<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------
 
                                   FORM 10-K
 
       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
 
                    FOR THE FISCAL YEAR ENDED MARCH 31, 1997
 
                                       OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
 
                    FOR THE TRANSITION PERIOD      TO
 
                       COMMISSION FILE NUMBER: 000-22037
 
                               ATL PRODUCTS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            ------------------------
 
<TABLE>
<S>                                           <C>
                   DELAWARE                                     95-3824281
         (STATE OR OTHER JURISDICTION                        (I.R.S. EMPLOYER
      OF INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)
</TABLE>
 
                  2801 KELVIN AVENUE, IRVINE, CALIFORNIA 92614
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-6900

                            ------------------------
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     CLASS A COMMON STOCK, $.0001 PAR VALUE
                                (TITLE OF CLASS)
 
     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 a 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.  [ ].
 
     Based on the closing sale price on Nasdaq National Market on June 20, 1997,
the aggregate market value of the voting stock held by nonaffiliates of the
registrant was $16,424,000. For the purposes of this calculation, shares owned
by officers, directors and 10% stockholders known to the registrant have been
deemed to be owned by affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other proposes.
 
     The Company has two classes of common stock authorized, the Class A Stock
and the Class B Common Stock. The rights, preferences and privileges of each
class of common stock are identical in all respects except for voting rights.
Each share of Class A Common Stock entitles its holder to one vote and each
share of Class B Common Stock entitles its holder to .05 votes. As of June 20,
1997, there were 9,655,000 shares of Class A Common Stock outstanding and no
shares of Class B Common Stock were outstanding. Unless otherwise indicated, all
references herein to "Common Stock" shall refer to the Company's Class A Common
Stock.
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Part III incorporates certain information by reference from the
registrant's definitive proxy statement (the "Proxy Statement") for the Annual
Meeting of the Stockholders scheduled to be held on September 4, 1997.
================================================================================
<PAGE>   2
 
                               ATL PRODUCTS, INC.
 
                            FORM 10-K ANNUAL REPORT
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>          <C>                                                                         <C>
                                       PART I
ITEM 1.      BUSINESS................................................................      1
ITEM 2.      PROPERTIES..............................................................     13
ITEM 3.      LEGAL MATTERS...........................................................     13
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................     13
 
                                       PART II
ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...     14
ITEM 6.      SELECTED FINANCIAL DATA.................................................     15
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
             OF OPERATIONS...........................................................     16
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................     20
ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE....................................................     21
 
                                      PART III
ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................     21
ITEM 11.     EXECUTIVE COMPENSATION..................................................     21
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........     21
ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................     21
 
                                       PART IV
ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........     21
</TABLE>
 
                                        i
<PAGE>   3
 
     Note: When used in this Annual Report on Form 10-K and the information
incorporated herein by reference, the words "expect(s)," "feel(s),"
"believe(s)," "will," "may," "anticipate(s)," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof. ATL Products, Inc. undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which describe certain factors which affect the Company's business,
including the risk factors set forth at the end of Part I, Item 1 of this Report
and the disclosure in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as in the Company's
Registration Statement on Form S-1 (No. 333-18537), as amended, as filed with
the Securities and Exchange Commission.
 
                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
     ATL Products, Inc. (the "Company") designs, manufactures, markets and
services automated magnetic tape libraries used to manage, store and transfer
data in networked computing environments. The Company is a leading provider of
Digital Linear Tape ("DLT") automated tape libraries for the high end of the
networked computing market (one terabyte capacity and above). The Company's
products provide a high performance, reliable, cost effective and scalable
storage solution for organizations requiring the backup, archival and recovery
of critical computer data.
 
     The Company's products incorporate DLT tape drives as well as the Company's
proprietary IntelliGrip cartridge handling system, providing end users with
rapid and reliable access to computer data across a wide variety of networks.
The Company's proprietary robotics system within each automated tape library
provides additional speed and reliability due to the accurate and timely manner
in which tape cartridges are loaded and unloaded into the DLT drives. The
Company's products are compatible with commonly used network operating systems,
protocols and topologies as well as with a broad range of storage management
software. In addition, these products are highly scalable and permit flexible
configuration. For example, the Company's 2640 Series is capable of storing 9.2
terabytes of data as a standalone unit or up to 46 terabytes of data with the
SystemLink Option, which links up to five 2640 units together for larger storage
requirements.
 
     The Company was established in 1990 as a division of Odetics, Inc., a
Delaware corporation ("Odetics"), was incorporated in California in February
1993 as a wholly owned subsidiary of Odetics and was reincorporated in Delaware
in December 1996. The Company's executive offices are located at 2801 Kelvin
Avenue, Irvine, California 92614, and its telephone number at that location is
(714) 774-6900.
 
INDUSTRY BACKGROUND
 
     Cartridge based magnetic tape has gained increased popularity for backing
up, archiving and recovering data in distributed computing environments due to
its cost effectiveness, high reliability and its ability to provide nearline
availability of data. Magnetic tape solutions have evolved considerably over the
past twenty years and have historically included two distinct technologies:
linear recording technology such as the 3480 and QIC which provided high data
integrity and rapid data accessibility but relatively low storage density; and
helical tape technology such as the 8 mm and 4 mm tape systems which provided
higher density, but generally resulted in lower data transfer rates, increased
maintenance requirements, less effective access to random data and reduced data
integrity.
 
     DLT, a tape format introduced by Digital Equipment Corporation ("DEC") in
1993 and acquired by Quantum Corporation ("Quantum") in 1994, incorporates the
key advantages of linear recording and helical tape technologies into a single
technology. DLT is a high performance, half inch, linear serpentine recording
 
                                        1
<PAGE>   4
 
tape solution designed to meet the capacity and reliability needs of high duty
cycle applications such as network server backup devices, midrange applications,
multimedia processes and online transactions. The Company believes DLT tape
drives offer certain performance, durability, error correction, cost and
reliability advantages over competitive technologies, including high speed data
transfer rates, greater capacity and better data integrity than other tape
formats, and, in general, represent a balance between price and performance for
the distributed computing environment.
 
     In selecting alternatives for the protection, management and storage of
data, network administrators are primarily concerned with providing a storage
solution that meets their own needs for availability and capacity. To provide a
complete storage solution, however, tape library systems must also meet the
demanding needs of users relying on the network on a continuing basis.
Therefore, key criteria used to evaluate storage alternatives also include the
following: (i) reliability of the mechanical assemblies which handle and
transport storage media, (ii) the degree of system automation, (iii) the
compatibility with existing network operating systems, protocols and topologies,
(iv) the expandability and upgradeability of the storage device over time, (v)
the expected life cycle of the product, and (vi) the physical configuration of
the equipment. All of these factors must be considered in the context of the
overall operational cost of a given storage system, which includes both the
upfront cost of a particular storage system, as well as the annual cost of
operating, maintaining and supporting the systems and its users.
 
PRODUCTS
 
     The Company's product families consist of the ATL 7100, the ATL 520 and the
ATL 2640 Automated DLT Library Series. Within each product family, customers may
specify the type and quantity of DLT drives, the maximum number of cartridges
and a number of interface options. The Company's products are compatible with
major hardware platforms including Sun Microsystems, DEC, Hewlett-Packard, IBM,
Auspex and Data General, and are supported by approximately 40 storage
management software applications.
 
     The Company's products incorporate electromechanical and robotic systems
under the precise digital control of dedicated electronics utilizing the
Motorola 68332 microcontroller. These electronics control the robot, load port,
tape drives, control panel, position sensors and environmental sensors. The
products also include a wide variety of SCSI-2 interfaces configured to meet
specific needs of end users. The wide SCSI-2 interface permits data transfer at
rates up to 20 megabytes per second on each host connection. The assignment of
the library and drives among the SCSI interfaces may be selected at installation
of the products. The products permit sharing of the library among several hosts
to permit, for example, concurrent backup from several local area networks.
 
     All of the Company's current products are based upon DLT technology which
is a high performance, half inch, linear tape solution. The Company believes
that DLT tape drives offer certain performance, reliability, durability, error
correction and cost advantages over competitive technologies which result in
greater capacity, higher transfer rates and better data integrity than other
tape offerings. The Company currently offers three series of products with a
range of performance characteristics; the 7100 Series, the 520 Series, and the
2640 Series. All three product series can be configured utilizing either DLT4000
or DLT7000 drives.
 
  7100 Series
 
     In November 1996, the Company announced the introduction of its 7100 Series
which the Company commenced shipping in March 1997. The 7100 Series affords a
cost effective solution for enterprise system administrators by providing
multi-terabyte backup and archiving capability in a compact system
configuration, with a high degree of commonality with the products in the 520
Series in terms of parts, operations and training. The 7100 Series was designed
for network environments requiring online disk capacities which will exceed 250
gigabytes in the near future. The products in the 7100 Series are particularly
appropriate for environments which already contain products in the 520 Series
due to the high degree of operational and support compatibility between these
two product families. The 7100 Series also represents an attractive choice for
rapidly growing network environments as a result of the relatively low entry
costs of these products and the significant potential offered for cost effective
field upgrades.
 
                                        2
<PAGE>   5
 
     The 7100 Series currently includes twelve product configurations which
contain between two and seven DLT4000 or DLT7000 drives and are available with
either a 68 or 100 maximum cartridge capacity. The 7100 Series delivers capacity
ranging from 1.4 to 3.5 terabytes and backup performance of up to 126 gigabytes
per hour. A fully configured 7100 library achieving a 2:1 data compression can
backup a one terabyte database in only four hours. In addition, the 7100 Series
libraries can provide room for seven generations of a single terabyte backup.
The 7100 Series also includes several advanced features such as a touch screen
control panel with a browser-like GUI for "point-and-click" library management
as well as enhanced access to both the DLT drives and cartridges. The 7100
Series will also permit "hot swap" of the DLT drives during library operation to
maximize library availability.
 
     The end user list prices for products in the 7100 Series typically will
range from approximately $65,000 to approximately $130,000 depending primarily
on drive configuration.
 
  520 Series
 
     The Company introduced the 520 Series departmental libraries in 1995 for
Unix network environments. The 520 Series was designed specifically for the
DLT4000 and DLT7000 drive technology. The 4/52 and 2/28 models of the 520 Series
are designed for the demanding networked computing environment. The 4/52 models
primarily address high speed backup, archiving and hierarchical storage
management applications while the 2/28 models are used by companies making the
transition from single drive to multiple drive data storage management and are
easily upgradeable to address future requirements.
 
     The 520 Series currently includes sixteen product configurations which
contain either two or four DLT4000 or DLT7000 drives and are available with
either a 28 or 52 maximum cartridge capacity. The 520 Series delivers capacity
ranging from 0.6 to 1.8 terabytes and backup performance of up to 72 gigabytes
per hour. All of the products in the 520 Series have demonstrated extremely high
field reliability and have achieved DLT drive reliability which exceed the
manufacturer's specifications. The end user list prices for products in the 520
Series generally range from approximately $50,000 to approximately $75,000 per
library depending primarily on drive configuration.
 
  2640 Series
 
     The 2640 Series was the Company's first product family to incorporate DLT
technology. The 2640 was originally developed pursuant to a strategic alliance
with DEC in 1993. The basic architecture of the 2640 was adapted from the
Company's earlier developments in midrange 3480 and 3490 tape libraries. The
2640 Series is sold primarily to the data intensive midrange segment of the
market. The 2640 Series products are used by companies which require unattended
backup of large quantities of data in a safe, reliable manner and by
organizations which have migrated to more demanding HSM applications. The
flexible design of the 2640 Series may be adapted to a variety of configurations
to deal with large amounts of data and is easily upgraded to meet future needs
in terms of both data capacity and transfer rate.
 
     Libraries in the 2640 Series are controlled by the host computer through
either an RS-232C or a SCSI-2 interface. Products in the 2640 Series may be
integrated into configurations of up to five units which can be operated as a
single library to accommodate significant growth in end user requirements. The
2640 Series currently includes nine product configurations which contain between
three and nine DLT4000 or DLT7000 drives and have maximum capacities ranging
from 88 to 264 cartridges. The 2640 Series delivers capacity ranging from 1.8 to
9.2 terabytes per unit and backup performance of up to 162 gigabytes per hour
per unit. End user configurations of up to five units in the 2640 Series can be
created with the SystemLink option either at system installation, or at a later
time as requirements grow. The end user list prices for products in the 2640
Series generally range from approximately $75,000 to approximately $155,000
depending primarily on drive configuration.
 
PRODUCTS UNDER DEVELOPMENT
 
     Prism Series. The Company expects to introduce a new generation of
automated tape library systems in calendar 1997 which incorporates the new Prism
architecture. Each of the Prism products will include a high
 
                                        3
<PAGE>   6
 
performance, industry standard PCI bus, to address both the emerging NT market
and large data mining and warehousing applications. The initial Prism product,
the P1000, will consist of a rack mounted system with capacities range between
0.25 terabytes and 1.0 terabyte, and will offer effective migration paths to
higher capability and higher performance systems. The Company is developing
future versions within this product family which are designed to increase speed
and cartridge capacity and to enhance their integration into both high end
network and data archiving applications. The initial Prism products are being
developed in close cooperation with existing and potential OEM customers and
should provide substantially enhanced compatibility with a wide range of
hardware and software interfaces. Current automated tape library architectures
are restricted by the SCSI-2 specification which limits the integration of these
products into complex systems and network topologies. The Prism architecture
will permit remote monitoring and management of libraries distributed throughout
an enterprise, provide interface flexibility for a wide range of network and
channel protocols (including SCSI, FDDI, FC/AL and ATM), and facilitate a much
closer integration between the library and other elements of the storage
management system. These products will also provide significant added value
opportunities for the Company's OEM partners. The Company's statements
concerning the timing of the introduction of the initial Prism product and the
capabilities of the Prism series are intended to be forward looking statements
and actual results may differ as a result of the various risks, including but
not limited to, management's allocation of research and development resources,
unforeseen defects in the new architecture and the performance of the Company's
suppliers.
 
     Software Enhancements. The Company is developing additional software
elements to complement its automated tape libraries and to enhance their
functionality in system monitoring and volume management. These proprietary
software elements are designed to comply with industry standard application
programming interfaces, including SNMP and JMAPI, and will provide remote access
for system monitoring and management within the internal network and across the
Internet.
 
RESEARCH AND DEVELOPMENT
 
     The Company's research and development efforts are principally focused on
the development of new generations of storage products for the networked
computer market. The Company employs 46 engineers and maintains key design teams
in the areas of electromechanical, electronic, software, system and process
design. The Company has also engaged a number of third parties for product
development activities including a recently announced OEM relationship with
Veritas Software to develop the industry's first Internet tape library
management product. In addition, the Company continuously solicits and receives
consultation from its end users regarding system features and capabilities, and
works closely with its OEMs during the development and integration of the OEM
products.
 
     In the near future, the Company intends to focus its development activities
to continue to accommodate advances in DLT technology for integration into the
Company's current products. As a leading supplier of DLT libraries, the Company
has been able to work closely with Quantum during the early stages of the
development of the new DLT7000 drive which has facilitated the Company's rapid
development of products using this new technology. While all of the Company's
products currently feature DLT technology, the Company believes the continued
system evolution in the networked computing market has led to an increasing need
for automated tape libraries which provide functional capabilities beyond those
available with current DLT technology. Accordingly, the Company continues to
evaluate emerging drive technologies which it believes will complement DLT.
 
     The Company has gained significant expertise in the development of
automated tape libraries which extends beyond DLT technology and includes, among
other things, process automation knowledge and systems design and management
experience. The Company intends to continue to leverage this expertise to
support the development of additional removable storage media technologies which
it anticipates will play an important role in the distributed computer market.
The Company believes this expertise, together with its experience with a wide
variety of tape media, will enable the Company to adapt its products to
accommodate evolving storage technologies. There can be no assurance that the
Company will be able to make such adaptations on a timely basis, if at all.
 
                                        4
<PAGE>   7
 
     The Company believes that, in order to provide comprehensive solutions for
the emerging requirements of storage management, it must also design and
introduce tape libraries that incorporate embedded firmware and software to
further support archiving, data warehousing and HSM applications. The Company is
currently developing software elements which will complement the use of its
products in the Unix market and which will enhance the introduction of its
products into the rapidly developing NT market. These products, which are being
developed in conjunction with Veritas Software, a major file system provider,
are designed to permit monitoring and management of the Company's products
either within a network structure or through resources such as an enterprise
wide intranet and the Internet, and should substantially improve the efficiency
and effectiveness of the use of multiple libraries within a single organization.
In addition, these products should permit volume management of libraries without
requiring extensive backup, archiving or HSM applications, thereby making the
products more attractive for smaller scale networks, representing a majority of
the NT installations.
 
     The data storage market is characterized by rapid technological change and
is highly competitive with respect to product innovation and introduction. The
Company believes its continued success depends in part on its ability to enhance
its existing products and develop new products that incorporate the latest
technological advancements. While the Company intends to continue to make
significant investments in research and development, there can be no assurance
that it will be able to modify its existing products or introduce new products
which incorporate new storage technology on a timely basis, if at all.
 
COMPETITION
 
     The market for the Company's products is highly competitive and is
characterized by rapidly changing technology and evolving standards. The Company
believes that its ability to compete depends on a number of factors, including
the success and timing of new product development by the Company and its
competitors, compatibility of the Company's products with a broad range of
computing systems, product performance, reliability and price, and customer
support. The Company believes that the principal competitive factors in the
networked computing market are storage capacity, data transfer rate, low cost of
ownership, price, product quality and reliability, timing of new product
introductions and ability to meet customer volume needs.
 
     Management believes eight tape library manufacturers currently provide DLT
based products, including the Company's principal competitors, ADIC, Breece Hill
Technologies, Hewlett-Packard and StorageTek. The Company competes indirectly
with a large number of manufacturers offering tape storage systems using formats
other than DLT including 8 mm, 4 mm (DAT), 3480 and QIC that have larger
installed bases and may be expected to continue to provide intense competition
for the DLT format. These competitors include ADIC, Exabyte, Fujitsu, Hitachi,
IBM, Spectra Logic and StorageTek. The Company anticipates these competitors
will expand the functionality and performance of their selected storage
technologies to compete effectively with DLT. In addition, if DLT continues to
maintain market acceptance, many of these competitors could elect to offer DLT
systems. The Company also expects increased competition from large integrated
computer equipment companies, many of whom have historically incorporated their
own tape storage products into their mainframe systems, and are broadening their
focus to include the distributed computing market. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, all of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
     Many of the Company's current and potential competitors have substantially
greater name recognition and financial, marketing, technical and other resources
than the Company. The Company's current and potential competitors may develop
new technologies and products that are more effective than the Company's
products. In addition, many of these companies sell directly to end users, which
the Company believes may provide a competitive edge over the Company when
marketing either similar products or alternative data storage solutions. There
can be no assurance that the Company will be able to compete successfully
against either current or potential competitors or that competition will not
have a material adverse effect on the Company's business, operation results and
financial condition.
 
                                        5
<PAGE>   8
 
SALES AND MARKETING; PRINCIPAL CUSTOMERS
 
     The Company markets and sells its products through indirect sales channels
comprised primarily of VARs and OEMs pursuant to strategic arrangements and
individual purchase agreements. Sales of new technological advancements are
often initially made through VARs who generally evaluate, integrate and adopt
new technology more quickly than OEMs. As a technology achieves greater market
acceptance, OEM sales generally have represented an increased portion of the
sales of the products incorporating that technology. During the year ended March
31, 1997, direct sales to VARs and OEMs accounted for approximately 67% and 33%,
respectively, of the Company's net sales. In addition, a small number of
customers have historically accounted for a substantial proportion of the
Company's net sales in recent periods, and the identity of such significant
customers changes from period to period. Sales to DEC represented 18.0% of the
Company's net sales for the year ended March 31, 1996.
 
     The Company has relationships with selected VARs who integrate the
Company's products with storage management software to provide comprehensive
storage solutions. The Company has certified 40 independent software developers
including EMC, Hewlett-Packard, Legato, OpenVision, Spectralogic and Workstation
Solutions, among others, who provide storage management software which is
compatible with the Company's products. The Company's strategy is to pursue VARs
who have expertise in storage management, strong established relationships with
end users and the experience to understand and respond to their customers'
critical needs. The Company typically enters into a one year Reseller Agreement
with its VARs, which are usually subject to cancellation by the Company in the
event the VAR does not meet certain requirements. The Company provides marketing
and training support for its VARs and offers cooperative marketing programs to
certain VARs.
 
     The Company has also entered into agreements with several major OEMs,
including, among others, DEC, EMC and Sun Microsystems, who incorporate the
Company's products into systems sold by the OEMs. The Company has entered into
strategic relationships with certain of these OEMs which has enabled the Company
to work with OEMs early in their product development cycle thereby providing
valuable development feedback to the Company. The sales cycle for OEMs often
encompasses a long lead time and generally involves extensive product and system
qualification, evaluation, integration and verification. The Company believes
the OEM channel is also critical to the Company's success because OEMs have
traditionally taken a more active role in the development, support and servicing
of the Company's products.
 
     The Company maintains full time sales personnel in five regional sales
locations including Boston, Chicago, Dallas, San Francisco and Washington to
facilitate close cooperation and communication with its VAR and OEM customers.
The Company also employs four international sales managers who assist in the
marketing of the Company's products to VARs and OEMs throughout Europe and Asia.
International sales constituted approximately 21% of the Company's sales during
the year ended March 31, 1997. The Company anticipates that international sales
will continue to represent a significant portion of the Company's net sales. The
Company undertook a sales initiative for Europe in late fiscal 1995 and fiscal
1996 utilizing the pre-existing infrastructure of a European sales subsidiary of
Odetics, which offered products manufactured by other business units of Odetics.
In order to establish a European presence dedicated solely to expanding the
sales of the Company's products, the Company formed ATL Products Limited in the
United Kingdom to conduct its European operations. Sales to customers outside
the United States are subject to certain risks.
 
CUSTOMER SERVICE AND SUPPORT
 
     The quality and reliability of the Company's products and the ongoing
support of these products is a key element of the Company's business. All of the
Company's products include a one year warranty which provides on-site customer
assistance on the next business day in the United States. In addition, warranty
coverage may be upgraded to include on-site customer assistance with a four hour
response time, which assistance is available for a fee 24 hours per day, seven
days a week.
 
     The Company maintains two dedicated service centers and has qualified more
than 25 of its VAR and OEM customers as certified maintenance providers ("CMPs")
to service and provide support for the Company's products. The Company provides
a formal training program for its OEMs, VARs, and CMPs. The
 
                                        6
<PAGE>   9
 
CMPs often provide the initial on-site response for on-site repairs, typically
replacing parts and possibly even reconfiguring the systems. The CMPs also
gather critical data at each call which enables the Company to continue to
monitor its robotics systems.
 
     To supplement its own domestic field service program, the Company has
contracted with a national organization to provide on-call field service to the
Company's customers.
 
MANUFACTURING
 
     The Company manufactures all of its tape libraries at its facility in
Irvine, California. The Company recently relocated its corporate headquarters
and manufacturing facilities to a new 120,000 square foot facility, of which
approximately 50,000 square feet is attributed to manufacturing space. The
Company currently operates four assembly lines during one daily eight hour
shift.
 
     The Company manufactures the robotics subassemblies used in its automated
tape libraries and performs final assembly and testing of purchased components.
The Company's manufacturing processes consist primarily of final systems
integration and quality assurance. A significant portion of the manufacturing
process consists of quality assurance and testing which is conducted on a 24
hour basis. The Company depends, to a large degree, on outside suppliers to
provide most of the components incorporated in the Company's products including
the DLT drives, circuit boards, moldings and chassis. The Company intends to
continue to outsource as much of the manufacturing as possible in order to
maximize manufacturing flexibility. While many of the parts and components used
in the Company's products are available from a number of fabricators in
California, the DLT drives are available only from a single supplier, Quantum.
Quantum may terminate its agreement with the Company for any reason upon 90 days
notice. Any disruption in the Company's relationship with such supplier would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company currently purchases most of
its circuit boards from one supplier. The Company has, however, qualified a
second supplier who can also provide the boards.
 
EMPLOYEES
 
     At June 1, 1997, the Company employed 176 associates including 65 in
manufacturing, 49 in engineering, 21 in customer service, 28 in sales and
marketing, and 13 in finance and administration. The Company also employs a
small number of temporary and contract employees. The Company is not a party to
any collective bargaining agreement or other similar agreement. The Company has
not experienced any work stoppages to date. The Company believes that its
relationship with its employees is good.
 
                                  RISK FACTORS
 
     The Company's business is subject to a number of risks, some of which are
discussed below. Other risks are presented elsewhere in this Report. The
following risks should be considered carefully in addition to the other
information contained in this Report in evaluating the Company and its business
before purchasing the shares of the Company's Common Stock.
 
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; HISTORY OF OPERATING LOSSES
 
     The Company's quarterly operating results have fluctuated in the past and
may continue to fluctuate in the future based on a number of factors, not all of
which are in the Company's control. These factors include, without limitation,
the size and timing of significant customer orders; the introduction of new
products by competitors; the availability of components used in the manufacture
of the Company's products; changes in pricing policies by the Company, its
suppliers or its competitors; the ability of the Company to develop, introduce,
market and gain market acceptance of new products, applications and product
enhancements in a timely manner and to control costs; the Company's success in
expanding and implementing its sales and marketing programs; technological
changes in the distributed computing markets; the mix of sales among the
Company's channels; deferrals of customer orders in anticipation of new
products, applications or product enhancements; currency fluctuations; and
general economic and market conditions. Moreover, the Company's
 
                                        7
<PAGE>   10
 
sales in any quarter typically consist of a relatively small number of large OEM
and VAR customer orders, and the timing of a small number of orders can impact
quarter to quarter results. The loss of or a substantial reduction in orders
from any significant customer could have a material adverse effect on the
Company's business, financial condition and results of operations. Since the
Company's sales are primarily made through OEMs and VARs who typically provide
the Company with relatively short lead times, it is often difficult for the
Company to forecast the timing and quantity of orders accurately. The Company's
expense levels and its purchases of parts, components and subassemblies are
based in part upon its expectations concerning future revenues. Accordingly, if
revenue levels are below expectations, whether as a result of product transition
or otherwise, operating results are likely to be adversely affected. There can
be no assurance that the Company will achieve profitability on a quarterly or
annual basis in the future. Due to all of the foregoing factors and other risks
discussed below, it is possible that in some future period the Company's
operating results may be below the expectations of analysts and investors. In
such event, the price of the Company's Common Stock would probably be materially
and adversely affected.
 
DEPENDENCE ON QUANTUM CORPORATION AND DLT TECHNOLOGY
 
     The Company currently derives substantially all of its revenues from the
sale of its DLT based products and related services, and the Company expects
that revenues from its DLT based products will continue to account for
substantially all of the Company's revenues for the foreseeable future.
Accordingly, the Company's operating results for the foreseeable future will be
substantially dependent on the continued market acceptance of DLT technology and
growth of the DLT library market. The DLT market is relatively new, and there
can be no assurance that another technology will not replace or adversely affect
DLT technology as a widely accepted data storage medium. In addition, due to the
relatively recent emergence of the DLT market, the Company expects that
additional companies may introduce products incorporating DLT technology
competing directly with the Company. Any decline in the rate of growth of the
DLT market or failure of the market to sustain acceptance of DLT technology, or
any decline in unit prices of the Company's products as a result of increased
competition, technological change or otherwise, would have a material adverse
effect on the business, operating results and financial condition of the
Company. The Company's success also depends in large part upon its relationship
with Quantum, who has the exclusive worldwide manufacturing rights for the DLT
technology and is the sole supplier of DLT tape drives and upon the Company's
ability to continue to obtain adequate supplies of DLT drives from Quantum. The
Company has been informed by Quantum that the growth in the demand for the
DLT7000 drives will result in continued limitations in the availability of these
drives. The Company does not expect that its indicated allocation of DLT7000
drives will have a material adverse effect on the Company's results of
operations in the near future. The foregoing statement is intended to be a
prediction and actual results may differ as a result of the risks discussed in
this paragraph. There can be no assurance that Quantum will not revise its
allocation to the Company or that Quantum will otherwise continue to provide an
adequate supply of the DLT7000 drives. The Company has not been able to secure
any guarantee of the future supply of DLT drives from Quantum. The Company's
agreement with Quantum permits Quantum to terminate its arrangement with the
Company for any reason upon providing 90 days written notice to the Company. The
disruption or termination of the Company's supply of DLT drives from Quantum
would have a material adverse effect on the Company's business, financial
condition and results of operations. Quantum has also historically sold
DLTStore(TM), a competing tape library addressing the lower end of the
distributed computing market and may introduce other storage libraries in the
future. To the extent such products marketed by Quantum compete directly with
the Company's products, the existence of such products could disrupt the
Company's relationship with Quantum, particularly if Quantum chooses to satisfy
its own demand first. In addition, Quantum currently supplies drives to all of
the Company's competitors, and there can be no assurance that the Company's
competitors will not establish relationships with Quantum in which the
competitors could achieve higher priority in the supply of DLT drives. Moreover,
since Quantum has only one manufacturing facility for DLT drives located in
Colorado Springs, Colorado, any disruption in Quantum's ability to continue to
manufacture and supply the Company with DLT tape drives, whether as a result of
a natural disaster or otherwise, would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
                                        8
<PAGE>   11
 
EFFECT OF NEW PRODUCT INTRODUCTIONS
 
     The Company's future operating results will depend significantly on the
degree and timing of market acceptance of the Company's 7100 Series (which was
introduced in November 1996), the P1000 (which was introduced in May 1997) and
other new products. It is difficult to predict the effect that the announcement
of these or other new products (or enhancements to existing products) will have
on sales of current products pending the full availability of the new products,
or the rate at which such products will be accepted by the market, if at all.
For example, the P1000 could result in a reduction in the sales of the Company's
520 Series products in anticipation of the new libraries by the Company's
customers. In addition, manufacturing defects or other operational problems
commonly associated with new product introductions could adversely affect the
successful introduction of such new products. There can be no assurance that the
Company will be able to introduce new products or enhancements to existing
products on a timely basis, if at all, or the effect to which such introductions
will have on sales of existing products.
 
COMPETITION
 
     The data storage market is intensely competitive, highly fragmented and
characterized by rapidly changing technology and evolving standards. Competitors
vary in the number, scope and breadth of the products and services offered.
Management believes eight tape library manufacturers currently provide DLT based
products, including the Company's principal competitors, Advanced Digital
Information Corporation, Breece Hill Technologies, Hewlett-Packard and
StorageTek. The Company competes indirectly with a large number of manufacturers
offering tape storage systems using formats other than DLT, including 8 mm, 4 mm
(DAT), half inch format (3480) and QIC. Many of these indirect competitors have
larger installed bases and may be expected to continue to provide intense
competition for the DLT format. These competitors include ADIC, Exabyte,
Fujitsu, Hitachi, IBM, Spectra Logic and StorageTek. The Company also competes
with suppliers of other removable storage media such as optical storage systems
and floppy disks. These competitors are expected to expand the functionality and
performance of their selected storage technologies which may render such
technologies even more competitive as compared to DLT. The Company also expects
additional competition from large integrated computer equipment companies, many
of whom have historically incorporated their own tape storage products into
their mainframe systems, and are broadening their focus to include the
distributed computing markets. In addition, because there are relatively low
barriers to entrance into the tape library market, the Company anticipates
increased competition from other established and emerging companies. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could have a material adverse affect upon the
Company's business, operating results and financial condition. Many of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing, marketing and other resources than the
Company, and may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion, sale and support of their products than the Company.
Accordingly, there can be no assurance that the Company will be able to continue
to compete effectively.
 
RELIANCE ON OEMS AND VARS; CONCENTRATION OF SALES
 
     The Company relies heavily upon its relationships with selected OEMs who
sell and support the Company's products as part of their comprehensive data
storage systems. Sales through OEMs accounted for approximately 24% and 33% of
the Company's total revenues in fiscal 1996 and 1997, respectively. The Company
is currently investing, and intends to continue to invest, significant resources
to develop these OEM relationships. These expenditures could materially and
adversely affect the Company's operating margins unless the Company is able to
achieve commensurate growth in sales to OEMs. The Company also relies heavily on
selected VARs who integrate the Company's products with storage management
software to provide comprehensive storage solutions. Most of the Company's VARs
carry product lines that are competitive with those of the Company, and there
can be no assurance that they will give the marketing of the Company's products
high priority, or that they will continue to carry the Company's products. The
Company's agreements with VARs and OEMs are generally not required to be
exclusive, and in many cases may be
 
                                        9
<PAGE>   12
 
terminated by either party at any time with limited notice and without cause. A
small number of customers has historically accounted for a substantial portion
of the Company's net sales and the identity of the Company's significant
customers has historically varied from period to period. Sales to DEC accounted
for 18.0% of the Company's net sales for the year ended March 31, 1996. No other
customer accounted for 10% or more of net sales during these periods. The loss
of important OEMs or VARs, their reduced focus on the Company's products, or the
inability to obtain additional OEMs as the market evolves could materially and
adversely affect the Company's business, financial condition and operating
results.
 
MANAGEMENT OF EXPANDING OPERATIONS
 
     The Company is currently experiencing a period of rapid growth which has
placed and is expected to continue to place a considerable strain on the
Company's management and its administrative, sales and marketing, financial,
information systems and operational resources. From April 1, 1995 to March 31,
1997, the size of the Company's staff increased from 66 to 176 employees
including approximately 25 new employees hired as a result of the acquisition of
certain sales and service divisions of Odetics. Further significant increases in
the number of employees are anticipated during calendar 1997. The Company
believes its success will depend, in part, on its ability to integrate these and
additional new employees into the Company rapidly to respond to the anticipated
growth of the Company. The Company's ability to manage growth effectively will
require it to install its own operational, financial and management controls,
reporting systems and procedures independent from Odetics, to establish new
management information and control systems and to train, motivate and manage its
employees. There can be no assurance that the Company will be able to install
such operational, financial and management information and control systems in an
efficient and timely manner or that the new structures, systems and controls
will be adequate to support the Company's operations and prevent the occurrence
of unforeseen management or financial issues. Continued growth will also require
the Company to recruit additional key management personnel (including a chief
financial officer), expand its engineering and product development capabilities,
expand its sales and marketing capabilities, improve its customer service and
support functions and to train, motivate and manage additional employees. There
can be no assurance that the Company will be able to manage these changes and
implement the required programs successfully, and its failure to do so could
have a material adverse effect upon the Company's business, financial condition
and operating results.
 
ABSENCE OF HISTORY AS AN INDEPENDENT ENTITY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
 
     The Company was operated as a wholly owned subsidiary of Odetics between
January 1993 and March 1997, accordingly, has had limited independent operating
history. Prior to the Distribution, the Company will continue to be a subsidiary
of Odetics, but will, subject to Odetics' rights as a controlling stockholder,
operate as an independent company. While the Company and Odetics have entered
into general agreements intended to facilitate the Company's transition to an
independent public company, there can be no assurance that the Company will be
able to manage this transition or to develop these independent resources
successfully. The Company's financial results as a subsidiary of Odetics may not
be representative of what the Company's results of operations and financial
condition would have been had the Company been a separate, standalone company
during the periods presented or be indicative of future results of operations
and the financial condition of the Company.
 
POSSIBILITY OF SUBSTANTIAL SALES OF COMMON STOCK; NO ASSURANCE OF DISTRIBUTION
 
     Prior to December 31, 1997, Odetics intends to distribute all of its Common
Stock of the Company to the stockholders of Odetics, pending certain
contingencies, including, but not limited to receipt of a favorable tax ruling
from the Internal Revenue Service. The Distribution would involve the
distribution of an aggregate of approximately 8,005,000 shares of Common Stock
of the Company to the stockholders of Odetics. Substantially all of such shares
would be eligible for immediate resale in the public market. Sales of
substantial amounts of Common Stock in the open market in anticipation of, or
following, the Distribution, or the market perception that such sales might
occur, whether as a result of the Distribution or otherwise, could materially
and adversely affect the market price of the Company's Common Stock. No
assurance can be given
 
                                       10
<PAGE>   13
 
that the conditions to the Distribution will be satisfied or waived, or that the
Distribution will occur. A failure to undertake the Distribution could adversely
affect the market price of the Company's Common Stock.
 
RAPID TECHNOLOGICAL CHANGE
 
     The distributed computing market and the related data storage market are
characterized by rapid technological change, frequent new product introductions
and enhancements, and evolving industry standards. This industry has been
subject to fundamental changes reflecting the migration from mainframe based
systems to distributed computing environments, the significant increase in the
amount of data generated and stored in such environments and end users'
increasing dependence on near online access to such data. The Company's ability
to remain competitive will depend in part on its ability to develop new and
enhanced automated tape libraries in a timely and cost effective manner in order
to integrate the latest technological advancements in storage media and to
accommodate changes in the evolving distributed computing networks. Since all of
the Company's products are currently based on DLT technology, any change in DLT
technology or the emergence and acceptance of any new technologies may require
the Company to incur substantial unanticipated costs to incorporate such
changes, for which there can be no assurance that the Company will be able to
complete on a timely basis, if at all. The Company's inability to incorporate
advances or fundamental changes in storage media could materially and adversely
affect the Company's business, financial condition and results of operations.
 
RISKS ASSOCIATED WITH INTERNATIONAL SALES
 
     International product sales represented approximately 19% and 21% of the
Company's net sales during fiscal 1996 and 1997, respectively. The Company
maintains sales and support offices in England, Germany and Taiwan. The Company
believes that international sales will continue to represent a significant
portion of its revenues, and that continued growth and profitability will
require further expansion of its international operations. The Company's
international sales are currently denominated in U.S. dollars, and an increase
in the relative value of the dollar could make the Company's products more
expensive and, therefore, potentially less price competitive in international
markets. Additional risks inherent in international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, longer accounts receivable payment cycles, difficulties in
managing and staffing international operations, potentially adverse tax
consequences including restrictions on the repatriation of earnings, the burdens
of compliance with a wide variety of foreign laws, currency fluctuations and
political and economical instability. There can be no assurance that such
factors will not have a material adverse effect on the Company's future
international sales and, consequently, the Company's business, operating results
and financial condition. Furthermore, as the Company increases its international
sales, its total revenues may also be affected to a greater extent by seasonal
fluctuations resulting from lower sales that typically occur during the summer
months in Europe and other parts of the world.
 
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
 
     The Company's ability to compete effectively depends in part on its ability
to develop and maintain the proprietary aspects of its technology. There can be
no assurance, however, that any future patents will be granted or that any
issued patents or other intellectual property rights of the Company will provide
meaningful protection for the Company's product innovations. Moreover, such
rights may not preclude competitors from developing substantially equivalent or
superior products to the Company's products. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as do
the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate, or that competitors will not independently develop technologies
that are similar or superior to the Company's technology, duplicate the
Company's technology, or design around any patent of the Company. Litigation may
be necessary in the future to enforce the Company's intellectual property
rights, to determine the validity and scope of the proprietary rights of others,
or to defend the Company against claims of infringement or invalidity by others.
An adverse outcome in such litigation or similar proceedings could subject the
Company to significant liabilities to third parties, require disputed rights
 
                                       11
<PAGE>   14
 
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. If the
Company is required to obtain licenses under patents or proprietary rights of
others, there can be no assurance that any required licenses would be made
available on terms acceptable to the Company, if at all. In addition, the cost
of addressing any intellectual property litigation claim, both in legal fees and
expenses and the diversion of management resources, regardless of whether the
claim is valid, could be significant and could have a material adverse effect on
the Company's results of operations.
 
FUTURE CAPITAL REQUIREMENTS
 
     The Company entered into a four year promissory note payable to Odetics in
the amount of approximately $13.0 million as of April 1, 1997. Such note is
payable in sixteen equal quarterly installments of principal plus accrued
interest commencing June 30, 1997. Accordingly, the Company will continue to
have limited capital resources after the initial public offering. The Company
believes that in order to remain competitive, it may require additional
financial resources over the next several years for working capital, research
and development, and the expansion of sales and marketing expenditures.
 
CONTROL BY ODETICS PENDING THE DISTRIBUTION
 
     The Company is currently a subsidiary of Odetics, and has no operating
history as an independent public company. Odetics owns approximately 82.9% of
the outstanding shares of Common Stock and is able to elect the entire Board of
Directors and otherwise control the management and affairs of the Company,
including any determinations with respect to acquisitions, dispositions,
borrowings, issuances of Common Stock or other securities or the declaration and
payment of any dividends on the Common Stock. Similarly, Odetics has the power
to determine matters submitted to a vote of the Company's stockholders without
the consent of the Company's other stockholders, has the power to prevent a
change of control of the Company, and could take other actions that might be
favorable to Odetics. Conflicts of interest may arise between the Company and
Odetics in a number of areas relating to their past and ongoing relationships,
tax and employee benefit matters, indemnity arrangements, sales or distributions
by Odetics of its remaining shares of Common Stock, and the exercise by Odetics
of its ability to control the management and affairs of the Company.
 
DEPENDENCE UPON KEY PERSONNEL; NEW MANAGEMENT PERSONNEL.
 
     The Company's future performance depends to a significant extent on its
senior management and other key employees, in particular its Chief Executive
Officer, Kevin C. Daly, Ph.D., who has more than ten years experience in the
field of data storage technologies. The loss of Dr. Daly's services would have a
material adverse effect on the Company's development and marketing efforts. The
Company's future success will also depend in large part upon its ability to
attract, retain and motivate highly skilled employees. In addition, the Company
is actively seeking to retain a successor chief financial officer. Competition
for such employees, particularly development engineers and an experienced chief
financial officer, is intense, and there can be no assurance that the Company
will be able to continue to attract and retain sufficient numbers of such highly
skilled employees. The Company's inability to attract and retain additional key
employees or the loss of one or more of its current key employees could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
 
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION; BYLAWS AND DELAWARE LAW
 
     The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company. In
addition, the Company is subject to the antitakeover provisions of Section 203
of the Delaware General Corporation Law, which will
 
                                       12
<PAGE>   15
 
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. Further, certain provisions of the Company's Certificate
of Incorporation and Bylaws and of Delaware law could delay or make more
difficult a merger, tender offer or proxy contest involving the Company, which
could adversely affect the market price of the Company's Common Stock.
 
ITEM 2. PROPERTIES.
 
     The Company's principal administrative, engineering and manufacturing
facilities are located in one 120,000 square foot facility in Irvine,
California, under a lease which expires in December 2003. The Company has an
option to extend the lease for an additional five year period. The base rent is
currently approximately $65,000 per month. In addition to the base rent, the
Company pays its share of operating expenses, property tax and insurance
premiums on the building. The Company believes this new facility will be
sufficient for its needs through at least the next five years. The Company also
leases office space for its sales representatives in Boston, Chicago, England
and Taiwan.
 
ITEM 3. LEGAL MATTERS.
 
     On May 23, 1996, the Company announced that it and Odetics, Inc. settled
all pending litigation with E-Systems, Inc. and EMASS, Inc. (Collectively,
"E-Systems"). The settlement was effected pursuant to a written Settlement
Agreement and General Release between the parties, under which E-Systems paid
Odetics approximately $6.2 million, including an amount designated as a royalty
payment on library systems sold by E-Systems which Odetics alleged infringed on
its patented technology. See "Management's Discussion of Financial Condition and
Results of Operations." For its part, the Company agreed for a period of five
years to provide spare parts and certain other customer support services for the
installed base of DataTowers that the Company previously sold to E-Systems. The
parts and services generally will be provided in accordance with Odetics' terms
and conditions, less a specified discount. The Company has also agreed to
repurchase nine ACL 2640 units in E-Systems possession.
 
     The Company is not currently a party to any pending litigation that it
believes could have a material adverse effect on the Company's business,
financial condition or results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     No matters were submitted to a vote of security holders during the quarter
ended March 31, 1997.
 
                                       13
<PAGE>   16
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
PRICE RANGE OF COMMON STOCK
 
     The Company's Common Stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "ATLPA." The following
table sets forth, for the periods indicated, the high and low last reported sale
prices for the Common Stock on the Nasdaq National Market.
 
<TABLE>
<CAPTION>
                                 FISCAL YEAR                           HIGH      LOW
        -------------------------------------------------------------  -----     ----
        <S>                                                            <C>       <C>
        1997
        Fourth Quarter (commencing March 7, 1997)....................  $12 7/8    $8
</TABLE>
 
     As of June 20, 1997, there were 24 record holders of the Company's Common
Stock. On June 20, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $10.00 per share.
 
RECENT SALES OF SECURITIES
 
     Since April 1, 1996, the Company has sold and issued the following
unregistered securities:
 
          1. In December 1996, the Company granted nonstatutory stock options to
     certain employees of the Company under its 1996 Stock Incentive Plan
     covering an aggregate of 879,000 shares of the Company's Class B Common
     Stock, at an exercise price of $5.00 per share. Such exercise price was
     equal to the fair market value of the underlying Class B Common Stock on
     the grant date, as determined by the Board of Directors of the Company.
     These options vest over a three year period commencing two years following
     the date of grant. All of such options were issued in consideration for
     employment services rendered to the Company. None of the optionees paid any
     cash consideration for these options. The sale and issue of these
     securities was deemed to be exempt from registration under the Securities
     Act by virtue of Rule 701 promulgated thereunder in that they were offered
     and sold either pursuant to a written compensatory benefit plan or pursuant
     to written contract relating to compensation, as provided by Rule 701.
 
          2. In December 1996, the Company effected a reincorporation in
     Delaware which included a recapitalization in which two classes of Common
     Stock were authorized, and each share of the Company's no par Common Stock
     was exchanged for 8,005 shares of Common Stock, par value $.0001 per share.
     Such issuance was exempt from registration under Section 2(3) of the
     Securities Act on the basis that such transaction did not involve a "sale"
     of securities.
 
     There were no underwriters, brokers or finders employed in connection with
any of the transactions set forth above.
 
DIVIDEND POLICY
 
     The Company has never declared or paid cash dividends on shares of its
capital stock. The Company currently intends to retain all of its earnings, if
any, for use in its business and does not anticipate paying any cash dividends
in the foreseeable future. Furthermore, the Company's agreement with its lender
currently limits the Company's ability to pay cash dividends. The payment of any
future dividends will be at the discretion of the Company's Board of Directors,
and will depend upon a number of factors, including, but not limited to, future
earnings, the success of the Company's business, activities, its capital
requirements, the general financial condition and future prospects of the
Company, general business conditions, the consent of the Company's principal
Lender and such other factors as the Board may deem relevant.
 
                                       14
<PAGE>   17
 
ITEM 6. SELECTED FINANCIAL DATA.
 
     The following consolidated selected financial data with respect to the
Company's consolidated statement of operations for each of the five fiscal years
in the period ended March 31, 1997 and the consolidated balance sheet data at
March 31, 1993, 1994, 1995, 1996 and 1997 are derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements and the related report of independent auditors for the fiscal years
ended March 31, 1993 and 1994 and the Company's consolidated balance sheet at
March 31, 1995 are not included in this Report. The following information should
be read in conjunction with "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 included elsewhere in
this Report.
 
<TABLE>
<CAPTION>
                                                         FISCAL YEAR ENDED MARCH 31,
                                           -------------------------------------------------------
                                            1993        1994        1995        1996        1997
                                           -------     -------     -------     -------     -------
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>         <C>         <C>         <C>         <C>
CONSOLIDATED AND COMBINED STATEMENTS OF
  OPERATIONS DATA:
Net sales
  Products...............................  $ 5,592     $15,534     $15,898     $24,795     $53,717
  Service and spare parts................    4,344       4,972       6,743       4,615       6,311
                                           -------     -------     -------     -------     -------
Total net sales..........................    9,936      20,506      22,641      29,410      60,028
Gross profit
  Products...............................       34       3,136       3,623       9,113      21,126
  Service and spare parts................    1,589       1,653       2,095       1,434       3,260
                                           -------     -------     -------     -------     -------
Total gross profit.......................    1,623       4,789       5,718      10,547      24,386
Expenses:
  Research and development...............    1,654       2,285       3,248       1,731       5,686
  Sales and marketing....................      711       1,308       1,838       3,718       7,070
  General and administrative.............      951       1,195       1,299       1,414       1,841
  Charges allocated by parent............    1,582       1,354       1,563       1,534       1,551
  Nonrecurring charge....................       --          --       4,042       1,392          --
                                           -------     -------     -------     -------     -------
Income (loss) from operations............   (3,275)     (1,353)     (6,272)        758       8,238
Interest charges allocated by parent.....       --         542       1,243       1,861       1,707
                                           -------     -------     -------     -------     -------
Income (loss) before income taxes........   (3,275)     (1,895)     (7,515)     (1,103)      6,531
Income taxes.............................       --          --          --          86       2,600
                                           -------     -------     -------     -------     -------
Net income (loss)........................  $(3,275)    $(1,895)    $(7,515)    $(1,189)    $ 3,931
                                           =======     =======     =======     =======     =======
Net income (loss) per share..............  $  (.39)    $  (.22)    $  (.89)    $  (.14)    $   .46
                                           =======     =======     =======     =======     =======
Shares used in computation of net income
  per share..............................    8,484       8,484       8,484       8,484       8,597
                                           =======     =======     =======     =======     =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                        ----------------------------------------------------------
                                         1993         1994         1995         1996        1997
                                        -------     --------     --------     --------     -------
                                                              (IN THOUSANDS)
<S>                                     <C>         <C>          <C>          <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit).............  $   (71)    $ (2,875)    $ (9,990)    $(11,313)    $15,894
Total assets..........................    7,961       13,195       11,253       16,748      37,925
Total liabilities.....................    7,298       14,743       20,091       26,861      29,060
Total stockholders' equity
  (deficit)...........................      663       (1,548)      (8,838)     (10,113)      8,865
</TABLE>
 
                                       15
<PAGE>   18
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.
 
     The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes thereto contained elsewhere in this
Report. This Report contains forward-looking statements that involve a number of
risks and uncertainties including, without limitation, those set forth in Item
1. "Business -- Risk Factors." The Company's actual results may differ
materially from any future performance discussed in the forward-looking
statements and in this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
 
OVERVIEW
 
     The Company was established in 1990 as a division of Odetics to use its
technical expertise in information automation technology to develop automated
tape libraries that replace the manual storage and retrieval of computer tapes.
Initially, the Company teamed with E-Systems, Inc. to develop and provide a 19mm
automated tape cartridge handling subsystem which the Company introduced in
1992. In 1992, the Company also introduced automated tape handling products for
systems employing IBM 3480 and similar industry standard tape cartridges. In
1994, the Company introduced the ATL 2640, its first automated tape library
designed for distributed computing environments, based on the DLT format. The
Company extended its line of DLT based automated tape libraries in 1995 by
introducing its 520 Series, designed for smaller libraries in the midrange and
distributed computing environments, applications which historically had required
less storage capacity and less formal data processing. In November 1996, the
Company announced the introduction of its ATL 7100 tape library series, which
was designed for enterprise system administrators who require multiple terabyte
backup and archiving. Prior to fiscal 1995, the Company's sales, which consisted
primarily of 19mm and 3480 tape libraries, experienced modest growth to
approximately $20.5 million in fiscal 1994. In fiscal 1995, sales of these
products declined significantly, but the increase in DLT product sales resulted
in a $2.1 million net sales growth from the prior year. Since 1995, the increase
in DLT product sales has led to significant quarter-to-quarter revenue growth.
All of the Company's net product sales are currently derived from DLT based
automated tape libraries.
 
     Effective December 31, 1996, Odetics transferred to the Company that
portion of its business which provided service and support for the Company's
products. The transfer was made at book value and resulted in an increase of
$2.3 million in the Company's obligations to Odetics. For financial accounting
purposes the transaction has been treated in a manner similar to a pooling of
interests, and the financial information for this operation has been included in
the Company's financial information for all periods presented.
 
     Effective July 1, 1996, the Company established its own wholly owned
European subsidiary, APL, to facilitate the Company's sales in Europe. For
periods prior to the establishment of APL, the Company utilized a subsidiary of
Odetics for administrative services related to the distribution of its products
in Europe. The revenues, costs and expenses incurred by this entity that relate
to the Company's products have been combined in the accompanying selected
financial data for all applicable periods in order to present these activities
in a manner similar to a pooling of interests.
 
     The Company's operating expenses have increased significantly in recent
periods, since the introduction of the Company's DLT based product lines, as the
Company has expended resources to support growth in the volume of DLT product
sales. The Company also expects operating expenses to increase as the Company
continues to build its management and information systems and other
infrastructure to support recent growth and any additional growth in the future
and to increase its administrative staff to perform many services previously
performed by Odetics, including public company reporting requirements.
Accordingly, historical overhead expense included herein is not necessarily
indicative of the expense which may be incurred by the Company in future
periods.
 
     Odetics and the Company have entered into certain agreements providing for
the Distribution and governing various interim and continuing relationships
between the companies, including (i) a Separation and Distribution Agreement
which sets forth the principal corporate transactions required to effect the
separation of the Company from Odetics, the initial public offering and the
Distribution, (ii) a Tax Allocation Agreement which governs the allocation of
tax liabilities between the Company and Odetics, and (iii) a
 
                                       16
<PAGE>   19
 
Services Agreement, pursuant to which Odetics will continue for an interim
period following the initial public offering and the Distribution to perform
certain financial, management information and other services for the Company.
The Company anticipates that charges paid to Odetics pursuant to the Services
Agreement will decline in future periods, as the Company begins to build its own
infrastructure and to incur directly expenses that otherwise would have been
included in charges allocated by Odetics.
 
     In March 1997, the Company completed an initial public offering of
1,650,000 of its Common Stock following which Odetics' beneficial ownership of
the Company was reduced to 82.9%. The initial public offering generated net
proceeds to the Company of $15.9 million, $6.8 million of those proceeds were
used to reduce the Company's obligations to Odetics. The balance of the proceeds
is being used to fund working capital requirements.
 
RESULTS OF OPERATIONS
 
     The following table sets forth for the years indicated, the percentages of
net sales represented by each item in the Company's statement of operations.
 
<TABLE>
<CAPTION>
                                                               FISCAL YEAR ENDED MARCH 31,
                                                              -----------------------------
                                                              1995        1996        1997
                                                              -----       -----       -----
    <S>                                                       <C>         <C>         <C>
    Net sales
      Products............................................     70.2%       84.3%       89.5%
      Service and spare parts.............................     29.8        15.7        10.5
                                                              -----       -----       -----
    Total net sales.......................................    100.0%      100.0%      100.0%
    Gross profit
      Products............................................     22.8        36.8        39.3
      Service and spare parts.............................     31.1        31.1        51.7
                                                              -----       -----       -----
    Total gross profit....................................     25.3        35.9        40.6
    Expenses:
      Research and development............................     14.4         5.9         9.5
      Sales and marketing.................................      8.1        12.6        11.8
      General and administrative..........................      5.7         4.8         3.0
      Charges allocated by parent.........................      6.9         5.2         2.6
      Nonrecurring charge.................................     17.9         4.8          --
                                                              -----       -----       -----
    Income (loss) from operations.........................    (27.7)        2.6        13.7
    Interest charges allocated by parent..................      5.5         6.3         2.8
                                                              -----       -----       -----
    Income (loss) before income taxes.....................     33.2        (3.7)       10.9
    Income taxes..........................................       --         0.3         4.4
                                                              -----       -----       -----
    Net income (loss).....................................    (33.2)%      (4.0)%       6.5%
                                                              =====       =====       =====
</TABLE>
 
     Net Sales. Total net sales increased 104.1% to $60.0 million for fiscal
1997 as compared to total net sales of $29.4 million in fiscal 1996. Total net
sales increased 29.9% to $29.4 million in fiscal 1996 from $22.6 million in
fiscal 1995.
 
     Product sales increased 116.6% to $53.7 million for fiscal 1997 as compared
to fiscal 1996, reflecting continued growth in the Company's DLT based products
and included the initial shipments in the fourth quarter of fiscal 1997 of the
Company's new ATL 7100 tape library series. Product sales in fiscal 1996
increased 56.0% to $24.8 million as compared to fiscal 1995 which featured the
introduction of the 520 series of midrange libraries which more than offset the
loss of 19mm tape library products that were discontinued in fiscal 1995.
 
     Service and spare parts sales include revenue derived from the sale of
spare parts and service activities to support the installed base of the
Company's products. In fiscal 1997, service revenue represented 10.5% of total
net sales as compared to 15.7% and 29.8% of total net sales in fiscal 1996 and
fiscal 1995, respectively. These sales have declined as a percentage of total
net sales primarily due to increased product sales for the respective comparable
periods. The Company anticipates that service revenue in future periods will
increase
 
                                       17
<PAGE>   20
 
modestly as the initial warranty on increasing sales of DLT based products
expires and customers purchase service contracts.
 
     Gross Profit. Total gross profit as a percent of total net sales increased
to 40.6% for fiscal 1997 from 35.9% in fiscal 1996 and 25.3% fiscal 1995.
 
     Gross profit on product sales was 39.3% in fiscal 1997 as compared to 36.8%
in fiscal 1996. The increase is attributable primarily to improved absorption of
manufacturing overhead resulting from continued increases in sales of DLT based
products as well as reductions in the costs of materials for the Company's
products. Gross profit on product sales in fiscal 1996 increased to 36.8% from
22.8% in fiscal 1995 as the Company completed its first fiscal year selling
primarily DLT based products which generated improved margins as compared to
margins on the 19mm products which accounted for approximately one third of the
Company's sales volume in fiscal 1995. Average sales prices declined slightly in
both fiscal 1997 and fiscal 1996 as a result of increased competition, but these
declines have been offset in part by manufacturing efficiencies attributable to
higher sales volumes and the Company's cost reduction programs. The Company
believes average selling prices on product sales will continue to decline in the
future caused by competition and the Company's desire to maintain market share.
There can be no assurance the Company will be able to offset future reductions
in sales prices through improved manufacturing efficiencies or otherwise.
 
     Gross profit on service and spare parts sales was 51.7% for fiscal 1997 and
31.1% for both fiscal 1996 and fiscal 1995. The increase in gross profit for
fiscal 1997 was largely due to a nonrecurring adjustment to inventory reserves.
 
     Research and Development. In fiscal 1997, research and development expense
increased 228.5% to $5.7 million (or 9.5% of total net sales) from $1.7 million
in fiscal 1996 (or 5.9% of total net sales). Fiscal 1996 research and
development expense decreased 46.7% from $3.2 million in fiscal 1995 (or 14.4%
of total net sales). The increase in research and development expense in fiscal
1997 resulted primarily from the development, testing and preproduction
activities for the Company's ATL 7100 and Prism products and the incorporation
of the new DLT7000 tape drive into the Company's current products. The decline
in research and development expense in both absolute dollars and as a percentage
of total net sales in fiscal 1996 reflected the completion of development
activities relating to the Company's 2640 and 520 series libraries which were
initiated in the prior fiscal year. Research and development expense in fiscal
1995 expenditures was incurred primarily in development activities of the
Company's 2640 and 520 series libraries and included additional engineering
labor, consulting and prototype material costs. The Company expects expenditures
for research and development generally to increase over time and to be higher
during periods of new product development when significant expenditures are
incurred in preproduction activities and increased testing. These expenditures
may, therefore, fluctuate as a percentage of sales from period to period.
 
     Sales and Marketing. Sales and marketing expense increased 90.2% in fiscal
1997 to $7.1 million (or 11.8% of total net sales) from $3.7 million in fiscal
1996 (or 12.6% of total net sales), and increased 102.3% in fiscal 1996 from
$1.8 million in fiscal 1995. The dollar increase in both fiscal years reflects
the Company's efforts to expand its sales and marketing capabilities through
infrastructure growth, which includes higher sales commissions associated with
increased sales, and increased expenditures for advertising, promotion and trade
show participation to meet the demands of the rapidly growing worldwide data
storage market.
 
     General and Administrative. General and administrative expense increased
30.2% to $1.8 million (or 3.0% of total net sales) in fiscal 1997 from $1.4
million (or 4.8% of total net sales) in fiscal 1996, and increased 8.9% in
fiscal 1996 from $1.3 million (or 5.7% of total net sales) in fiscal 1995. The
dollar increase in all fiscal years primarily reflects the addition of
administrative personnel to support increased sales volume. General and
administrative expense does not reflect all of the costs which the Company
expects to incur as a standalone entity since certain corporate general and
administrative functions have been performed for the Company by Odetics, and
those costs have been included in charges allocated by parent. Management
expects general and administrative expense in absolute dollars to increase as
the Company assumes the responsibility for those functions that were previously
performed by Odetics.
 
                                       18
<PAGE>   21
 
     Charges Allocated by Parent. Odetics performs certain corporate general and
administrative functions and charges the Company a pro rata portion of the costs
Odetics incurs for such services. Charges allocated by parent were relatively
constant during the three year period ended March 31, 1997, because the Company
directly incurred most of the increases in administrative infrastructure
necessary to support the growth of its business.
 
     Nonrecurring Charge. Nonrecurring charges were $1.4 million and $4.0
million in the years ended March 31, 1996 and 1995, respectively. The fiscal
1996 expense was comprised of legal expenses incurred in connection with
litigation with E-Systems, which was settled in May 1996. The charges in fiscal
1995 related to asset write downs, severance costs related to staffing
reductions and legal fees incurred in this litigation.
 
     Interest Charges Allocated by Parent. Odetics has historically advanced
funds to meet the Company's capital requirements and has charged the Company
interest on the resulting intercompany account balance determined using Odetics'
cost of the related borrowed funds. Interest charges by parent decreased 8.3% to
$1.7 million for fiscal 1997 because of a reduction in average outstanding
intercompany borrowings during the fiscal year. Interest charges by parent
increased 49.7% to $1.9 million in 1996 as compared to $1.2 million in fiscal
1995. The increase in interest charges allocated by parent in fiscal 1996
reflects increased intercompany borrowings which were necessary to support the
Company's working capital requirements and operations.
 
     Income Taxes. The Company is included in the consolidated federal tax
return of Odetics. Members of the consolidated group that generate taxable
losses are not allocated any tax benefit for such losses if the consolidated
group as a whole is profitable. Accordingly, for periods prior to April 1, 1996,
during which the Company incurred losses, the Company had no domestic income tax
provision or benefit. In addition, because the Company's losses have been used
to offset Odetics' taxable income in the consolidated federal tax returns, the
Company has no loss carry forward available to offset future taxable income. For
periods subsequent to April 1, 1996, the Company has entered into a Tax
Allocation Agreement with Odetics pursuant to which the Company will make a
payment to Odetics, or Odetics will make a payment to the Company, as
appropriate, in an amount equal to the taxes attributable to the operations of
the Company on the consolidated federal income tax returns and consolidated or
combined state tax returns filed by Odetics. In addition, the Tax Allocation
Agreement provides that members of the Odetics consolidated group generating tax
losses after April 1, 1996 will be paid by other members which utilize such tax
losses to reduce such other members' tax liability. For fiscal 1997, the
Company's effective tax rate is 40%.
 
BACKLOG
 
     The Company builds products to order rather than to forecast, but has
achieved a relatively short manufacturing cycle. Accordingly, the Company's net
sales during any period are substantially dependent on orders booked and shipped
during that period. The Company includes in its backlog those customers orders
for which it has received orders and for which shipment is scheduled within the
next twelve months; however, most orders are filled within 90 days. In general,
all purchase orders are cancelable under certain circumstances. As a result of
potential cancellation of orders and delays in customer shipments and delivery
schedules, the Company's backlog at any particular date may not be indicative of
actual sales for any succeeding period. At March 31, 1997, the Company's backlog
was $6.0 million as compared to $4.4 million at March 31, 1996 and $1.0 million
at March 31, 1995.
 
     Although the Company builds to order, in order to achieve a reasonably
short manufacturing cycle, it must purchase components and subassemblies and
incur operating expenses which are relatively fixed in nature based on forecast
orders and sales. If orders and revenue do not meet the Company's forecast in
any given quarter, the adverse impact of a shortfall in revenue may be magnified
by the Company's inability to reduce expenditures quickly, and could have a
material adverse effect upon the Company's results of operations for that
period.
 
                                       19
<PAGE>   22
 
LIQUIDITY AND CAPITAL RESOURCES
 
     In March 1997, the Company completed an initial public offering of
1,650,000 of its Common Stock. This offering generated net proceeds to the
Company of $15.9 million, $6.8 million of those proceeds were used to reduce the
Company's obligations to Odetics. The balance of the proceeds is being used to
fund working capital requirements.
 
     During fiscal 1997, the Company generated $4.5 million of cash from
operating activities, of which $3.9 million was derived from net income. The
Company also generated $15.9 million of cash from the initial public offering
and used $8.9 million to repay intercompany indebtedness to Odetics. The Company
also used $2.0 million for purchases of equipment and investments in leasehold
improvements.
 
     The Company was originally capitalized with a $1.0 million capital
investment provided by Odetics. Since its inception, and until its initial
public offering in March 1997, the Company relied primarily on interest bearing
advances from Odetics to provide necessary financing for its operating and
investing activities. At December 31, 1996, the Company purchased from Odetics
the net assets of the division of Odetics that provided service and support for
the Company's products for $2.3 million, which was reflected as an increase in
the Company's obligation to Odetics. On April 1, 1997, the Company entered into
a promissory note payable to Odetics in the original principal amount of $13.0
million representing the aggregate balance of the Company's intercompany
borrowings from Odetics. This note bears interest at a rate equal to Odetics'
cost of borrowing (8.5% at March 31, 1997). Principal and interest on this note
are payable in sixteen equal quarterly installments at the end of each calendar
quarter beginning June 30, 1997.
 
     Prior to the initial public offering, the Company and Odetics were
co-borrowers under a joint Loan and Security Agreement (the "Agreement") with
Imperial Bank and Comerica Bank-California (together, the "Lenders") and were
jointly and severally liable for all amounts advanced to either borrower
thereunder. Upon the completion of the initial public offering, each Lender
released the Company from all of its obligations under the Agreement. Effective
March 15, 1997, the Company entered into a $5.0 million line of credit agreement
with Imperial Bank which provides for borrowings generally at the lesser of the
bank's prime rate (8.5% at March 31, 1997) or the bank's LIBOR rate plus 2.25%.
The Company had no borrowings against the bank line of credit at March 31, 1997.
The Company's borrowings under the line of credit are secured by substantially
all of the Company's assets.
 
     The Company entered into a new lease for facilities in Irvine, California
during the first calendar quarter of 1997. The Company began to relocate to the
new facility at the end of the calendar quarter and completed the move in the
second calendar quarter of 1997. The Company anticipates it will incur
expenditures of approximately $500,000 for relocation, leasehold improvements
and capital equipment for the new facility.
 
     As a result of the initial public offering and the profitable operations
for fiscal 1997, the Company had a net capital surplus of $8.9 million at March
31, 1997 versus a net capital deficiency of $10.1 million at March 31, 1996 and
working capital of $15.9 million at March 31, 1997 as compared to a working
capital deficiency of $11.3 million at March 31, 1996.
 
     While the Company has historically relied on Odetics to finance its
operations and expansion, the Company believes that cash flow generated from
operations, together with the net proceeds of the initial public offering and
funds available under the Company's line of credit will be adequate to enable
the Company to meet its obligations on a timely basis for at least the next
twelve months.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     The financial statements and supplementary data required by Regulation S-X
are included in this Form 10-K commencing on page F-1.
 
                                       20
<PAGE>   23
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
     Not applicable.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     (a) Identification of Directors. The information under the caption
"Election of Directors," appearing in the Proxy Statement, is incorporated
herein by reference.
 
     (b) Identification of Executive Officers. The information under the
headings "Executive Officers," appearing in the Proxy Statement, is incorporated
herein by reference.
 
     (c) Compliance with Section 16(a) of the Exchange Act. The information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance,"
appearing in the Proxy Statement, is incorporated herein by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
     The information under the headings "Executive Compensation" appearing in
the Proxy Statement, is incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     The information under the headings "Certain Beneficial Owners" and
"Principal Stockholders" and "Common Stock Ownership of Management," appearing
in the Proxy Statement, is incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     The information under the heading "Certain Transactions," appearing in the
Proxy Statement, is incorporated herein by reference.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
     (a) Documents filed as part of this Report:
 
          1.  Financial Statements. The following financial statements of the
     Company are included in a separate section of this Annual Report on Form
     10-K commencing on the pages referenced below:
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
Index to Consolidated and Combined Financial Statements...............................  F-1
Report of Ernst & Young LLP, Independent Auditors.....................................  F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997.............................  F-3
Consolidated and Combined Statements of Operations for the years ended March 31, 1995,
  1996 and 1997.......................................................................  F-4
Consolidated and Combined Statements of Stockholders' Equity for the years ended March
  31, 1995, 1996 and 1997.............................................................  F-5
Consolidated and Combined Statements of Cash Flows for the years ended March 31, 1995,
  1996 and 1997.......................................................................  F-6
Notes to Consolidated and Combined Financial Statements...............................  F-7
</TABLE>
 
          2.  Financial Statement Schedules. The following financial statement
     schedule of the Company is included in a separate section of this Annual
     Report on Form 10-K commencing on the pages referenced below. All other
     schedules have been omitted because they are not applicable, not required,
     or the information is included in the consolidated financial statements or
     notes thereto.
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
Schedule II -- Consolidated Valuation and Qualifying Accounts.........................  S-1
</TABLE>
 
                                       21
<PAGE>   24
 
     3. EXHIBITS.
 
<TABLE>
<S>        <C>
 3.1       Certificate of Incorporation of the Company as filed with the Delaware
           Secretary of State on December 19, 1996*
 3.2       Certificate of Merger of the Company as filed with the Delaware Secretary
           of State on December 19, 1996*
 3.3       Bylaws of the Company*
 4.1       Specimen certificate representing shares of Class A Common Stock of the
           Company.*
 4.2       1996 Stock Incentive Plan.*
 4.3       Form of Notice of Grant of Stock Option and related Stock Option Agreement
           under 1996 Stock Incentive Plan.*
10.1       Form of Indemnification Agreement.*
10.2       Real Property lease, dated October 9, 1996, by and between Thomas M.
           Zapara and Violet J. Zapara, Trustees of the Zapara Family Trust U/D/T
           dated December 7, 1995 and Company, a wholly-owned subsidiary of Odetics,
           Inc.*
10.3       Separation and Distribution Agreement between the Company and Odetics
           dated March 1, 1997.
10.4       Tax Allocation Agreement between the Company and Odetics dated March 1,
           1997.
10.5       Services Agreement between the Company and Odetics dated March 21, 1997.
10.6       Form of Value Added Reseller Agreement.*
10.7       Form of International Value Added Reseller Agreement.*
10.8+      Technical Support Agreement dated May 6, 1996, between Technology Service
           Solutions and Odetics, Incorporated, as amended May 7, 1996.*
10.9       Tape Library OEM Purchase Agreement dated August 28, 1996, between Quantum
           Corporation and Company.*
10.10+     Veritas Software License Agreement, dated November 8, 1996, between
           Veritas Software Corporation and the Company.*
10.11+     Agreement dated December 18, 1995, between Hewlett-Packard GmbH Local
           Products Organization and Company.*
10.12+     Basic Order Agreement dated April 15, 1993, between Digital Equipment
           Corporation and Odetics, Inc. and Company, as amended January 11, 1994,
           March 25, 1994, October 19, 1994, October 27, 1994 and January 12, 1995.*
10.13      Basic Ordering Agreement dated September 14, 1995 between EMC Corporation
           and the Company*
10.14      Promissory Note between the Company and Odetics dated April 1, 1997.
10.15      Form of Odetics Associate Agreement.*
10.16      Note, Security Agreement and Letter Agreement between the Company and
           Imperial Bank dated March 15, 1997.
10.17      Intentionally Omitted.
10.18      Development and License Agreement dated January 14, 1997 between the
           Company and Sun Microsystems, Inc.*
11.1       Statement Regarding Computation of Earnings Per Share.
21         List of Subsidiaries.
27         Financial Data Schedule.
</TABLE>
 
---------------
 
+ The Company has received confidential treatment for portions of this document
  previously filed with the Commission.
 
* Included as a similarly numbered exhibit to the Company's Registration
  Statement on Form S-1 (Reg. No. 333-18537), as amended, as filed with the
  Securities and Exchange Commission, and incorporated herein by reference.
 
     (b) Reports on Form 8-K:
 
          No reports on Form 8-K were filed by the Company during the quarter
     ended March 31, 1997.
 
                                       22
<PAGE>   25
 
                                   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, in the City of Irvine,
State of California, on June 27, 1997.
 
                                          ATL PRODUCTS, INC.
 
                                          By:       /s/ KEVIN C. DALY
                                            ------------------------------------
                                                    Kevin C. Daly, Ph.D.
                                                  Chief Executive Officer,
                                            President and Chairman of the Board
 
                               POWER OF ATTORNEY
 
     We, the undersigned officers and directors of ATL Products, Inc., do hereby
constitute and appoint Kevin C. Daly, Ph.D. and Gregory A. Miner, and each of
them, our true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Report, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby, ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully 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 in the capacities and on
the dates indicated:
 
<TABLE>
<CAPTION>
                  SIGNATURE                                  TITLE                      DATE
---------------------------------------------   --------------------------------   --------------
 
<S>                                             <C>                                <C>
              /s/ KEVIN C. DALY                     Chief Executive Officer,        June 27, 1997
---------------------------------------------    President and Chairman of the
            Kevin C. Daly, Ph.D.                   Board (principal executive
                                                            officer)
 
              /s/ JOEL SLUTZKY                              Director                June 27, 1997
---------------------------------------------
                Joel Slutzky
 
           /s/ CRANDALL GUDMUNDSON                          Director                June 27, 1997
---------------------------------------------
             Crandal Gudmundson
 
            /s/ GREGORY A. MINER                    Chief Financial Officer         June 27, 1997
---------------------------------------------    (principal accounting officer)
              Gregory A. Miner
</TABLE>
 
                                       23
<PAGE>   26
 
                               ATL PRODUCTS, INC.
 
            INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
Consolidated and Combined Financial Statements of ATL Product, Inc.
  Report of Ernst & Young LLP, Independent Auditors...................................  F-2
  Consolidated Balance Sheets as of March 31, 1996 and 1997...........................  F-3
  Consolidated and Combined Statements of Operations for the years ended March 31,
     1995, 1996 and 1997..............................................................  F-4
  Consolidated and Combined Statements of Stockholders' Equity for the years ended
     March 31, 1995, 1996 and 1997....................................................  F-5
  Consolidated and Combined Statements of Cash Flows for the years ended March 31,
     1995, 1996 and 1997..............................................................  F-6
  Notes to Consolidated and Combined Financial Statements.............................  F-7
</TABLE>
 
                                       F-1
<PAGE>   27
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
Stockholders and Board of Directors
ATL Products, Inc.
 
     We have audited the consolidated balance sheets of ATL Products, Inc. (the
Company), a subsidiary of Odetics, Inc. (Parent), as of March 31, 1996 and 1997,
and the related consolidated and combined statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1997. Our audits also included the financial statement schedule
listed in Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     As more fully described in Note 2, the Company has material transactions
with its Parent and affiliates.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ATL Products,
Inc. at March 31, 1996 and 1997, and the consolidated and combined results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
 
                                          /s/  ERNST & YOUNG LLP
 
Orange County, California
April 23, 1997
 
                                       F-2
<PAGE>   28
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                MARCH 31
                                                                          --------------------
                                                                            1996        1997
                                                                          --------     -------
                                                                             (IN THOUSANDS)
<S>                                                                       <C>          <C>
Current assets:
  Cash and cash equivalents.............................................  $      1     $ 9,494
  Trade accounts receivable, net of allowance for doubtful accounts of
     $662 in March 1996 and $319 in March 1997..........................    10,159      12,730
  Inventories:
     Finished goods.....................................................     1,886       2,937
     Work in process....................................................       487       1,019
     Materials and supplies.............................................     2,944       8,671
  Prepaid expenses and other............................................        71         355
                                                                          --------     -------
Total current assets....................................................    15,548      35,206
Leasehold improvements and equipment:
  Leasehold improvements................................................        --         596
  Equipment.............................................................     2,541       3,967
  Allowances for depreciation...........................................    (1,341)     (1,844)
                                                                          --------     -------
                                                                             1,200       2,719
                                                                          --------     -------
Total assets............................................................  $ 16,748     $37,925
                                                                          ========     =======
                      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Trade accounts payable................................................  $  4,301     $ 9,676
  Accrued payroll and related...........................................       945       1,545
  Income taxes payable..................................................        --       2,018
  Deferred service income...............................................        --       1,116
  Other accrued expenses................................................       552       1,199
  Payable to Parent (Note 2)............................................    21,063         509
  Current portion of note payable to Parent (Note 2)....................        --       3,249
                                                                          --------     -------
Total current liabilities...............................................    26,861      19,312
Long-term note payable to Parent (Note 2)...............................        --       9,748
Commitments and contingencies (Note 7)
Stockholders' equity (deficiency) (Note 6)
  Preferred stock, $.0001 par value:
     Authorized shares - $5,000,000
     Issued and outstanding shares - none...............................        --          --
  Common stock, $.0001 par value:
     Authorized shares - 45,000,000 Class A; 5,000,000 Class B
     Issued and outstanding shares - 8,005,000 Class A at March 31, 1996
      and 9,655,000 Class A at March 31, 1997; no Class B...............         1           1
     Additional paid in capital.........................................     1,009      16,927
  Accumulated deficit...................................................   (11,123)     (8,065)
  Cumulative translation adjustment.....................................        --           2
                                                                          --------     -------
Stockholders' equity (deficiency).......................................   (10,113)      8,865
                                                                          --------     -------
Total liabilities and stockholders' equity (deficiency).................  $ 16,748     $37,925
                                                                          ========     =======
</TABLE>
 
                            See accompanying notes.
 
                                       F-3
<PAGE>   29
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
               CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31
                                                                -------------------------------
                                                                 1995        1996        1997
                                                                -------     -------     -------
                                                                (IN THOUSANDS, EXCEPT PER SHARE
                                                                         INFORMATION)
<S>                                                             <C>         <C>         <C>
Net sales:
  Products....................................................  $15,898     $24,795     $53,717
  Service and spare parts.....................................    6,743       4,615       6,311
                                                                -------     -------     -------
Total net sales...............................................   22,641      29,410      60,028
 
Cost of sales:
  Products....................................................   12,275      15,682      32,591
  Service and spare parts.....................................    4,648       3,181       3,051
                                                                -------     -------     -------
Total cost of sales...........................................   16,923      18,863      35,642
                                                                -------     -------     -------
Gross profit..................................................    5,718      10,547      24,386
 
Expenses:
  Research and development....................................    3,248       1,731       5,686
  Sales and marketing.........................................    1,838       3,718       7,070
  General and administrative..................................    1,299       1,414       1,841
  Charges allocated by Parent (Note 2)........................    1,563       1,534       1,551
  Nonrecurring charge (Note 3)................................    4,042       1,392          --
                                                                -------     -------     -------
Income (loss) from operations.................................   (6,272)        758       8,238
Interest charge allocated by Parent...........................    1,243       1,861       1,707
                                                                -------     -------     -------
Income (loss) before income taxes.............................   (7,515)     (1,103)      6,531
Income taxes (Note 4).........................................       --          86       2,600
                                                                -------     -------     -------
Net income (loss).............................................  $(7,515)    $(1,189)    $ 3,931
                                                                =======     =======     =======
Net income (loss) per share (Note 1)..........................  $  (.89)    $  (.14)    $   .46
                                                                =======     =======     =======
Shares used in computation of net income (loss) per share.....    8,484       8,484       8,597
                                                                =======     =======     =======
</TABLE>
 
                            See accompanying notes.
 
                                       F-4
<PAGE>   30
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
          CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                  COMMON STOCK
                                          ----------------------------
                                                            ADDITIONAL   ACCUMU-    CUMULATIVE
                                                             PAID IN      LATED     TRANSLATION
                                          SHARES   AMOUNT    CAPITAL     DEFICIT    ADJUSTMENT    TOTAL
                                          ------   ------   ----------   --------   ----------   --------
                                                                  (IN THOUSANDS)
<S>                                       <C>      <C>      <C>          <C>        <C>          <C>
Balance at March 31, 1994...............  8,005     $  1     $  1,009    $ (2,558)     $ --      $ (1,548)
  Allocation to Parent..................     --       --           --         225        --           225
  Net loss..............................     --       --           --      (7,515)       --        (7,515)
                                          -----     ----     --------    --------      ----      --------
Balance at March 31, 1995...............  8,005        1        1,009      (9,848)       --        (8,838)
  Allocation to Parent..................     --       --           --         (86)       --           (86)
  Net loss..............................     --       --           --      (1,189)       --        (1,189)
                                          -----     ----     --------    --------      ----      --------
Balance at March 31, 1996...............  8,005        1        1,009     (11,123)       --       (10,113)
  Proceeds from initial public
     offering...........................  1,650       --       15,918                              15,918
  Allocation to Parent..................                                     (873)                   (873)
  Foreign currency translation
     adjustment.........................                                                  2             2
  Net income............................                                    3,931                   3,931
                                          -----     ----     --------    --------      ----      --------
Balance at March 31, 1997...............  9,655     $  1     $ 16,927    $ (8,065)     $  2      $  8,865
                                          =====     ====     ========    ========      ====      ========
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   31
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
               CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31
                                                                -------------------------------
                                                                 1995        1996        1997
                                                                -------     -------     -------
                                                                        (IN THOUSANDS)
<S>                                                             <C>         <C>         <C>
OPERATING ACTIVITIES
Net income (loss).............................................  $(7,515)    $(1,189)    $ 3,931
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
     Depreciation and amortization............................      458         450         503
     Provision for losses on accounts receivable..............      648          39         343
     Write-down of inventories................................    2,015          --          --
     Foreign currency translation adjustment..................       --          --           2
     Changes in operating assets and liabilities (Note 9).....   (1,494)     (1,948)       (243)
                                                                -------     -------     -------
Net cash provided by (used in) operating activities...........   (5,888)     (2,648)      4,536
INVESTING ACTIVITIES
Purchases of property, plant and equipment....................     (283)       (498)     (2,022)
                                                                -------     -------     -------
Net cash used in investing activities.........................     (283)       (498)     (2,022)
FINANCING ACTIVITIES
Net cash (paid to) received from Parent.......................    6,171       3,146      (8,939)
Proceeds from initial public offering.........................       --          --      15,918
                                                                -------     -------     -------
Net cash provided by financing activities.....................    6,171       3,146       6,979
                                                                -------     -------     -------
Net change in cash and cash equivalents.......................       --          --       9,493
Cash and cash equivalents at beginning of period..............        1           1           1
                                                                -------     -------     -------
Cash and cash equivalents at end of period....................  $     1     $     1     $ 9,494
                                                                =======     =======     =======
</TABLE>
 
                            See accompanying notes.
 
                                       F-6
<PAGE>   32
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                 MARCH 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  The Company
 
     ATL Products, Inc. (the Company), a subsidiary of Odetics, Inc. (Parent),
designs, manufactures, markets and services automated magnetic libraries used to
manage, store and transfer data in networked computing environments. The
Company's customers are original equipment manufacturers, value added resellers
and storage system integrators located primarily in North America and Europe.
The Company has formed a wholly-owned subsidiary, ATL Products Limited (APL),
which effective July 1, 1996 distributes the Company's products in Europe.
 
  Basis of Presentation
 
     The accompanying financial statements include the accounts of the Company
and its subsidiary. Effective December 31, 1996, the Parent transferred to the
Company the portion of its business that provided worldwide service and support
for the Company's products. The transfer was made at book value and resulted in
the Company obtaining net assets with a carrying value of $2.3 million related
to the service and support operations and a corresponding increase in the amount
due to Parent. The financial information for the service and support operations
has been included in the Company's financial statements for all periods because
the transfer was treated in a manner similar to a pooling of interests for
financial reporting purposes. Additionally, for periods prior to the
establishment of APL, the Company utilized a subsidiary of the Parent for
administrative services related to the distribution of its products in Europe.
The accompanying financial statements combine the revenues, costs and expenses
incurred by this entity that relate to the Company's products in all applicable
periods in order to present these activities in a manner similar to a pooling of
interests. The net income or loss from these operations for periods prior to
December 31, 1996 has been retained by the Parent and are reflected as
"Allocation to Parent" in the accompanying consolidated and combined statements
of stockholders' equity. Intercompany balances and transactions have been
eliminated.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the consolidated financial statements
include the allowance for doubtful accounts, inventory reserves and income tax
valuation allowances.
 
  Revenue Recognition
 
     Sales and related cost of sales are recognized on the date of shipment or,
if required, upon acceptance by the customer.
 
  Fair Values of Financial Instruments
 
     Fair values of amounts payable to Parent approximates its carrying value
because interest charges thereon are based on the prevailing market rates of
interest charged to the Parent under related borrowings.
 
  Inventory Valuation
 
     Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
 
  Leasehold Improvements and Equipment
 
     Leasehold improvements and equipment are recorded at cost. Leasehold
improvements are amortized on a straight-line basis over the life of the lease.
Equipment is depreciated principally by the declining balance method over its
estimated useful lives (four to eight years).
 
                                       F-7
<PAGE>   33
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1997
 
  Stock Compensation
 
     The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
 
     To calculate the pro forma information required by Statement 123, the
Company uses the Black-Scholes option pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's option, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
 
  Earnings Per Share
 
     Earnings per share is computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the year. In
accordance with the accounting rules of the Securities and Exchange Commission,
stock options issued by the Company in the twelve month period prior to the
Company's initial public offering have been included in the calculation of
common and common equivalent shares as if they were outstanding for all periods
presented, computed using the treasury stock method and the assumed initial
offering price.
 
     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share (Statement No. 128), which is required to be adopted
on December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase in primary earnings per share for the years ended March
31, 1996 and March 31, 1997 of $.01 and $.02 per share, respectively. The impact
of Statement 128 on the calculation of fully diluted earnings per share for
these years is not expected to be material.
 
  Research and Development Expenditures
 
     Research and development expenditures are charged to expense in the period
incurred.
 
  Advertising Expenses
 
     The Company expenses advertising costs as incurred. Advertising expenses
totaled $106,000, $121,000 and $434,000 in the years ended March 31, 1995, 1996
and 1997, respectively.
 
  Income Taxes
 
     The Company is included in the consolidated federal income tax return with
its Parent. The Company and the Parent have entered into a Tax Sharing
Arrangement whereby U.S. and state income taxes are computed in accordance with
consolidated return Section 1552(a)(1) of the Internal Revenue Code. Under this
allocation, the consolidated tax liability for a given tax year is allocated
only to companies in the group
 
                                       F-8
<PAGE>   34
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1997
 
that have separate taxable income for that year. The tax liability is allocated
pro rata based on each Company's relative separate taxable income. Companies
with losses are not allocated any of the tax liability and are not given any
benefit for their losses. Effective upon the closing of the Company's initial
public offering, the Company entered into a new Tax Allocation Agreement which
was effective retroactively to April 1, 1996, whereby the consolidated federal
and state income tax liabilities for a given tax year will be allocated to the
companies in the Parent's group according to their relative separate taxable
income for such year.
 
     Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax basis of assets and liabilities based on
enacted tax laws and rates applicable to the period in which differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts which are more likely than
not to be realized. The provision for income taxes consists of the taxes payable
or refundable for the period plus or minus the change during the period in
deferred income tax assets and liabilities.
 
  Warranty
 
     The Company provides a one year warranty on all products and records a
related provision for estimated warranty costs at the date of sale. The Company
has reserved $100,000, $183,000 and $192,000 representing the Company's
estimated warranty liability at March 31, 1995, 1996 and 1997, respectively.
 
2. TRANSACTIONS WITH PARENT AND AFFILIATES
 
     The Company and its Parent have entered into an agreement whereby the
Company is charged for certain corporate general and administrative functions
performed by the Parent. These charges are included in the caption "Charges
allocated by Parent" in the accompanying consolidated statements of operations
and consist of certain accounting, auditing, income tax, payroll and treasury
functions; administration of employee incentive programs; marketing support;
facilities management; certain legal services; and other support services.
Charges are allocated to the Company based on actual amounts incurred on behalf
of the Company or agreed upon amounts or percentages that management of the
Company believes are reasonable.
 
     Prior to March 1997, the Parent also managed consolidated domestic cash
flows. Pursuant to that cash management program the Company transferred any
accumulated cash surplus to the Parent's accounts and the Parent funded cash
disbursements, as needed, to maintain minimum account balances. The Company and
its Parent also had an agreement whereby the Parent charged the Company interest
based on the Company's net payable to the Parent balance calculated using the
Parent's cost of related borrowed funds (8.5% at March 31, 1997).
 
     The net payable to Parent represents the net of the following transactions:
cash advances to and from the Parent in connection with cash management policy;
proceeds from sales to affiliates; payments for purchases from affiliates; and
corporate charges for general corporate overhead and interest.
 
     On April 1, 1997, the Company converted its net payable to Parent to a
promissory note that bears interest at the rate to be equal to the Parents' cost
of borrowing from the lesser of either of Parents' primary banks or principal
bank (8.5% at March 31, 1997). Principal and interest on this note is payable in
sixteen equal quarterly installments at the end of each calendar quarter
commencing June 30, 1997 and continuing until all principal and interest have
been fully paid.
 
     Maturities on note payable to Parent are $3,249,000 in 1998, $3,249,000 in
1999, $3,249,000 in 2000 and $3,250,000 in 2001.
 
                                       F-9
<PAGE>   35
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1997
 
     During fiscal 1995 the Company purchased $1,196,000 of components for
certain discontinued products from the Odetics Broadcast Division of its Parent.
 
3. NONRECURRING CHARGES
 
     In December 1994, the Company recorded nonrecurring charges of $4,042,000
related to downsizing and restructuring in response to a deterioration in the
Company's contractual relationship with E-Systems, Inc., which was then a major
customer. The fiscal 1995 charges consisted of a $3,694,000 write-down of
inventories and accounts receivable to net realizable value, $283,000 of
severance costs and other charges and $65,000 of legal fees. In fiscal 1996 the
Company incurred an additional $1,392,000 of legal fees associated with the
E-Systems dispute (Note 7).
 
4. INCOME TAXES
 
     As a result of its tax sharing agreement with the Parent (Note 1), the
Company has received no tax benefit from its losses and through March 31, 1996
has not paid or accrued federal or state income taxes. The Company's taxable
losses through March 31, 1996 have been used by the Parent to offset its taxable
income for such periods and as a result are not available to provide any tax
benefit in future periods.
 
     The provision for income taxes for the year ended March 31, 1996 is
comprised of apportioned foreign income taxes for income earned by a subsidiary
of the Parent from administrative services provided on sales of the Company's
products in Europe. The revenues, costs and expenses incurred by this entity
that relate to the Company's products have been combined in the accompanying
financial statements as described in Note 1.
 
     The Company's effective tax rate of 40% for the year ended March 31, 1997
consists of federal taxes of 34% and state taxes, net of federal benefit, of 6%.
If the Company had filed separate income tax returns in prior years, its taxable
loss carryforwards would have been available to offset anticipated income and,
therefore, no provision for federal income taxes would have been necessary.
 
     The components of the Company's deferred tax liabilities and assets are as
follows:
 
<TABLE>
<CAPTION>
                                                                        MARCH 31,
                                                                   -------------------
                                                                    1996        1997
                                                                   -------     -------
                                                                     (IN THOUSANDS)
        <S>                                                        <C>         <C>
        Deferred tax liabilities:
          Tax over book depreciation.............................  $   (24)    $   (23)
          Other..................................................       --         (27)
                                                                   -------     -------
        Total deferred tax liabilities...........................      (24)        (50)
        Deferred tax assets:
          Inventory reserves.....................................    1,899       1,445
          Deferred compensation and other payroll................      215         232
          Warranty reserves......................................       73          76
          Bad debt reserve.......................................      266         127
          State taxes............................................       --         154
          Other..................................................       19          --
                                                                   -------     -------
        Total deferred tax assets................................    2,472       2,034
        Valuation allowance for deferred tax assets..............   (2,448)     (1,984)
                                                                   -------     -------
        Net deferred tax assets..................................       24          50
                                                                   -------     -------
        Net deferred tax assets (liabilities)....................  $    --     $    --
                                                                   =======     =======
</TABLE>
 
                                      F-10
<PAGE>   36
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1997
 
     Any future benefits recognized from the reduction of the valuation
allowance will result in a reduction of income tax expense.
 
5. EMPLOYEE INCENTIVE PROGRAMS
 
     Under the terms of a the Parent's Profit Sharing Plan, the Company
contributes to a trust fund such amounts as are determined annually by the Board
of Directors. No contributions were made in the years ended March 31, 1995, 1996
or 1997.
 
     The Company's employees participate in the Parent's 401(k) Plan. Under the
401(k) Plan, eligible employees voluntarily contribute to the plan up to 15% of
their salary through payroll deductions. The Company matches 50% of
contributions up to a stated limit. Under the provisions of the 401(k) Plan,
employees have ten investment choices, one of which is the purchase of Odetics,
Class A common stock at market price. Company matching contributions were
approximately $109,000, $115,000 and $123,000 in the years ended March 31, 1995,
1996 and 1997, respectively.
 
     The Company's employees with more than six months of eligible service
participate in the Parent's noncontributory Associate Stock Ownership Plan
(ASOP). The ASOP provides that Company contributions, which are determined
annually by the Board of Directors, may be in the form of cash or shares of the
Parent's stock. The Company contributions to the ASOP were approximately $0,
$98,000 and $144,000 in the years ended March 31, 1995, 1996 and 1997,
respectively.
 
     Certain executives of the Company participate in the Parent's Executive
Deferral Plan under which a portion of their annual compensation may be
deferred. The plan guarantees each executive a minimum annual return of 10% for
deferred amounts up to $20,000 annually through 1994. Effective April 1, 1994,
all subsequent deferred amounts and previous annual amounts in excess of $20,000
have no guaranteed rate of return. Compensation charged to operations and
deferred under the plan totaled $20,000, $20,000 and $25,000 for the years ended
March 31, 1995, 1996 and 1997, respectively.
 
6. COMMON STOCK AND STOCK OPTION PLANS
 
     On December 19, 1996, the Company was reincorporated as a Delaware
corporation and effected a recapitalization in which two classes of common stock
were authorized, consisting of 45,000,000 shares of Class A common stock and
5,000,000 shares of Class B common stock, and each share of the Company's no par
common stock was recapitalized into 8,005 shares of Class A common stock, par
value $.0001 per share. All share and per share information included in the
accompanying financial statements has been restated to reflect the
reincorporation and the stock split. Class A and Class B common stock are
identical in all respects except for voting rights. The Class A common stock has
one vote per share while Class B common stock has .05 of one vote per share. The
Class B common stock is not convertible into Class A common stock. Management of
the Company has no present intention to convert the Class B common stock into
Class A common stock or to list the Class B common stock for trading on any
exchange.
 
     On March 13, 1997, the Company completed an initial public offering
consisting of 1,650,000 shares of the Company's common stock, at an offering
price of $11 per share (Offering). From the net proceeds of the Offering of
approximately $15,918,000, $6,752,000 was used to repay a portion of Company's
indebtedness to its Parent. Following the Offering, the Parent's ownership
interest in the Company totals 82.9%. The Parent has also announced its
intention, subject to satisfaction of certain conditions, to divest its
ownership interest in the Company by December 31, 1997 by means of a tax-free
distribution to its stockholders.
 
     The Company's Board of Directors and its Parent have adopted and approved
the ATL Products, Inc. 1996 Stock Incentive Plan (the Plan), authorized
2,000,000 shares of the Company's Class B common stock
 
                                      F-11
<PAGE>   37
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1997
 
for issuance under the Plan, and granted thereunder options to purchase 879,000
shares of Class B common stock at an exercise price of $5.00 per share, the fair
value of the underlying Class B common stock as of the date of grant as
determined by the Board of Directors. The options were granted on December 19,
1996, vest over a three year period, and none are exercisable as of March 31,
1997. Under terms of the Plan, eligible key employees, directors and consultants
can receive options to purchase shares of the Company's common stock at prices
not less than 100% for incentive stock options and not less than 85% for
nonqualified stock options of the fair value on the date of grant as determined
by the Board of Directors. Options expire ten years after date of grant or 90
days after termination of employment.
 
     In calculating pro forma information regarding net income and earnings per
share, as required by Statement 123, the fair value was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the options on the Company's Class B common
stock: risk-free interest rate of 6.5%; a dividend yield of 0%; volatility of
the expected market price of the Company's common stock of .40; and a
weighted-average expected life of the option of 4 years.
 
     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the year ended March 31, 1997 follows:
 
<TABLE>
        <S>                                                                <C>
        Pro forma net income.............................................  $3,831,000
        Pro forma net income per share...................................  $      .45
</TABLE>
 
     The Company also participates in its Parent's Associate Stock Option Plan
which provides that options for shares of the Parent's unissued Class A common
stock may be granted to employees of the Company. Options granted enable the
option holder to purchase shares of Odetics Class A common stock at prices which
are equal to or greater than the fair market value of the shares at the date of
grant. Options for shares have been granted at prices ranging from $4.25 to
$9.90 per share of Odetics Class A common stock representing in each case the
fair market value at the date of grant. Options expire ten years after date of
grant or 90 days after termination of employment and vest ratably at 33% or 25%
on each of the first three or four anniversaries of the grant date,
respectively, depending on the date of grant.
 
7. COMMITMENTS AND CONTINGENCIES
 
     In November 1994 and February 1995, the Company and E-Systems, Inc.
(E-Systems), respectively filed legal actions related to E-Systems' cancellation
of purchase orders for ATL Product's DataLibrary and DataTower products. In May
1996, the parties entered into a settlement agreement under which, among other
things, E-Systems agreed to pay the Parent $6,160,000, all claims asserted by
the parties were released and the litigation dismissed. In addition, the parties
agreed to an equitable disposition of disputed inventory and entered into a five
year service agreement for Odetics to service units that had been sold to
E-Systems at agreed upon prices. The Parent allocated $3,964,000 of the
settlement proceeds to the Company and retained the balance of the settlement to
provide for the estimated cost of service obligations under the settlement
agreement. As a result, the Company recovered the net carrying value of its
accounts receivable and inventories related to the E-Systems litigation and
recognized no gain or loss on the settlement.
 
     On March 15, 1997, the Company entered into a secured revolving credit
agreement with a bank collateralized by substantially all of the Company's
assets. Under the term of the agreement the Company is required to comply with
certain financial covenants, including certain debt to net worth ratios, current
ratios and minimum net worth requirements. The Company may borrow up to
$5,000,000 with interest at the lessor of the bank's prime rate (8.5% as of
March 31, 1997) or the bank's LIBOR rate plus 2.25%. No borrowings were
outstanding under this agreement at March 31, 1997. The agreement expires on
July 31, 1998.
 
                                      F-12
<PAGE>   38
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1997
 
     The Company has leased and began to relocate to a new facility in Irvine,
California during the first calendar quarter of 1997. The annual commitment
under this noncancelable operating lease at March 31, 1997 is as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                   FISCAL YEAR
        ------------------------------------------------------------------
        <S>                                                                   <C>
        1998..............................................................    $  800
        1999..............................................................       844
        2000..............................................................       889
        2001..............................................................       933
        2002..............................................................       977
        Thereafter........................................................     1,723
</TABLE>
 
8. SIGNIFICANT CUSTOMER AND SEGMENT INFORMATION
 
     The Company operates in a single industry segment (Note 1). Sales to major
customers in the years ended March 31, 1995 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED MARCH 31,
                                                                -----------------------
                               CUSTOMER                           1995          1996
        ------------------------------------------------------  ---------     ---------
        <S>                                                     <C>           <C>
        A.....................................................  4,996,000     5,306,000
        B.....................................................  8,747,000            --
</TABLE>
 
     No customer represented more than 10% of the Company's sales in 1997.
 
     The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Credit losses
have been within management's expectations and within amounts provided through
the allowance for doubtful accounts.
 
     Information regarding the Company's activities by geographical region as of
March 31, 1997 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                     NORTH
                                                                    AMERICA      EUROPE
                                                                    --------     -------
        <S>                                                         <C>          <C>
        Sales.....................................................  $ 50,572     $ 9,456
        Net income................................................     3,716         215
        Identifiable assets.......................................    34,951       2,974
</TABLE>
 
     Prior to July 1, 1996 the Company had no foreign operations. All products
sold by the Company's subsidiary in Europe are acquired from ATL at agreed upon
transfer prices.
 
     Export sales to all foreign customers are as follows:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED MARCH 31,
                                                           -----------------------------
                                                           1995       1996        1997
                                                           -----     -------     -------
        <S>                                                <C>       <C>         <C>
        Europe...........................................  $ 453     $ 4,644     $ 6,683
        Canada and Australia.............................    811       1,389       3,103
</TABLE>
 
     An integral component of the Company's products is a data library tape
drive that is available from a single supplier. Demand for the supplier tape
drives is high and it is possible that in the near term the supply of tape
drives could be disrupted. Any disruption of the supply of tape drives would
cause delays in production that may be detrimental to the Company's financial
performance.
 
                                      F-13
<PAGE>   39
 
                               ATL PRODUCTS, INC.
                        (A SUBSIDIARY OF ODETICS, INC.)
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1997
 
9. SUPPLEMENTAL CASH FLOW INFORMATION
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED MARCH 31,
                                                        -------------------------------
                                                         1995        1996        1997
                                                        -------     -------     -------
                                                                (IN THOUSANDS)
        <S>                                             <C>         <C>         <C>
        Net cash used in changes in operating assets
          and liabilities
          (Increase) decrease in accounts
             receivable...............................  $   217     $(5,786)    $(2,914)
          (Increase) decrease in inventories..........   (1,102)        262      (7,310)
          (Increase) decrease in prepaid expenses and
             other assets.............................      (11)         38        (284)
          Increase (decrease) in accounts payable and
             accrued expenses.........................     (598)      3,538      10,265
                                                        -------     -------     -------
        Net cash used in changes in operating assets
          and liabilities:............................  $(1,494)    $(1,948)    $  (243)
                                                        =======     =======     =======
</TABLE>
 
                                      F-14
<PAGE>   40
 
                                                                     SCHEDULE II
 
                               ATL PRODUCTS, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                               BALANCE AT   CHARGES TO   CHARGES TO                BALANCE AT
                                               BEGINNING    COSTS AND      OTHER                     END OF
                                                OF YEAR      EXPENSES     ACCOUNTS    DEDUCTIONS      YEAR
                                               ----------   ----------   ----------   ----------   ----------
<S>                                            <C>          <C>          <C>          <C>          <C>
YEAR ENDED MARCH 31, 1995
Deducted from assets accounts:
  Allowance for doubtful accounts............    $   75       $  648       $   --       $   96       $  627
  Reserve for inventory obsolescence.........        63        4,080           --          161        3,982
                                                 ------       ------       ------       ------       ------
     Total...................................    $  138       $4,728       $   --       $  257       $4,609
                                                 ======       ======       ======       ======       ======
YEAR ENDED MARCH 31, 1996
Deducted from assets accounts:
  Allowance for doubtful accounts............    $  627       $   38       $   --       $    3       $  662
  Reserve for inventory obsolescence.........     3,982          750           --           --        4,732
                                                 ------       ------       ------       ------       ------
     Total...................................    $4,609       $  788       $   --       $    3       $5,394
                                                 ======       ======       ======       ======       ======
YEAR ENDED MARCH 31, 1997
Deducted from assets accounts:
  Allowance for doubtful accounts............    $  662       $  253       $   --       $  596(1)    $  319
  Reserve for inventory obsolescence.........     4,732        1,450           --        2,546(1)     3,636
                                                 ------       ------       ------       ------       ------
     Total...................................    $5,394       $1,703       $   --       $3,142       $3,955
                                                 ======       ======       ======       ======       ======
</TABLE>
 
---------------
 
(1) Consists of additional write-offs in connection with the settlement of
    litigation with E-Systems, Inc. See Note 7 of Notes to Consolidated and
    Combined Financial Statements.
 
                                       S-1
<PAGE>   41
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT NO.                                DESCRIPTION                               PAGE NO.
  ------------ ----------------------------------------------------------------------- --------
  <S>          <C>                                                                     <C>
     3.1       Certificate of Incorporation of the Company as filed with the Delaware
               Secretary of State on December 19, 1996*
     3.2       Certificate of Merger of the Company as filed with the Delaware
               Secretary of State on December 19, 1996*
     3.3       Bylaws of the Company*
     4.1       Specimen certificate representing shares of Class A Common Stock of the
               Company.*
     4.2       1996 Stock Incentive Plan.*
     4.3       Form of Notice of Grant of Stock Option and related Stock Option
               Agreement under 1996 Stock Incentive Plan.*
    10.1       Form of Indemnification Agreement.*
    10.2       Real Property lease, dated October 9, 1996, by and between Thomas M.
               Zapara and Violet J. Zapara, Trustees of the Zapara Family Trust U/D/T
               dated December 7, 1995 and Company, a wholly-owned subsidiary of
               Odetics, Inc.*
    10.3       Separation and Distribution Agreement between the Company and Odetics
               dated March 1, 1997.
    10.4       Tax Allocation Agreement between the Company and Odetics dated March 1,
               1997.
    10.5       Services Agreement between the Company and Odetics dated March 21,
               1997.
    10.6       Form of Value Added Reseller Agreement.*
    10.7       Form of International Value Added Reseller Agreement.*
    10.8+      Technical Support Agreement dated May 6, 1996, between Technology
               Service Solutions and Odetics, Incorporated, as amended May 7, 1996.*
    10.9       Tape Library OEM Purchase Agreement dated August 28, 1996, between
               Quantum Corporation and Company.*
    10.10+     Veritas Software License Agreement, dated November 8, 1996, between
               Veritas Software Corporation and the Company.*
    10.11+     Agreement dated December 18, 1995, between Hewlett-Packard GmbH Local
               Products Organization and Company.*
    10.12+     Basic Order Agreement dated April 15, 1993, between Digital Equipment
               Corporation and Odetics, Inc. and Company, as amended January 11, 1994,
               March 25, 1994, October 19, 1994, October 27, 1994 and January 12,
               1995.*
    10.13      Basic Ordering Agreement dated September 14, 1995 between EMC
               Corporation and the Company*
    10.14      Promissory Note between the Company and Odetics dated April 1, 1997.
    10.15      Form of Odetics Associate Agreement.*
    10.16      Note, Security Agreement and Letter Agreement between the Company and
               Imperial Bank dated March 15, 1997.
    10.17      Intentionally Omitted.
    10.18      Development and License Agreement dated January 14, 1997 between the
               Company and Sun Microsystems, Inc.*
    11.1       Statement Regarding Computation of Earnings Per Share.
    21         List of Subsidiaries.
    27         Financial Data Schedule.
</TABLE>
 
---------------
 
+ The Company has received confidential treatment for portions of this document
  previously filed with the Commission.
 
* Included as a similarly numbered exhibit to the Company's Registration
  Statement on Form S-1 (Reg. No. 333-18537), as amended, as filed with the
  Securities and Exchange Commission, and incorporated herein by reference.