Vertical Xcelerator IP™ Wins 2007 TMC Labs Innovation Award

CAMBRIDGE, Mass. (November 19, 2007) -- Vertical Communications (VRCC.OB) (“Vertical”), a leading provider of next-generation, IP-based phone systems and applications that help businesses better serve their customers, announced today its financial results for the first quarter of fiscal 2008, which ended September 30, 2007.

For the first quarter of fiscal 2008, Vertical reported net revenue of $19.7 million, compared to net revenue of $15.9 million during the same quarter of fiscal 2007, an increase of 24%. The increase is primarily attributable to the acquisition of Vodavi Technology, Inc. (“Vodavi”), which was completed on December 1, 2006.

Cost of sales for the first quarter of fiscal 2008 was $10.7 million, compared to $7.8 million during the same quarter of fiscal 2007, an increase of 38%. This increase is also primarily attributable to the acquisition of Vodavi, whose products yield a lower margin than other Vertical product lines.

Gross profit for the first quarter of fiscal 2008 was $9.0 million, up 11% from $8.1 million in the same quarter of fiscal 2007, as a result of the acquisition of Vodavi.

Operating expenses for the first quarter of fiscal 2008 were $13.3 million, compared to $11.1 million during the same quarter in fiscal 2007, an increase of 20%. This increase is attributable to the acquisition of Vodavi operations and to increased non-cash compensation charges related to stock option and restricted stock grants as discussed below, offset by a decrease in overall operating expenses from elimination of redundancies related to the acquisition of the operations of Vodavi. Operating expenses include non-cash compensation charges relating to stock options and restricted stock grants of $1.6 million for the first quarter of fiscal 2007 compared to $1.0 million for the first quarter of fiscal 2007. Additionally, operating expenses include accruals for liquidated damages associated with certain shareholder-related registration right obligations of $0 for the first quarter of fiscal 2008 compared to $0.6 million for the same quarter in fiscal 2007.

Loss from operations for the first quarter of fiscal 2008 was $4.3 million compared to $3.0 million for the same quarter of fiscal 2007.

Interest expense for the first quarter of fiscal 2008 was $0.6 million compared with $0.2 million for the same period in fiscal 2007. The increase in interest expense for fiscal 2008 is attributable to the amounts borrowed to finance the Vodavi acquisition.

Vertical reported GAAP net loss to common shareholders for the first quarter of fiscal 2008 of $5.3 million, or $0.10 cents per share, compared to GAAP net loss to common shareholders of $3.5 million, or $0.07 cents per share, during the same quarter of fiscal 2007.

GAAP net loss includes the impact of non-cash compensation charges, liquidated damages provisions and amortization related to intangible assets acquired in the acquisitions of Vertical Networks, Inc., Comdial Corporation and Vodavi.

Vertical’s cash and cash equivalents (including restricted cash), deferred revenue, long-term debt and shareholders’ equity balances at September 30, 2007 were $5.5 million, $14.6 million, $16.4 million and $35.0 million, respectively.