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Overland Storage Reports Fiscal 2008 Third Quarter Results

- Gross Margin Continues to Improve -

SAN DIEGO, April 24 /PRNewswire-FirstCall/ -- Overland Storage, Inc. (Nasdaq: OVRL) today reported results for its fiscal 2008 third quarter and nine-month period ended March 31, 2008.

Net revenue for the fiscal 2008 third quarter was $31.8 million, compared with $37.8 million for the same period a year ago. The company reported a net loss of $4.9 million, or $0.39 per share, for the fiscal 2008 third quarter compared with a net loss of $9.2 million, or $0.72 per share, for the same period a year earlier.

For the first nine months of fiscal 2008, the company reported net revenue of $98.8 million compared with $126.4 million for the same period in the prior fiscal year. Net loss for the first nine months of fiscal 2008 was $16.0 million, or $1.25 per share, compared with a net loss of $38.1 million, or $2.97 per share, in the first nine months of fiscal 2007. The 2007 nine-month period net loss included an $8.4 million, or $0.66 per share, charge related to the impairment of acquired technology.

The company noted that revenue for the fiscal 2008 third quarter decreased 15.9 percent from the fiscal 2007 third quarter due to lower sales to OEM customers. Specifically, sales to the company's largest OEM customer were down 28.2 percent compared with the fiscal 2007 third quarter, reflecting the previously announced transition by the customer to a new product from an alternate supplier. Total branded revenue in the fiscal 2008 third quarter was relatively unchanged compared to the same period of fiscal 2007.

Revenue for the fiscal 2008 third quarter decreased 6.7 percent sequentially from the second quarter of the current fiscal year. Sales to OEM customers were relatively unchanged from the second quarter, while branded revenue followed the historical trend of seasonally slow third quarters and declined 9.2 percent from the second quarter.

Gross profit in the fiscal 2008 third quarter of $7.7 million improved 54.0 percent from the $5.0 million gross profit posted in the 2007 third quarter, despite declining revenue. On a sequential basis, gross profit decreased only 1.0 percent from $7.8 million in the fiscal 2008 second quarter, despite the 6.7 percent decline in revenue. The gross profit margin of 24.2 percent in the fiscal 2008 third quarter improved over the fiscal 2007 third quarter margin of 13.3 percent, and on a sequential basis improved over the 22.8 percent margin in the fiscal 2008 second quarter. The company noted that the margin improvement from the prior year quarter primarily reflected the elimination of charges and redundant costs associated with its terminated outsourced manufacturing arrangement.

Operating expense of $12.4 million in the fiscal 2008 third quarter declined 12.7 percent from $14.2 million in the fiscal 2007 third quarter. This decline continues to reflect the completion of a number of material-intensive product development projects and the company's reduced spending levels compared to the prior year. Sequentially, operating expense decreased 10.8 percent from the fiscal 2008 second quarter level of $13.9 million primarily because the second quarter included a non-recurring $1.3 million purchase of software that is being used in a development project.

"We were disappointed in the performance of our channel sales this quarter," commented Vern LoForti, president and chief executive officer of Overland Storage. "Although the March quarter is historically a seasonally slower quarter than December, we had hoped to reverse that trend this year. Unfortunately, this did not happen, although the sequential decline was much less than in the prior two years. For several months, we have been working to both expand our sales force, and through training and close monitoring, amplify its performance. During the quarter, it became apparent that we still needed to make a number of personnel changes in EMEA and in the Americas, and we took corrective action. Consequently, our sales pipeline was interrupted, setting back our efforts to grow our branded business. This interruption underscores the importance of sales personnel maintaining close and frequent contact with channel partners. On the positive side, we have been very pleased with the strong performance posted by many of our newer hires. We believe that we have corrected the personnel issues, and put new management in place to help ensure that we can resume sales growth.

"We are especially encouraged by our improved gross profit margin, and proud to report the fourth consecutive quarter of margin growth. We have come a long way from the 13.3 percent we reported a year ago to the 24.2 percent we reported today. As we continue to invest in our sales force, we are spending conservatively on other areas of the company.

"I am pleased that Ravi Pendekanti joined us this week as VP of worldwide marketing, filling a critical position that had been vacant for some time. I expect him to increase the visibility of Overland and our products, strengthen relationships with our existing channel partners, develop new partners and help us drive revenue.

"Finally, we continue to manage our receivables, inventories and other working capital closely. We were pleased with the $19.1 million quarter-end balance of cash and short-term investments, and will continue our cash preservation efforts. We remain focused on leveraging the broadest product portfolio in the history of Overland, and are excited about our future product roadmap. The combination of compelling products, strong channel partner relationships, well-designed marketing programs and an expanded and disciplined professional sales force are the elements we need to return Overland to profitability," concluded LoForti.

About Overland Storage

Now in its 27th year, Overland Storage is a market leader and innovative provider of smart, affordable data protection appliances that help midrange and distributed enterprises ensure business-critical data is constantly protected, readily available and always there. Overland's award-winning products include NEO SERIES(R) and ARCvault(TM) tape libraries, REO SERIES(R) disk-based appliances with Virtual Tape Library (VTL) capabilities and ULTAMUS(R) RAID high-performance, high-density storage. Overland sells its products through leading OEMs, commercial distributors, storage integrators and value-added resellers. For more information, visit Overland's web site at http://www.overlandstorage.com

Except for the factual statements made herein, the information contained in this news release consists of forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words and expressions reflecting optimism, satisfaction or disappointment with current prospects, as well as words such as "believe," "hopes," "intends," "estimates," "expects," "projects," "plans," "anticipates" and variations thereof, identify forward-looking statements, but their absence does not mean that a statement is not forward looking. Such forward-looking statements are not guarantees of performance and the company's actual results could differ materially from those contained in such statements. Factors that could cause or contribute to such differences include possible delays in new product introductions and shipments; market acceptance of the company's new product offerings; the performance of the company's newly restructured management and sales team and the successful execution of the company's marketing programs; the need to hire additional sales employees and train existing employees on new products; the ability to maintain strong relationships with branded channel partners; the timing and market acceptance of new product introductions by competitors; worldwide information technology spending levels; unexpected shortages of critical components; rescheduling or cancellation of customer orders; loss of a major customer; the timing and amount of licensing royalties; general competition and price pressures in the marketplace; the company's ability to control costs and expenses; and general economic conditions. Reference is also made to other factors detailed from time to time in the company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this release and the company undertakes no obligation to publicly update any forward-looking statements to reflect new information, events or circumstances after the date of this release.

Overland, Overland Storage, REO Series, REO, NEO Series, NEO, ARCvault Series, ARCvault and ULTAMUS are trademarks of Overland Storage, Inc.

Webcast: A live audio Webcast of Overland's management conference call discussing fiscal 2008 third quarter results will be held beginning at 5:00 p.m. EDT, April 24, 2008, and will be posted at http://www.overlandstorage.com. Please provide adequate time to log on. Following the broadcast, the conference call will be archived for future access on Overland's website.

                         - Financial Tables Follow -



                            OVERLAND STORAGE, INC.
                     CONSOLIDATED STATEMENT OF OPERATIONS
                    (In thousands, except per share data)

                                        Three Months Ended  Nine Months Ended
                                             March 30,          March 30,
                                          2008     2007      2008      2007
                                           (Unaudited)        (Unaudited)
     Net revenue                         $31,794  $37,798   $98,755  $126,385
     Cost of revenue                      24,097   32,766    76,804   108,196
     Gross profit                          7,697    5,032    21,951    18,189

     Operating expenses:
        Sales and marketing                7,988    7,408    22,549    25,633
        Research and development           1,972    3,351     7,229    12,400
        General and administrative         2,409    3,476     7,590    10,750
        Impairment of acquired
         technology                            -        -         -     8,411
             Total expenses               12,369   14,235    37,368    57,194

     Operating loss                       (4,672)  (9,203)  (15,417)  (39,005)
     Interest income                         177      308       708     1,487
     Other expense, net                     (369)    (171)     (970)     (493)
     Loss before income taxes             (4,864)  (9,066)  (15,679)  (38,011)
     Income taxes                             71      137       281        78
     Net loss                            $(4,935) $(9,203) $(15,960) $(38,089)

     Net loss per share:
        Basic and Diluted                 $(0.39)  $(0.72)   $(1.25)   $(2.97)

     Shares used in computing net loss
      per share:
        Basic and Diluted                 12,761   12,743    12,757    12,815



                              OVERLAND STORAGE, INC.
                        SELECTED BALANCE SHEET INFORMATION
                                  (In thousands)

                                                    Mar 30,           June 30,
                                                     2008               2007
                                                          (unaudited)
     ASSETS
     Cash and equivalents                          $13,576            $17,503
     Short-term investments                          5,570              5,322
     Accounts receivable, net                       18,480             22,572
     Inventories                                    17,264             20,556
     Other current assets                            8,145              7,138
        Total current assets                        63,035             73,091
     Property, plant and equipment, net              8,955             11,052
     Other assets                                    2,604              3,910
        Total assets                               $74,594            $88,053


     LIABILITIES & EQUITY
     Current liabilities                           $34,185            $33,525
     Long-term debt                                      -                  -
     Other long-term liabilities                     6,215              5,418
     Shareholders' equity                           34,194             49,110
        Total liabilities and equity               $74,594            $88,053

SOURCE Overland Storage, Inc.
CONTACT: Vernon A. LoForti, President and CEO, vloforti@overlandstorage.com, or Kurt L. Kalbfleisch, VP Finance and CFO, kkalbfleisch@overlandstorage.com, both of Overland Storage, Inc., +1-858-571-5555

Web site: http://www.overlandstorage.com
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