALANCE AT
                OF YEAR          INCOME    DEDUCTIONS*   END OF YEAR
              ----------     ----------    -----------   -----------
<S>            <C>         <C>              <C>          <C>      

ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

1998           $    774    $    243         $     95     $     922
1997                624         280              130           774
1996                446         333              155           624

ALLOWANCE FOR INVENTORY OBSOLESCENCE

1998           $  1,879    $    300         $    331     $   1,848
1997              1,318         968              407         1,879
1996                505       1,050              237         1,318

</TABLE>

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

*    Deductions represent amounts written off against the allowance, net of
     recoveries.

                                      S-1
<PAGE>