Overland Storage Reports Fiscal 2009 3rd Quarter Results

SAN DIEGO – May 4, 2009 – Overland Storage, Inc. (Nasdaq: OVRL) today reported results for its fiscal 2009 third quarter and nine-month period ended March 31, 2009.

Net revenue for the fiscal 2009 third quarter was $22.3 million, compared with $31.8 million for the same quarter a year ago. The company reported a net loss of $3.3 million, or $0.26 per share, for the fiscal 2009 third quarter compared with a net loss of $4.9 million, or $0.39 per share, for the same quarter in the prior fiscal year.

For the first nine months of fiscal 2009, the company reported net revenue of $83.5 million, compared with $98.8 million for the same period in the prior fiscal year. The net loss for the first nine months of fiscal 2009 was $15.4 million, or $1.20 per share, compared with a net loss of $16.0 million, or $1.25 per share, in the first nine months of fiscal 2008.

The company noted that net revenue for the fiscal 2009 third quarter decreased 29.9 percent from the fiscal 2008 third quarter due to lower sales in both the OEM and branded channels, reflecting economic pullbacks by customers consistent with the industry sector overall. Total OEM revenue was down 49.8 percent compared to the fiscal 2008 third quarter. This trend continues to reflect the previously announced transition by the company’s largest OEM customer to a new product from an alternate supplier. Total branded revenue declined 17.2 percent compared to branded revenue in the third quarter of fiscal 2008. Sales in the Americas region were down 23.7 percent compared to the prior year third quarter and EMEA was down 30.9 percent. The APAC region, which represents a smaller overall percentage of sales, was down 42.6 percent. Partially offsetting these declines was an increase of 11.6 percent in revenue from the sales of services and spares.

Although revenue in the fiscal 2009 third quarter declined 29.9 percent from the fiscal 2008 third quarter, the gross profit of $6.3 million in the fiscal 2009 third quarter represents only a 18.2 percent drop from the $7.7 million in gross profit reported in the prior year quarter. The gross profit margin of 28.5 percent for the fiscal 2009 third quarter improved significantly over the fiscal 2008 third quarter margin of 24.2 percent.

Operating expenses of $9.6 million in the fiscal 2009 third quarter declined 22.6 percent, from $12.4 million in the fiscal 2008 third quarter, reflecting ongoing restructuring in response to revenue levels and current economic conditions. Compared to the fiscal 2008 third quarter, sales and marketing expenses declined 33.8 percent while R&D expenses declined 15.0 percent.

The total cash balance at the end of the quarter was $3.8 million, an increase of $0.8 million, from the end of the fiscal 2009 second quarter. Combined short-term and long-term debt increased $3.8 million during the fiscal 2009 third quarter, consisting of $1.5 million in additional borrowing under the Marquette financing agreement as well as a new $2.3 million secured promissory note from the company’s primary on-site service provider, which represents a conversion of amounts formerly included in accounts payable.

“Absent other dynamics, our March quarter is typically weaker than our Decemberquarter,” noted Eric Kelly, CEO of Overland Storage, Inc. “This year, global economic conditions that affected most technology companies exacerbated the seasonal weakness and resulted in lower than expected sales in both the company’s OEM and branded channels across all geographic regions.

“Our current focus at Overland is three-fold: (1) strengthening our balance sheet, (2) improving our business model and (3) delivering comprehensive solutions to address our customers’ requirements. We have made significant progress in each of these areas. At the end of March, we announced a $5 million international accounts receivable financing agreement with FGI Finance. This agreement complements the existing $9 million domestic receivable financing already in place with Marquette Commercial Finance. Additionally, we have implemented a number of changes to our business model, both internally and in conjunction with our strategic partners, which are resulting in better cash utilization and improvements to many of our key business metrics. Internally, we evaluated our team in terms of expertise and geographic location and are making adjustments to better position ourselves to execute efficiently in each discipline.

“Lastly, we have put substantial effort into our roadmap and expect to introduce a number of new, compelling solutions in the coming months,” concluded Kelly. “We firmly believe that healthy global demand exists and will continue to exist for mid-range storage, data protection and business continuity offerings that distinctively address our customers’ requirements.”