Overland: Fiscal 3Q8 Financial Results

Overland Storage, Inc. 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.

Overland Storage, Inc.