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(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR SECTION 15(D) OF THE
         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2003

OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the transition period from __________________________ to __________________________.

Commission File Number: 0-18033

EXABYTE CORPORATION
(Exact name of registrant as specified in its charter)

2108 - 55th Street
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 442-4333
(Registrant's Telephone Number, including area code)

(Former Address)

Indicate by check 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 ninety days.
Yes ___X___   No ______

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes______   No ___X___ 

As of August 11, 2003, there were 60,951,109 shares outstanding of the Registrant's Common Stock (par value $0.001 per share).

The accompanying notes are an integral part of the consolidated financial statements.

(Unaudited)
(In thousands, except per share data)

The accompanying notes are an integral part of the consolidated financial statements.

(Unaudited)
(In thousands, except per share data)

The accompanying notes are an integral part of the consolidated financial statements.

(Unaudited)
(In thousands)

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United State of America, or GAAP, have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements, and reflect all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation in accordance with GAAP. The results of operations for interim periods presented are not necessarily indicative of the operating results for the full year. These consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company 's Annual Report on Form 10-K for the fiscal year ended December 28, 2002.

The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating losses over the last five fiscal years, negative cash flows from operations over the last three fiscal years, and had a stockholders' deficit of $17,349,000 as of June 28, 2003.

The above factors raise substantial doubt about whether the Company can continue as a going concern. Accordingly, the Company continues to reassess its current business plan and investigate various strategic alternatives to increase liquidity. These alternatives may include one or more of the following:

• sale of all or a portion of operating assets;
• restructuring of current operations or reduction in workforce;
• obtaining additional debt or equity capital;
• strategic alliance, acquisition or business combination; or
• restructuring of maturities of long-term obligations, including notes payable to suppliers.

The Company will continue to explore these and other options that would provide additional capital to provide sufficient funds to support its operations. Should the Company not be successful in achieving one or more of these actions, the Company will likely not have sufficient operating capital, and may not be able to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company's sources of capital for operations are currently cash on hand, cash generated from operations and the Company's revolving line of credit with a bank. As of August 14, 2003, the Company had funds available for borrowing under the bank line of credit (including amounts resulting from the over-advance guaranties) of approximately $1,250,000.

The Company's Board of Directors ("Board") has formed a Special Committee to determine the terms and conditions of an equity rights offering to our existing stockholders. However, the Company's Board has not made a final determination on what type of offering would be made. In any case, in order to raise sufficient capital through an equity offering based on the current market prices for the Company's common stock, the Company expects that the number of shares of common stock which may be offered directly or through shares underlying convertible shares would likely result in substantial dilution to existing shareholders.

Due to the Company's continued liquidity constraints, the Company's product suppliers significantly reduced their product shipments during the first four months of 2003. As a result, the Company was unable to fully meet its customer orders, resulting in decreased revenue. Product shipments resumed on a current basis in May 2003. In May 2003, one of the Company's major customers filed bankruptcy, and, during the first quarter of 2003, the Company fully reserved the amount of $5,962,000 on its accounts receivable with this customer. The related bad debt expense is reflected in the Statement of Operations under selling, general and administrative expenses for the six months ended June 28, 2003.

As discussed in Note 5, during the first quarter of 2003, the Company converted certain accounts payable and accrued liability balances due to suppliers to notes payable, in order to maintain an adequate level of liquidity.

During the six months ended June 28, 2003, the Company terminated employment of 107 full- and part-time employees. The Company had paid all severance related to these terminations as of June 28, 2003. Effective in June 2003, the Company terminated an additional 50 full-time employees as a result of an agreement to outsource its repair and service functions (See Note 7). The costs related to this reduction in force, which were recorded in the second quarter of 2003, were not significant.

The Company has recorded a deferred tax valuation allowance equal to 100% of total deferred tax assets. In recording this allowance, management has considered a number of factors, but primarily, the Company's cumulative operating losses over the prior four years. Management has concluded that a valuation allowance is required for 100% of the total deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

At December 28, 2002, the Company had incurred domestic net operating loss carryforwards of approximately $172,000,000, which expire between 2005 and 2022. Under the Tax Reform Act of 1986, the amount of, and the benefit from, net operating losses that can be carried forward is limited due to a cumulative ownership change of more than 50% over a three-year period, which occurred in November 2001 in connection with the Ecrix merger. The portion of Exabyte's and Ecrix's pre-business combination tax carryovers, totaling $153,000,000, that can be utilized in any one taxable year for federal tax purposes is limited to approximately $1.2 million per year through 2021. Future ownership changes could further limit the utilization of the Company's remaining net operating loss carryforward of $19,000,000, in addition to any losses incurred subsequent to December 28, 2002.

As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion ("APB") No. 25 "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, no compensation expense has been recognized for options granted to employees with an exercise price equal to the market value at the date of grant or in connection with the employee stock purchase plan. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and related interpretations.

In accordance with the interim disclosure provisions of SFAS No. 148, "Accounting for Stock Based Compensation Transition and Disclosure-an Amendment of SFAS No. 123," the following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value based method of SFAS No. 123 to stock-based compensation.

Certain reclassifications have been made to prior periods' balances to conform with the current periods' presentation.

Inventories, net of reserves for excess quantities and obsolescence, consist of the following:

During the six months ended June 28, 2003, the Company recorded a reserve of $6,849,000 for excess and obsolete inventory due to changes in sales forecasts and planned discontinuance of older tape drive and automation products.

Accrued liabilities consist of the following:

Pursuant to a vendor note agreement entered into in January 2003, the Company reclassified $3,992,000 of purchase commitments to notes payable, of which $3,000,000 is current as of June 28, 2003.

Basic earnings (loss) per share is based on the weighted average of all common shares issued and outstanding, and is calculated by dividing net income (loss) by the weighted average shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares used in the basic earnings (loss) per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding. For loss periods, the basic and diluted shares are equal, as the inclusion of potentially dilutive common shares would be anti-dilutive. The Company has incurred net losses for all periods presented in its Statements of Operations, and accordingly, basic shares equal diluted shares for all periods presented.

Options to purchase 5,631,000 and 17,979,000 shares of common stock were excluded from dilutive stock option calculations for the three-month periods ended June 29, 2002 and June 28, 2003, respectively, because their exercise prices were greater than the average fair market value of the Company's stock for the period, and as such were anti-dilutive. Additionally, options to purchase 7,432,000 shares of common stock were excluded from dilutive stock option calculations for the three-month period ended June 29, 2002, as these options were anti-dilutive as a result of the net loss incurred.

Options to purchase 5,631,000 and 15,603,000 shares of common stock were excluded from dilutive stock option calculations for the six-month periods ended June 29, 2002 and June 28, 2003, respectively, because their exercise prices were greater than the average fair market value of the Company's stock for the period, and as such were anti-dilutive. Additionally, options to purchase 7,432,000 and 2,345,000 shares of common stock were excluded from dilutive stock option calculations for the six-month periods ended June 29, 2002 and June 28, 2003, respectively, as these options were anti-dilutive as a result of the net losses incurred.

The Company has three series of preferred stock, all of which are convertible into the Company's common stock. The assumed conversion of the preferred shares into common stock for the three- and six-month periods ended June 29, 2002 and June 28, 2003, has been excluded from diluted share calculations, as the effect of the conversions is anti-dilutive.

Also, as a result of their anti-dilutive effect, accumulated preferred dividends of 268,000 and 2,082,000 shares of common stock have been excluded from diluted share calculations for the three-month and six-month periods ended June 29, 2002 and June 28, 2003, respectively.

On April 17, 2003, the Company entered into a Third Modification Agreement ("Modification Agreement") of its Loan and Security Agreement dated June 18, 2002 ("Loan Agreement") with Silicon Valley Bank ("SVB"). Pursuant to this Modification Agreement, SVB agreed to advance the Company up to $2,500,000 in excess of its specified borrowing availability up to a maximum of $20,000,000, waive all defaults existing as of April 17, 2003, increase the Company's current credit limit and change the maturity date of the Loan Agreement to September 30, 2003. As a condition of the Modification Agreement, SVB required guaranties ("Guaranties") up to a maximum of $2,500,000 from the Company's CEO and a significant investor ("Guarantors") for advances in excess of the Company's credit limit. In addition, SVB required that each of the Guarantors enter into a subordination agreement ("Subordination Agreement"), whereby each Guarantor agreed to subordinate to SVB: (1) all of the Company's present and future in debtedness and obligations to the Guarantor; and (2) all of the Guarantor's present and future security interests in the Company's assets and property. Also, the Guarantors may not demand any payment, exercise any remedy or participate in any action with respect to the subordinated debt until Exabyte's debts to SVB have been satisfied. The Modification Agreement also requires that the Company provide to SVB its plan to address certain operating issues including but not limited to: (i) consolidating its Colorado operations into a single location; (ii) reducing its inventory; (iii) resolving outstanding issues related to its liabilities with certain vendors; (iv) reducing certain expenses; and (v) identifying segments of its business that may be considered for sale. SVB's agreement to advance amounts in excess of the credit limit will terminate automatically upon the termination of the Guaranties.

On April 17, 2003, the Company issued SVB a fully vested, immediately exercisable and non-forfeitable warrant to purchase 2,000,000 shares of common stock at an exercise price of $0.105 per share pursuant to the Modification Agreement. The warrant expires on April 17, 2010. The Company determined the value of the warrants to be $159,000 based on the Black-Scholes option-pricing model with the following assumptions: no dividend yield, expected life - 7 years, volatility - 135%, and risk free interest rate - 3.5%. The fair value of the warrant is being recognized as interest expense over the term of the Modification Agreement, which expires on September 30, 2003.

As consideration for the Guaranties, the Company issued to the Guarantors (pro-rata) 25,000,000 shares of its common stock on April 21, 2003, and will issue an additional 12,500,000 shares to be effective July 15, 2003. The Company determined the fair value of the issued shares based on the market price of the Company's stock on the date of issuance, and recorded $2,500,000 of non-cash interest-expense during the second quarter. It is expected that the Guaranties will continue through September 30, 2003 and, accordingly, the Guarantors will receive (pro-rata) an additional 12,500,000 shares on and September 15, 2003. The value of the total shares to be issued under the Guaranties is being recorded as interest expense over the anticipated period that such Guaranties will remain in effect. Subsequent to June 28, 2003, the Company entered into agreements with two additional shareholders to guarantee an additional $250,000 of borrowings from SVB in exchange for up to 5,000,000 common shares to be issued in Ju ly, October, and December 2003.

During the first quarter of 2003, the Company entered into note agreements with four of its largest suppliers. The agreements converted certain accounts payable and accrued liability amounts outstanding at December 28, 2002 to notes payable. As of June 28, 2003, the total amount due under the notes is $19,864,000, of which $16,461,000 is current, and the notes require full payment of all amounts due on specified dates during the period from July 2003 through December 2004. As of August 18, 2003, the Company is attempting to renegotiate the terms of the notes to extend the repayment period. The notes bear interest ranging from zero to 5.0%. The Company accounted for the notes under EITF 96-19, 'Debtors Accounting for a Modification or Exchange of Debt Instruments ("EITF 96-19"). In accordance with the guidance in EITF 96-19, the terms of the notes are not considered to be substantially different than the terms of the original liabilities. Accordingly, the notes are recorded at their principa l amounts and the related interest expense is accounted for using the effective interest rate on each note.

All operations of the Company are considered to be in one operating segment and, accordingly, no segment disclosures have been presented. The Company will continue to review the internal reporting structure for future changes that could result in disclosure of additional segments.

The following table details revenues from external customers by geographic area (foreign revenue is based on the country in which the customer is located):

The following table presents revenue by product line:

The following tables summarize sales to major customers:

No other customers accounted for 10% or more of net sales in any of the above periods.

The following table details long-lived asset information by geographic area:

As of June 28, 2003, the Company was in default under two lease agreements for facilities in Boulder, Colorado due to delinquent rental payments. For the first property, which included the Company's headquarters, the landlord terminated the original lease and subsequent short-term lease on June 30, 2003, and the Company ceased use of the building on that date. Remaining lease payments under the original lease total approximately $1,222,000. The Company expects to cease use of the second property on or about August 31, 2003, at which time the remaining rental payments under that lease will total approximately $2,900,000.

The landlord under the first lease has commenced litigation against the Company and has claimed damages relating to the rental default and an alleged failure to maintain the leased premises. The amount of the remaining lease payments are as noted above, and the amount of other damages were not specified.. The Company believes that such damages will be mitigated to an amount less than the claim, although such amount can not presently be determined, and there can be no assurance that the damages will indeed be mitigated.

The Company is, from time to time, subjected to certain other claims, assertions or litigation by outside parties as part of its ongoing business operations. The outcomes of any such contingencies are not expected to have a material adverse impact on the consolidated financial condition, results of operations or cash flows of the Company.

During the normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include intellectual property indemnities to the Company's customers in connection with the sales of its products, indemnities for liabilities associated with the infringement of other parties' technology based upon the Company's products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. In addition, the Company has contractual commitments to various customers, which could require it to incur costs to repair an endemic defect with respect to its products outside of the normal warranty period if such defect were to occur. The duration of these indemnities, commitments and guarantees var ies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments that the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The Company does, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable.

The Company establishes a warranty liability for the estimated cost of warranty-related claims at the time revenue is recognized. The following table summarizes information related to the Company's warranty reserve as of and for the six-months ended June 28, 2003:

(In thousands)

In July 2003, the Company entered into an agreement to outsource its repair and service functions to an outside third party, Teleplan Service Logistics, Inc. ("Teleplan"). The agreement provided for the Company to sell parts and service inventory to Teleplan and the payment of future royalties to the Company by Teleplan for certain out-of-warranty repair services. In addition, the Company will reimburse Teleplan for specified product warranty related services. As a result of this agreement, the Company reduced its workforce by approximately 50 employees effective in June 2003. As of June 28, 2003, the Company identified and notified all impacted employees related to this reduction in force, and recorded costs of approximately $165,000.

In November 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 addresses how to determine whether a revenue arrangement involving multiple deliverables contains more than one unit of accounting for the purposes of revenue recognition and how the revenue arrangement consideration should be measured and allocated to the separate units of accounting. EITF Issue No. 00-21 applies to all revenue arrangements that the Company enters into after June 28, 2003. The adoption of this statement is not currently anticipated to have a material impact on the Company's financial condition or results of operations.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." FIN 46 provides guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, and results of operations of a VIE need to be included in a company's consolidated financial statements. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders in a VIE. The provisions of FIN 46 are effective immediately for all VIEs created after January 31, 2003. For VIEs created before February 1, 2003, the provisions of FIN 46 must be adopted at the beginning of the first interim or annual reporting period beginning after June 15, 2003. While the Company is currently evaluating the potential impact of the adoption of FIN 46, the Company believes that it will not be subject to the consolidation or disclosure requirements of FIN 46.

In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 provides for certain changes in the accounting treatment of derivative contracts. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except for certain provisions that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, which should continue to be applied in accordance with their respective effective dates. The requirements of SFAS No. 149 should be applied prospectively. Management anticipates that the adoption of SFAS No. 149 will not have a material impact on the Company's consolidated financial statements.

Also in May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This new statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. It requires that those instruments be classified as liabilities in balance sheets. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the Company's third quarter of 2003. The adoption of this statement did not have a material impact on the Company's consolidated financial statements

The following discussion contains forward-looking statements that involve future risks and uncertainties. We may achieve different results than those anticipated in these forward-looking statements. The actual results that we achieve may differ materially from any forward-looking statements due to such risks and uncertainties. Words such as 'believes,' 'anticipates,' 'expects,' 'intends,' 'plans' and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. You should take into account the risks described in our Annual Report on Form 10-K for the year ended December 28, 2002 and other factors described below when considering such forward-looking statements. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report.

We are a leading provider of information storage products, including tape drive products, automated tape libraries and recording media. Our strategic focus is data backup and archival applications for workstations, midrange computer systems and networks. Computer manufacturers and resellers require a variety of storage products, which vary in price, performance, capacity and form-factor characteristics as their needs for reliable data backup and archival storage increase. Our strategy is to offer a number of products to address a broad range of these requirements.

Our tape drive products are based on VXA® and MammothTape™ technologies and our tape library products are based upon VXA®, MammothTapeÔ , LTOÔ (UltriumÔ ) technologies.

We market our products worldwide to distributors, resellers and original equipment manufacturers ("OEMs"). We have also provided repair services directly to OEMs and to our distributors' and resellers' customers, and in the future our outsourcing partner, as discussed below, will provide such services.

Our distributor and reseller channel customers purchase products for resale and they may provide services to their customers, such as:

• distribution;
• financial terms and conditions;
• pre-sales, sales and/or post-sales system upgrades; or
• other value-added products and/or services.

Even though we have no obligation, we support some of these customers by providing marketing and technical support directly to them or their consumers. As a result, we may incur certain additional costs for these sales. Other costs and risks associated with our distributor or reseller customers may include:

• inventory price protections;
• stock rotation obligations;
• short term marketing promotions; and
• customer and consumer rebates.

OEM customers incorporate our products as part of their own systems, which they then sell to their customers under their own brand name. We work closely with our OEM customers during early product development stages to help ensure our products will readily integrate into the OEM's systems.

The sales cycle for an OEM typically covers many months. During this time, the OEM may:

• evaluate the technology;
• qualify the product specifications;
• verify our compliance with product specifications;
• integrate the product into its system; and
• publicly announce the integration. This step typically occurs toward the end of the sales cycle before volume shipments of our products are made to the OEM.

Due to our continued liquidity constraints, our product suppliers significantly reduced their product shipments to us during the first four months of 2003. As a result, we were unable to fully meet our customer orders during the first quarter. Product shipments resumed on a current basis in May 2003. As of August 18, 2003, we were filling all backlog orders on a current basis, and we are receiving product shipments on an as-needed-basis from all significant suppliers.

In May 2003, one of our major customers filed bankruptcy. As of March 29, 2003, we had totally reserved the amount of $5,962,000 on our accounts receivable with this customer.

During the first quarter of 2003, we recorded additional inventory reserves of $6,849,000 for excess and obsolete inventory due to changes in sales forecasts and planned discontinuance of older tape drive and automation products.

In July 2003, we entered into an agreement to outsource our repair and service functions to an outside third party, Teleplan Service Logistics, Inc. as described in Note 7 to the consolidated financial statements.

As of August 18, 2003, we are attempting to renegotiate the terms of notes payable previously entered into with four of our largest suppliers. See further discussion under "Liquidity and Capital Resources" and Note 5 to the consolidated financial statements.

In July, 2003, the Company entered into an agreement with two additional shareholders to guarantee an additional $250,000 of borrowings from Silicon Valley Bank in exchange for up to 5,000,000 common shares to be issued in July, October and December 2003.

The Company is in default under two lease agreements for facilities and is a defendant in litigation regarding one lease, as described in Note 7 to the consolidated financial statements. 

The following table sets forth our operating results as a percentage of sales for each period presented.

The following tables present our revenue by product in absolute dollars and as a percentage of sales for each period presented.

As a percentage of net sales:

Our net sales decreased by 36.2% from $35,649,000 in the second quarter of 2002 to $22,736,000 in the second quarter of 2003. Our sales decreased by 37.3% from $72,254,000 in the first six months of 2002 to $45,330,000 in the first six months of 2003. Both decreases are principally due to the continued downturn in business spending, the bankruptcy of a significant customer, and our inability to fulfill sales orders. Our inability to fulfill sales orders was due to reduced shipments from a supplier, primarily in the first four months of 2003, as a result of our continued liquidity constraints. As percentages of total net sales, sales of drives and media were comparable to those in 2002. For 2003, sales of VXA®-1 and VXA®-2 drives continued to replace declining sales of M2Ô drives. We began shipping VXA®-2 drives to the OEM channel in May 2003. Total revenue dollars from service, spares and other remained relatively constant from the second quarter of 2002 to the second quarter of 2003, but was a higher percentage of total net sales in 2003 due to decreased drive and library sales in 2003. Total service revenue, and related costs, may decrease significantly in the future as a result of the outsourcing of this function to TelePlan in July 2003.

As a percentage of total net sales, sales of libraries decreased from 25.5% in the second quarter of 2002 to 14.3% in the second quarter of 2003. For the first six months of 2002, library sales as percentage of total net sales decreased from 24.6% to 16.6% in the first six months of 2003. Both decreases are primarily the result of our inability to fulfill sales orders due to reduced library shipments from our supplier as noted above.

The following table details our sales to different customer types as a percentage of total net sales for the periods presented:

Sales to distributor/reseller and OEM customers decreased as a percentage of net sales from the second quarter as well as the first six months of 2002 to the same periods in 2003, while sales to end-user customers (primarily service, repair and sales of spare parts) increased for the comparable periods. Our ongoing effort to sell VXA® products to OEMs is an important part of our business plan and return to profitability. The decrease in sales to OEMs is primarily a result of significant decreases in sales of Mammoth and M2™ products.

Geographically, sales are attributed to the customer's location. The following table summarizes our sales to different geographic locations as a percentage of total net sales for the periods presented:

The following table summarizes customers who accounted for 10% or more of our sales in the periods presented:

No other customers accounted for 10% or more of sales in any of these periods. We cannot guarantee that sales to these or any other customers will continue to represent the same percentage of our revenue in future periods. Our customers also sell competing products and continually review new technologies which causes our sales volumes to vary from period to period.

Our cost of sales includes the actual cost of all materials, labor and overhead incurred in the manufacturing and service processes, as well as certain other related costs, which include primarily provisions for warranty repairs and inventory reserves. Our cost of sales decreased from $27,196,000 for the second quarter of 2002 to $16,378,000 for the second quarter of 2003; our cost of sales for the first six months of 2002 and 2003 decreased from $63,092,000 to $42,403,000, respectively. Our gross margin percentage increased from 23.7% in the second quarter of 2002 to 28.0% in the second quarter of 2003 and our gross margin percentage decreased from 12.7% for the first six months of 2002 to 6.5% for the first six months of 2003. For the first six months of 2002, cost of sales included restructuring charges of $3,736,000, and for the first six months of 2003, cost of sales included additional inventory reserves recorded of $6,849,000. Excluding the restructuring charges in 2002 and the addit ional inventory reserves in 2003, our cost of sales for the first six months of 2002 and 2003 decreased from $59,356,000 to $35,554,000, respectively, and our gross margin percentage increased from 17.9% to 21.6%, respectively. For the second quarter and first six months of 2003, gross margins were positively impacted by decreases in fixed costs, due to headcount reductions in 2002, and decreased warranty reserves, primarily due to the decrease in the number of units under warranty for Mammoth and M2™ products, an overall decrease in standard warranty cost per unit, and lower freight costs in 2003. Gross profit for the first six months of 2002 was negatively impacted by increased inventory reserves, the write-off of an in-process capital asset project and additional reserves recorded for vacated excess facilities.

Selling, general and administrative ("SG&A") expenses include salaries, sales commissions, advertising expenses and marketing programs. These expenses decreased from $7,070,000 in the second quarter of 2002 to $5,716,000 for the same period in 2003. The decrease is the result of headcount reductions in 2002 and the first quarter of 2003, the impact of which was primarily realized in the second quarter of 2003, a decrease in product related spending on sales, marketing and advertising programs, and the collection of previously reserved accounts receivable. For the first six months of 2002 and 2003, SG&A expenses increased from $15,867,000 to $18,124,000, respectively. For the first six months of 2002, SG&A expenses included restructuring charges of $509,000, and for the first six months of 2003, SG&A expenses included $5,962,000 for bad debt expense related to a major customer. Excluding these charges for the respective six-month periods of 2002 and 2003, SG&A expenses we re $15,358,000 and $12,162,000, respectively. As noted above, this decrease is the result of headcount reductions and a decrease in product related expenses for sales, marketing and advertising programs.

Research and development expenses decreased from $6,273,000 in the second quarter of 2002 to $2,462,000 for the same period in 2003. For the first six months of 2002 and 2003, these expenses decreased from $13,641,000 to $5,588,000, respectively. The decreases in both the second quarter and six-month periods of 2003 are the result of headcount reductions, lower costs for external engineering, and a decrease in costs incurred in developing VXA-2 and automation products.

Other income (expense), net consists primarily of income from the sales of our ownership interests in other companies, a one-time sale of technology, interest expense, foreign currency remeasurement and transaction gains and losses and other miscellaneous items. For the second quarter of 2003, other income (expense) was comprised primarily of interest expense of $3,231,000, of which $2,571,000 was non-cash interest related to the issuance of common stock in exchange for investor guarantees on our bank line of credit and common stock warrants issued to our bank. The remaining interest expense was interest and fees incurred on our bank line of credit. For the first six months of 2003, interest expense includes the non-cash interest noted above and $1,127,000 of bank interest and fees. For the second quarter and first six months of 2002, we recognized interest expense of $997,000 and $1,290,000, respectively, of which $466,000 related to the beneficial conversion feature of a bridge loan and t he value of related stock warrants. Our interest incurred on our bank line of credit was higher in 2003 compared to 2002 due to a default rate of 9.5% for 2003 as compared to 5.5% for 2002.

During the second quarter of 2002, we sold our remaining ownership interest in CreekPath Systems, Inc., resulting in a gain of $1,500,000. Also, during the first quarter of 2002, we recognized income of $1,200,000 related to the sale of a manufacturing license agreement. Both of these items are included in other income for first six months of 2002.

Translation/remeasurement loss decreased from $959,000 to $157,000 and from $776,000 to $212,000 for the second quarter and first six months of 2002 and 2003, respectively. These decreases resulted mainly from a significant strengthening of the Japanese Yen against the U.S. dollar in 2002 versus 2003. Translation/remeasurement loss was also increased in 2003 by the strengthening of the Euro against the U.S. dollar.

The provision for income taxes for the second quarter and first six months of 2003 represents foreign taxes. During the first quarter of 2002, we recorded the benefit of a federal tax refund in the amount of $453,000 offset by a provision of $111,000 related to state and foreign taxes. Based on cumulative operating losses over the prior five years and future profitability uncertainty, we continue to reserve 100% of our deferred tax assets. We believe a 100% valuation allowance will be required until we attain a consistent and predictable level of profitability.

See Note 1 to the consolidated financial statements for information regarding our domestic net operating loss carryforwards.

We have incurred operating losses over the last five fiscal years, negative cash flows from operations over the last three fiscal years, and had a stockholders' deficit of $17,349,000 as of June 28, 2003. Additionally, as of June 28, 2003, we had limited cash and cash equivalents and limited available borrowings under our line of credit.

The above factors raise substantial doubt about whether we can continue as a going concern. Accordingly, we continue to reassess our business and investigate various strategic alternatives to increase liquidity. These alternatives may include one or more of the following:

• sale of all or a portion of our operating assets;
• restructuring of current operations or reduction in workforce;
• obtaining additional debt or equity capital;
• strategic alliance, acquisition or business combination; or
• restructuring of maturities of long-term obligations, including notes payable to suppliers.

We will continue to explore these and other options that would provide funds to support our operations. Should we not be successful in achieving one or more of these actions, it is possible that we may not be able to continue as a going concern.

Due to our continued liquidity constraints, our product suppliers significantly reduced their product shipments to us during the first four months of 2003. As a result, we were unable to fully meet our customer orders during the first quarter. Product shipments resumed on a current basis in May 2003. By August 18, 2003, we were filling all backlog orders on a current basis, and we are receiving product shipments on an as-needed-basis from all significant suppliers.

We believe that the Company should raise additional equity to support our operations both in the short-term and long-term and to address our liquidity constraints. An equity offering may involve, among other things, common stock, preferred stock, convertible preferred stock or convertible debt. It could be private or public. The Company's Board of Directors ("Board") has formed a Special Committee to determine the terms and conditions of an equity rights offering to our existing stockholders. Our Board has not made a final determination on what type of offering would be made. Any new equity offering will likely result in substantial dilution to existing shareholders.

We also believe that an equity offering will be more attractive to investors if we can reduce our outstanding debts so that we use a substantial portion of the funds raised in the offering for our operations rather than the payment of existing debts. Our success in reducing our debt will determine whether we conduct an equity offering at all, or the size and type of equity offering that we do conduct, which may include a rights offering. During the second and third quarters of 2003, we have been actively negotiating with certain of our trade creditors to reduce amounts owed to them and to establish deferred payment plans. In addition, as discussed below, we are negotiating with our major suppliers to extend the repayment periods for existing notes payable.

On April 17, 2003, we entered into a Third Modification Agreement ("Modification Agreement") of our Loan and Security Agreement dated June 18, 2002 ("Loan Agreement") with Silicon Valley Bank ("SVB"). Pursuant to this Modification Agreement, SVB agreed to advance the Company up to $2,500,000 in excess of our specified borrowing availability, up to a maximum of $20,000,000, waive all defaults existing as of April 17, 2003, increase our current credit limit and change the maturity date of the Loan Agreement to September 30, 2003. As a condition of the Modification Agreement, SVB required guaranties ("Guaranties") up to a maximum of $2,500,000 from the Company's CEO and a significant investor ("Guarantors") for advances in excess of our credit limit. In addition, SVB required that each of the Guarantors enter into a subordination agreement ("Subordination Agreement"), whereby each Guarantor agreed to subordinate to SVB: (1) all of our present and future indebtedness and obligations to the Guar antor; and (2) all of the Guarantor's present and future security interests in our assets and property. Also, the Guarantors may not demand any payment, exercise any remedy or participate in any action with respect to the subordinated debt until our debts to SVB have been satisfied. The Modification Agreement also requires that we provide to SVB our plan to address certain operating issues including but not limited to: (i) consolidating our Colorado operations into a single location; (ii) reducing our inventory; (iii) resolving outstanding issues related to our liabilities with certain vendors; (iv) reducing certain expenses; and (v) identifying segments of our business that may be considered for sale. SVB's agreement to advance amounts in excess of the credit limit will terminate automatically upon the termination of the Guaranties.

On April 17, 2003, we issued SVB a fully vested, immediately exercisable and non-forfeitable warrant to purchase 2,000,000 shares of common stock at an exercise price of $0.105 per share pursuant to the Modification Agreement. The warrant expires on April 17, 2010. We determined the value of the warrants to be $159,000, based on the Black-Scholes option-pricing model with the following assumptions: no dividend yield, expected life - 7 years, volatility - 135%, and risk free interest rate - 3.5%. The fair value of the warrant is being recognized as interest expense over the term of the Modification Agreement, which expires on September 30, 2003.

As consideration for the Guaranties, we issued to the Guarantors (pro-rata) 25,000,000 shares of our common stock on April 21, 2003, and will issue an additional 12,500,000 shares to be effective July 15, 2003. We determined the fair value of the issued shares based on the market price of our stock on the date of the issuance, and recorded $2,500,000 of non-cash interest-expense during the second quarter. We expect that the Guaranties will continue through September 30, 2003 and, accordingly, the Guarantors will receive (pro-rata) an additional 12,500,000 shares on September 15, 2003. Subsequent to June 28, 2003, we entered into agreements with two additional shareholders to guarantee an additional $250,000 of borrowings from SVB in exchange for up to 5,000,000 common shares to be issued in July, October, and December 2003.

During the first quarter of 2003, we entered into note agreements with four of our largest suppliers. The agreements converted certain accounts payable and accrued liability amounts outstanding at December 31, 2002 to notes payable. As of June 28, 2003, the total amount due under the notes is $19,864,000. Payment terms on the notes require full payment of all amounts due on specified dates over the period from July 2003 through December 2004. As of August 18, 2003, we are attempting to renegotiate the terms of the notes to extend the repayment period. The notes bear interest ranging from zero to 5.0%.

We are committed to make certain payments under long-term and other obligations. Our cash payments due under contractual obligations as of June 28, 2003 are as follows (in thousands):

We expect to fund these obligations through alternatives discussed above.

As of June 28, 2003, we had limited cash and cash equivalents and negative working capital of $24,266,000. Cash and cash equivalents increased from December 28, 2002 by $684,000 due to the net of $7,684,000 of cash provided by operating activities, $2,026,000 used by investing activities and $4,974,000 used by financing activities. Cash provided by operating activities is primarily attributable to the net reductions in inventory of $14,433,000 and accounts receivable of $5,819,000, an increase in accounts payable of $1,928,000, less the net loss of $24,632,000. Inventory decreased as a result of both reduced inventory quantities and increased inventory reserves on certain end of life and older products. The reduction in accounts receivable is a combination of an increase in the allowance for doubtful accounts of $5,962,000 as a result of a major customer filing bankruptcy, and a decrease in gross accounts receivable, primarily due to decreased sales and improved cash collections during the first six months of 2003. The increase in accounts payable relates to increased product shipments from suppliers in June 2003. Cash used by investing activities is due to capital expenditures, primarily incurred on product tooling for the VXA tape drives. Cash used by financing activities is primarily due to net payments of $4,068,000 on our line of credit.

Information concerning recent accounting pronouncements is incorporated by reference from Item 1 above, "Financial Statements" under Note 8 of Notes to Consolidated Financial Statements.

In the ordinary course of our operations, we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates. Uncertainties that are either nonfinancial or nonquantifiable, such as political, economic, tax, other regulatory or credit risks are not included in the following assessment of our market risks. We are primarily impacted by fluctuations in the dollar/yen exchange rate as a result of outsourcing of certain manufacturing to Hitachi and others. Our borrowings under our line of credit agreement expose us to changes in interest rates.

Information concerning the Company's market risk is incorporated by reference from Item 2 above, 'Management's Discussion and Analysis of Financial Condition and Results of Operations,' under the caption, 'Market Risk.'

The Company's management, with the participation of the Company's principal executive and principal financial officers, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 28, 2003. Based upon this evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of that date for purposes of recording, processing, summarizing and timely reporting material information required to be disclosed in reports that the Company files under the Securities Exchange Act of 1934.

There were no changes in the Company's internal control over financial reporting that occurred during the Company's quarter ended June 28, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Attached as exhibits to this Quarterly Report are certifications of the CEO and interim CFO. These certifications are required by Section 302 of the Sarbanes-Oxley Act of 2002. This section of the Quarterly Report contains information regarding the disclosure controls and procedures referred to in certifications. These certifications should be read in conjunction with this section for a more complete understanding of the topics presented.

During the second quarter of 2003, the Company issued 25,000,000 shares of its common stock to two guarantors of a total of $2,500,000 under the Company's revolving line of credit with Silicon Valley Bank. The common stock was issued in exchange for such guarantees to a significant investor in the Company and the Company's President who is also a stockholder of the Company. The Company believes that these parties met the standards for purchasers in a non-public offering, and the Company relied upon an exemption from securities registration for a non-public offering in selling those shares.

On June 23, 2003, we held an Annual Meeting of Stockholders. At the meeting, we asked stockholders to vote upon four proposals:

Proposal 1:     Elect 3 directors to hold office until the 2006 Annual Meeting.

Proposal 2:     Ratify the Board's selection of PricewaterhouseCoopers LLP as our independent accountants for fiscal 2003.

Proposal 3:     Amend the Restated Certificate of Incorporation to increase the number of our shares of authorized common stock from 100 million shares to 350 million shares.

Proposal 4:     Approve amendments to our Restated Certificate of Incorporation to effect a reverse split of our outstanding common stock pursuant to which any whole number of outstanding shares between and including two and 15 would be combined into one share of our common stock, and to authorize our Board, in its sole discretion, to select and file one of these amendments to effect a reverse stock split or to determine not to effect, and thereby abandon, the reverse stock split.

A total of 64,176,551 shares of Common Stock, Series G preferred, Series H preferred and Series I preferred combined, representing approximately 82% of the total shares eligible to vote, and 82% of the total votes of shares eligible to vote at the meeting, were represented at the meeting. The number of votes cast for, against or withheld, as well as abstentions and broker non-votes as to each proposal, are as follows:

Each of these proposals was passed by the stockholders. Information on the re-elected directors and the name of other directors who continued in office are described in Item 5 below, which information about the directors is incorporated herein by reference.

The directors and executive officers of the Company and their ages as of August 11, 2003, are as follows:

Mr. Juan A. Rodriguez, age 62, has served as a director and Chief Technologist of Exabyte since November 2001, was its interim President and Chief Executive Officer from January 2002 until June 2002, and has served as its Chairman of the Board and Chief Technologist since June 2002. Mr. Rodriguez co-founded Ecrix Corporation in 1996 and was its Chairman of the Board and Chief Executive Officer since 1996. Mr. Rodriguez co-founded Storage Technology Corporation in 1969 after several years as an IBM tape technology engineer. While at Storage Technology Corporation, he served in vice presidential and general manager roles over Engineering, Hard Disk Operations and Optical Disk Operations. In 1985, Mr. Rodriguez co-founded Exabyte Corporation, where he held the positions of chairman, president and CEO. Mr. Rodriguez is a professor for the University of Colorado Bankers College of Engineering and Applied Science.

Mr. Tom Ward, age 46, joined Exabyte as its President, Chief Executive Officer and a director in June 2002. Mr. Ward founded Data Storage Marketing, a distributor of storage products, in 1987 and sold the company to General Electric in 1997. Mr. Ward founded Canicom in 1997, a call center company, which he sold to Protocol Communications, an integrated direct marketing company, in 2000, assuming the position of Chief Operating Officer until June 2001. Mr. Ward began his career with Storage Technology Corporation serving in several roles in engineering and marketing. He later joined MiniScribe as Director of Sales for High Performance Products.

Mr. Leonard W. Busse, age 65, became a director of Exabyte in October 2002. Mr. Busse is a Certified Public Accountant. From 1998 to 2000, Mr. Busse was the Chief Financial Officer and a director of Worldbridge Broadband Services of Lakewood, CO, a telecom technical services company. Prior to Worldbridge, he was the Managing Director and Chief Executive Officer of First Citizens Bank Limited in Trinidad and Tobago from 1994 to 1996. Mr. Busse was also the President and Chief Executive Officer of The Pacific Bank of San Francisco from 1993 to 1994 and provided consulting services through his consulting company, The Busse Group, from 1989 to 1993. Prior to these positions, he held various executive management positions with Continental Illinois National Bank of Chicago over 25 years.

Mr. A. Laurence Jones, age 50, has served as a director of Exabyte since May 1998, and served as non-executive Chairman of the Board from January 2002 until June 2002. He is currently the Chairman and CEO of Interelate Inc., a leading provider of outsourced Customer Relationship Management services. He is also the principal of Aegis Management, LLC, which provides high-level management consulting services. Mr. Jones served as President and Chief Executive Officer of Messagemedia, Inc., a provider of advanced email marketing services, from March 1999 until January 2002. Previously, Mr. Jones served as an independent operating affiliate of McCown DeLeeuw and Co., a private equity firm, and chairman of SARCOM, a national IT services company. From 1993 to 1998 Mr. Jones served as President and Chief Executive Officer of Neodata Services, Inc., a direct marketing services company with lead investor Hicks, Muse, Tate and Furst. Mr. Jones also served as President and Chief Executive Officer of GovPX, Inc. , a leading financial information services provider from 1991 to 1993. From 1987 to 1991 Mr. Jones was with Automatic Data Processing and from 1977 to 1987 he was with Wang Laboratories. Mr. Jones also serves as a director of CCI/Triad, a private computer services company and Realm Corporation, a private real estate software company.

Mr. Thomas E. Pardun, age 59, has served as a director of Exabyte since April 1995. Mr. Pardun served as Chairman of the Board of Western Digital Corporation, an information storage provider, from January 2000 until December 2001, and Chairman of the Board and Chief Executive Officer of edge2net, Inc., a provider of voice, data and video services, from November 2000 until September 2001. Previously, Mr. Pardun was President of MediaOne International (previously U.S. West International, Asia-Pacific, a subsidiary of U.S. West, Inc.), an owner/operator of international properties in cable television, telephone services, and wireless communications companies, from May 1996 until his retirement in July 2000. Before joining U.S. West, Mr. Pardun was President of the Central Group for Sprint, as well as President of Sprint's West Division and Senior Vice President of Business Development for United Telecom, a predecessor company to Sprint. Mr. Pardun also held a variety of management positions during a 1 9-year tenure with IBM, concluding as Director of product line evaluation. Mr. Pardun also serves as a director of Western Digital Corporation and it subsidiary companies, as well as MegaPath Networks.

Ms. Stephanie L. Smeltzer, age 34, joined Exabyte as a director in September 2002. She is a Vice President with Meritage Private Equity Funds, a Denver-based fund with over $475 million in committed capital. Ms. Smeltzer joined Meritage in 2001. Prior to joining Meritage, Ms. Smeltzer earned an M.B.A. from Harvard Business School with high distinction as a George F. Baker Scholar. Previously, she was an investment banking professional with The Wallach Company, a boutique firm located in Denver, Colorado, during 1999. From 1995 to 1999, Ms. Smeltzer was an associate director with Arthur Andersen and co-founded their corporate finance practice in Moscow, Russia. Ms. Smeltzer is a member of the American Institute of Certified Public Accountants. Ms. Smeltzer also serves on the board of directors of Trillion Partners, a Meritage portfolio company.

Mr. G. Jackson Tankersley, Jr., age 54, has served on Exabyte's Board of Directors since November 2001. Mr. Tankersley previously served on Ecrix's Board of Directors from 1996 until November 2001. He is a co-founder and principal of Meritage Private Equity Funds, a Denver-based firm with more than $475 million of committed capital under management. Previously, Mr. Tankersley co-founded The Centennial Funds in 1981 and served as either its chief executive officer or chief investment officer until 1997. He began his career at Continental Illinois Bank in 1974 and joined its venture capital subsidiary in 1978. Mr. Tankersley also serves on the boards of directors of several private companies, some of which are Meritage portfolio companies.

Mr. Carroll A. Wallace, age 53, was engaged as a consultant in May 2003 to act as the interim Chief Financial Officer of Exabyte. Mr. Wallace was a partner at KPMG LLP from 1982 to 2002, at which time he retired from the firm. During Mr. Wallace's tenure at KPMG, he served as partner in charge of the audit department of the Denver, Colorado office from 1992 to 1995, and from 1995 through 2001, Mr. Wallace headed KPMG's Colorado technology practice which served companies ranging in size from early growth stage to large diverse corporations.

Mr. Wallace is the subject of an administrative proceeding commenced by the Securities and Exchange Commission in April, 1999, alleging that Mr. Wallace violated applicable auditing standards in the audit of financial statements of a public investment company for 1994 and 1995. The claims concern an alleged misclassification (in one year) and overstatement in the value of restricted securities held by the investment company in one particular portfolio company. Mr. Wallace denies all such claims. In December 2000, an administrative law judge at the SEC entered an initial decision adverse to Mr. Wallace and concluded that Mr. Wallace should be temporarily denied the privilege of practicing before the SEC as an accountant for one year. As stated in that decision, no fraud or investor losses were charged or proven. Mr. Wallace has appealed the decision to the Commission, and therefore the initial decision is not in effect. Mr. Wallace intends to continue to appeal this decision outside of the SEC, as necessar y and appropriate.

*  Certain portions of this exhibit have been omitted as confidential.

The Company filed three Reports on Form 8-K for the second quarter of 2003:

• Current Report file April 24, 2003, regarding Item 5;
• Current Report filed May 14, 2003, regarding Items 7 and 12; and
• Current Report filed June 15, 2003, regarding Item 9.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized.