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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 0-23418

MTI Technology Corporation

4905 East La Palma Avenue

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

     Indicate by check mark 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 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was $9,500,630 on June 14, 2002, based on the closing sale price of such stock on The Nasdaq National Market. The number of shares outstanding of Registrant’s Common Stock, $0.001 par value, was 32,733,728 on June 14, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

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PART I

Item 1.     Business

Introduction

      MTI Technology Corporation was incorporated in California in March 1981 and reincorporated in Delaware in October 1992. Our principal executive offices are located at 4905 East La Palma Avenue, Anaheim, California 92807. Our telephone number at that location is (714) 970-0300. References in this Form 10-K to “we,” “our,” “us,” the “Company” and “MTI” refer to MTI Technology Corporation and its consolidated subsidiaries.

      All references to years refer to our fiscal years ended April 4, 1998, April 3, 1999, April 1, 2000, April 7, 2001 and April 6, 2002, as applicable, unless the calendar year is specified. References to dollar amounts that appear in the tables and in the Notes to Consolidated Financial Statements are in thousands, except share and per share data amounts, unless otherwise specified. The fiscal year ended April 7, 2001 consisted of 53 weeks. All other fiscal years consisted of 52 weeks.

Overview

      MTI Technology Corporation is a provider of high-availability, fault-tolerant solutions for the mid-range and enterprise-storage marketplace. We offer a complete line of integrated products and sophisticated professional services that provide customers with a full range of hardware, software and networking components and support, which we combine into one solution. We have historically sold our products and services to Global 2000 companies for their data center computing environments. In an effort to restore profitability and improve liquidity, we plan to shift our focus away from our proprietary products to a broader range of third-party integrated products.

      The products we sell and support are compatible with Sun Solaris, HP-UX, Windows NT, Novell Netware, IBM AIX, and Linux operating systems, which enable us to address a broad range of customer applications and markets.

      Our customers represent a cross section of industries and governmental agencies and range from Fortune 500 companies to small businesses. No single customer accounted for more than 10 percent of total revenue during fiscal years 2002, 2001 and 2000.

Significant Business Developments

      We continue to restructure our operations (the “Restructuring”) in an effort to reduce operating expenses. Over the past two years, we have reduced our workforce headcount by approximately 45% and have recently shut down our facilities in Sunnyvale, California; Boston, Massachusetts; Austin, Texas; Denver, Colorado; Florida and North Carolina. We have begun the process, which we expect to complete by the second quarter of fiscal 2003, of consolidating all manufacturing and assembly operations into our facility in Dublin, Ireland. We also anticipate reducing the amount of space leased for our corporate headquarters after our Anaheim lease expires in January 2003.

      As part of the Restructuring, we plan to emphasize our expertise in the design, deployment and servicing of integrated solutions for the enterprise-storage marketplace. We anticipate changing our product sales mix away from proprietary products to integrated products, such as Vivant 400, an IBM/ Mylex-based product. We also anticipate selling a higher proportion of non-MTI branded products. Although we expect to continue to develop and manufacture proprietary products, we plan to do so at significantly reduced levels, resulting in lower research and development expenditures.

      The primary goal of the Restructuring is to reduce costs. We believe the Restructuring may have other benefits as well, including: the ability to offer a wider range of products; greater flexibility in designing solutions for our customers; and the ability to react more quickly to changing technologies.

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      We face significant risks and uncertainties in connection with the Restructuring and we have incurred substantial charges in connection with the Restructuring, more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Despite the Restructuring activities that have taken place to date, we have continued to incur recurring losses from operations. There can be no assurance that the Restructuring will be successful or that the anticipated cost savings will be realized. Please see “Risk Factors” for additional risks related to the Restructuring.

      In February 2002, The Canopy Group, Inc. (“Canopy”), our largest stockholder, lent us $1.9 million. We then entered into a Loan Agreement (the “Canopy Loan Agreement”) with Canopy on June 27, 2002, allowing us to borrow, subject to certain conditions, up to $7.0 million under a revolving line of credit. The line will mature on June 30, 2003, bearing an interest rate of nine percent per annum and will be secured by a security interest in substantially all of our assets. The outstanding $1.9 million loan has been converted to borrowings against this line of credit. The Canopy Loan Agreement contains negative covenants placing certain restrictions on our ability to repurchase capital stock, pay dividends or make distributions, purchase or sell assets, incur liens on our assets, incur additional debt, merge with another entity, make loans or investments, amend our charter Certificate of Incorporation or bylaws or issue stock. Although we are currently in compliance with all of the terms of the Canopy Loan Agreement, and believe that we will remain in compliance, there can be no assurance that we will be able to borrow under the Canopy Loan Agreement. Canopy may terminate the Canopy Loan Agreement and declare all amounts outstanding immediately due and payable upon an event of default, including upon 30 days notice in the event that Canopy in good faith deems its interest in MTI to be insecure, the value of the collateral to have significantly declined, or the prospect of timely payment or performance to be impaired. Canopy owns approximately 14,463,000 shares, or 44.7%, of our issued and outstanding common stock. Raymond Noorda, Chairman of MTI, is also Chairman of the Canopy Group and the beneficial owner of the majority interest in the Canopy Group. See Note 7 of Notes to Consolidated Financial Statements.

      In addition, on June 27, 2002, we entered into a termination agreement with Silicon Valley Bank, dated as of June 25, 2002, terminating our $15 million credit facility. Due to certain financial covenant restrictions, with which we were not in compliance, we were unable to borrow under this credit facility and thus, had no outstanding borrowings as of June 27, 2002 under our facility with Silicon Valley Bank.

      On June 26, 2002, we entered into an agreement with Caldera International, Inc. (“Caldera”), whereby Caldera agreed to purchase all of the approximately 1.19 million shares of Caldera common stock held by us at a per share purchase price of $.90, for a total of approximately $1.1 million. The transaction is scheduled to close on or before July 8, 2002, subject to the satisfaction of certain closing conditions. There can be no assurance that such conditions will be satisfied.

EMC Agreement

      Effective February 9, 1996, we entered into an agreement (the “EMC Agreement”) with EMC Corporation (“EMC”), in which we sold to EMC substantially all of our existing patents, patent applications and related rights. We were entitled to receive $30.0 million over the life of the EMC Agreement. The final payment of $5.0 million was received in January 2001. We also were entitled to receive royalty payments in the aggregate of up to a maximum of $30.0 million over the term of the EMC Agreement.

      As part of the maximum $30.0 million in royalties, minimum royalties of $10.0 million were to be received in five annual installments, beginning within thirty days of the first anniversary of the effective date of the EMC Agreement, and within thirty days of each subsequent anniversary thereof. As of March 2001, we had received all installments. Also, as a result of a computer and technology agreement between EMC and IBM announced in March 1999, the minimum royalties of $10.0 million were to be increased to $15.0 million. Payments were to be received under the EMC Agreement in five equal annual installments. We received the

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      We also received from EMC an irrevocable, non-cancelable, perpetual and royalty-free license to exploit, market and sell the technology protected under the applicable patents. This license will terminate in the event of a change in control of the Company involving certain acquirers. As part of the EMC Agreement, MTI and EMC granted to each other a license to exploit, market and sell the technology associated with each of their respective existing and future patents arising from any patent applications in existence as of the effective date of the EMC Agreement for a period of five years, which expired February, 2001. See Note 12 of Notes to Consolidated Financial Statements.

Our Market

      In the last decade, there has been a dramatic increase in the volume of data created, stored, processed and accessed throughout business organizations and this growth is projected to continue in the long term. In addition, organizations have recognized the increasing value of their data as strategic, competitive and often mission-critical assets. These organizations are demanding rapid and reliable access to this data 24 hours-a-day, 7 days-a-week and 365 days-a-year.

      We have historically sold our products and services to Global 2000 companies for their data center computing environments. During fiscal 2000, our markets expanded to include Internet Related Businesses (IRBs) such as content providers, online retailers and web-based advertisers. However, during fiscal 2001, because of the lack of liquidity and resulting higher risk of success of the IRBs, we experienced a decrease in demand for our proprietary products from IRBs and thus, we elected to pursue sales from Fortune 1000 and Global 2000 customers. In an effort to restore profitability and improve liquidity, we plan to shift our focus away from our proprietary products to a broader range of third-party integrated products.

      The information technology industry has been negatively affected by global economic slowdown, the terrorist attacks of September 11, 2001, and reductions in information technology expenditures. As a result, the demand for our products has decreased. Continued adverse changes in the economy would negatively impact revenues and margins in fiscal year 2003.

Our Solution

      Our professional services staff evaluates our customers’ storage management needs and designs comprehensive, individualized storage solutions. We integrate various third-party products into a comprehensive, flexible storage solution. Our goal is to enable customers to purchase a single, integrated storage system, rather than multiple components requiring integration by the customer.

      Our data storage solutions are designed to provide our customers with continuous access to their mission-critical data, while enhancing performance of their applications and reducing their information-technology staff’s management and support tasks. We provide these benefits to customers through the delivery of advanced technology, extensive services and broad support.

      Key elements of our solution include:

	•	an international support and service organization that assists customers in determining their data storage needs, designing, implementing and maintaining their systems, and training their personnel; and
	•	our certification for interoperability among multiple operating systems.

      We refer to our complete integrated enterprise storage solutions as MTI Data Services, which are delivered through our principal product line, Vivant. The Vivant solution is based upon a combination of various third-party products, as well as our proprietary Fibre Channel data-storage servers for Storage Area Network (“SAN”) and Network Attached Storage (“NAS”) connectivity. Vivant systems include the necessary networking components to create sophisticated fabric-based configurations; application software to

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      As discussed above, pursuant to the Restructuring, we anticipate that our product offerings will place less emphasis on MTI’s proprietary products and will integrate more third-party products. Thus, we may sell fewer Vivant-branded systems or may integrate more third-party products into the Vivant line.

      Our integration of technology, services and support into a single storage solution is designed to reduce the complexity and cost of building and managing discrete SAN and NAS systems. This combination also increases the efficiency of data-storage usage by giving an information technology manager the flexibility to allocate storage across heterogeneous platforms. Furthermore, our cross-platform interoperability is designed to help protect a customer’s investment in the event of migrating to a new server platform.

Our Products

      Our product offerings include storage solutions consisting of Redundant Array of Independent Disks (“RAID”) storage subsystems, high-performance storage servers and high-speed switches for fiber channel fabric connections, tape-library systems and data-management software. In the past, we have sold MTI-branded products, which included our proprietary software and architecture. As part of our Restructuring, we plan to focus on the design, sale and servicing of solutions in which we integrate third-party products, and place less emphasis on the development of proprietary solutions.

      Our storage server products include the Vivant 400 family, a highly modular architecture that scales from the mid-range to the enterprise and the Vivant S-Series family, which is designed for use in departments and divisions of larger organizations. These products are used primarily with Sun Solaris, HP-UX, Windows NT/2000, Novell NetWare, Linux and IBM AIX.

      Tape library systems provide a lower-cost, slower-access method of recording and retrieving large amounts of data, in comparison to magnetic disk systems. Tape libraries typically are used for recording a secondary backup copy of the data, thus providing extra data protection. We market and sell tape library systems that are used primarily with Sun Solaris, HP-UX, Windows NT/200, Novell NetWare, Linux and IBM AIX.

      We developed our data-management software to be employed for the direct support and management of stored data and data-storage devices. In addition to our own proprietary software, we market and sell Veritas, Legato and FalconStor products to create a comprehensive, cross-platform approach for enterprise-wide solutions for network data protection and storage management.

      Revenue from server products represented approximately 65%, 61% and 74% of net product revenue in fiscal years 2002, 2001 and 2000, respectively. Revenues from tape-library systems represented approximately 26%, 32% and 20% of net product revenue in fiscal years 2002, 2001 and 2000, respectively. Revenues from data-management software represented approximately 9%, 7% and 6% of net product revenue in fiscal years 2002, 2001 and 2000, respectively. See Note 11 of Notes to Consolidated Financial Statements.

Customer Service and Support

      The quality and reliability of our products and the continuing support of these products are important elements of our business. Pursuant to the Restructuring, we believe that the expertise of our professional services staff and the delivery of high quality customer service will be of even greater importance, as we intend to emphasize our capabilities in the design, deployment and service of storage management systems.

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      As of May 27, 2002, we provide direct service for all of our products through a service organization of 156 people, who are located in more than 20 service locations in the United States and Europe. We currently offer a variety of customer services that include system and software maintenance of MTI-manufactured products, as well as other open-system platforms, consulting services, storage-management integration and training. We offer on-site service response within four hours, 24 hours-a-day, seven-days-week, 365 days-a-year. We provide our customers with a warranty against defects in proprietary hardware products for one year domestically and for two years internationally. As of April 6, 2002, approximately 71% of our customers who purchased our products have entered into post-warranty maintenance contracts with us. Service revenue represented approximately 41%, 31% and 22% of our total revenue in fiscal years 2002, 2001 and 2000, respectively.

Sales and Marketing

      In the United States, we primarily market and sell our products directly to end users through our field sales organization and indirectly through selected distributors and resellers. As of May 27, 2002, our domestic sales organization consisted of 56 people, located in 11 sales offices in 11 states. This sales organization includes a technical field support staff of approximately 11 systems consultants, who provide consulting services and have experience in the management of complex data and implementing distributed client-server systems. As of May 27, 2002, we marketed our products internationally through our field sales organization of 32 people, with five offices located in Germany, France and the United Kingdom, and indirectly through independent distributors. International sales represented 34%, 36% and 28% of our total revenue in fiscal years 2002, 2001 and 2000, respectively. See Note 11 of Notes to Consolidated Financial Statements.

Order Backlog

      We generally ship products within 30 days after receipt of a purchase order. Historically, we have had relatively little backlog at any given time and do not consider backlog to be a significant or important measure of sales for any future period. As a result, our net product revenue in any given quarter is dependent upon orders booked and products shipped during that quarter.

Product Development

      The computer industry is characterized by rapid technological change and is highly competitive with respect to product innovation and introduction. To develop the many different technologies that support our product development strategy, we have assembled several engineering teams with complementary expertise, consisting of approximately 38 people as of May 27, 2002. During fiscal years 2002, 2001 and 2000, our research and development spending was approximately $12,700, $19,100 and $16,000, respectively. Pursuant to our plan to integrate more third party products, we may reduce staffing levels and expenditures for product development.

      We have two separate primary product development centers: one is located at our corporate headquarters in Anaheim, California, and a second, the System Engineering Center, is located in Westmont, Illinois. Pursuant to the Restructuring, we plan to devote fewer resources in developing proprietary products and plan to consolidate the operations to avoid redundancy at the two facilities, with the Westmont facility serving as our interoperability center while the Anaheim center will become our sustaining and software development facility.

Manufacturing

      Our manufacturing operations are located in Dublin, Ireland and in our Anaheim facility. We have begun the process, which we expect to complete by the second quarter of fiscal 2003, of consolidating all manufacturing and assembly operations to our facility in Dublin, Ireland. Manufacturing operations consist primarily of final systems integration and reliability testing and rely principally upon outside production companies for the fabrication and assembly of circuit boards. These outside production companies contract with us to produce and assemble products in accordance with our specifications. This “turnkey” approach to

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      The principal components used in our products include networking components, circuit boards, disk drives and chassis. We procure all of our principal components from outside suppliers and have established manufacturing relationships with a number of key vendors. We generally use parts and components available from multiple vendors. However, for our Vivant product line, we currently purchase disk drives from Seagate Technology, Inc. and Xyratex Corporation, chip sets solely from QLogic Corporation and RAID controllers for the Vivant “S/D and Vivant 400” series solely from IBM/ Mylex Corporation. To date, we have been able to obtain these components and we believe that adequate quantities are available for our needs. Disruptions in supply or significant increases in component costs from these vendors would have an adverse effect on our results from operations. See “Risk Factors — We are dependent on limited source suppliers for principal components used in our products, and disruptions in supply or significant increases in component costs could materially harm our business.”

Competition

      The market for our products is extremely competitive. We have a number of competitors in various markets, including EMC, Hewlett-Packard Company, Sun Microsystems, Inc., IBM, and Network Appliance, Inc., each of which has substantially greater name recognition, engineering, manufacturing and marketing capabilities, and greater financial and personnel resources than we have. We expect to experience increased competition from established and emerging computer storage hardware and management software companies, particularly Hewlett-Packard, Sun Microsystems, IBM, and EMC. As we focus more on the integration of third party products, we may face even greater competition from manufacturers and resellers, both in terms of product sales and providing maintenance services for such products.

      Since our goal is to enable customers to purchase a single, integrated storage system, rather than multiple components requiring integration by the customer, we believe the principal elements of competition include quality of service and support and responsiveness to customer and market needs, as well as price, product quality, reliability and performance. There can be no assurance that we will be able to compete successfully or that competition will not have a materially-adverse effect on our results of operations. See “Risk Factors — The markets for our products are intensely competitive which may lead to reduced sales of our products, reduced profits and reduced market share for our business.”

Proprietary Rights

      We rely on a combination of patent, copyright, trademark and trade-secret laws, employee and third-party non-disclosure agreements and technical measures to protect our proprietary rights in our products. Although we continue to take appropriate measures to protect our proprietary rights, there can be no assurance that these measures will be successful. Also, the laws of certain foreign countries may not protect our intellectual property to the same extent as the laws of the United States. See “Risk Factors — Our intellectual property is critical to our business and, if we are unable to protect our intellectual property, the success of our business and our results of operations could be materially harmed.”

      Pursuant to the EMC Agreement, we sold to EMC substantially all of our then-existing patents, patent applications, and related rights. We have an irrevocable, non-cancelable, perpetual and royalty-free license to exploit, market and sell the technology protected under the patents sold to EMC. The license we were granted pursuant to the terms and conditions of that Agreement will terminate in the event of a change of control of the Company involving certain identified acquirers. As part of the EMC Agreement, MTI and EMC granted to each other the license to exploit, market and sell the technology associated with each of their respective existing and future patents arising from any patent applications in existence as of the effective date of the agreement for a period of five years. Such licenses expired in February 2001.

      Although we often seek patents on our products, we believe that patents are of less significance in our industry than other items such as technical expertise, timeliness and quality of the support services that we provide.

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Employees

      As of May 27, 2002 we had 392 full-time employees worldwide, including 7 in marketing, 88 in sales, 156 in service support, 48 in manufacturing and quality assurance, 38 in engineering and research and development and 55 in general, administration and finance. None of our employees are represented by a labor union, and we consider our relations with our employees to be good.

      Our corporate offices, including marketing, sales and support, research and development, general administration, finance functions and manufacturing, are located in Anaheim, California, in a leased facility consisting of approximately 131,000 square feet. These premises are occupied under a lease agreement that expires on January 31, 2003. As part of our consolidation of manufacturing and assembly operations to our facility in Dublin, Ireland, we plan to cease manufacturing activities in Anaheim. Due to the transfer of manufacturing activities, as well as the previous reductions in the number of employees at our corporate headquarters, we anticipate requiring less space and plan to reduce the amount of space leased for our corporate headquarters after the Anaheim lease expires.

      We abandoned our 21,700-square-foot facility located in Sunnyvale, California, in the fourth quarter of fiscal year 2002; however, we are still obligated under the lease agreement that expires on July 31, 2006. We are seeking a sub-tenant in order to realize cost savings from the closure of the Sunnyvale facility, however, due to the current market conditions in the area, there can be no assurance that we will be able to sub-lease the facility in a timely manner. We have a 28,500-square-foot facility in Dublin, Ireland, in which we perform assembly and testing on a limited number of products, for which the lease expires in 2023. In addition, we have an 18,600 square foot facility in Westmont, Illinois, used for sales and sales technical support, under a lease expiring on June 30, 2005.

      We also lease approximately 17 sales and support offices located throughout the U.S. and Europe.

      From July through September 2000, several class action complaints were filed against us and several of our officers, alleging that we were aware of adverse information that we failed to disclose primarily during fiscal 2000 and, hence, that we violated specified provisions of the Securities Exchange Act of 1934 and the rules promulgated thereunder. The plaintiffs in those cases filed a consolidated amended complaint in the federal court for the Central District of California on or about December 5, 2000, making similar allegations. This consolidated complaint alleges a class period from July 22, 1999 to July 27, 2000 and alleges that the defendants were aware of certain adverse information that they failed to disclose during that period. We filed a motion to dismiss the complaint which the district court granted. However, the plaintiffs filed a Second Amended Complaint, and, on October 9, 2001, the district court denied our motion to dismiss that complaint. The Second Amended Complaint alleges a class period from July 22, 1999 to July 12, 2000. The trial date is August 19, 2003.

      The plaintiffs have not specified the amount of damages they seek. Although we believe the alleged claims in this lawsuit are without merit and are defending the lawsuit vigorously, due to the inherent uncertainties of the litigation process and the judicial system, we are unable to predict the outcome of this litigation. This litigation may result in substantial costs and distract management’s attention and resources. As of April 6, 2002, we met the deductible of our insurance policy. In addition, a judgment against us in this case could have a material adverse effect on our results of operations and liquidity.

      We are also, from time to time, subject to claims and suits arising in the ordinary course of business. In our opinion, the ultimate resolution of these matters are not expected to have a materially-adverse effect on our financial position, results of operations or liquidity.

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      No matter was submitted to a vote of MTI’s stockholders during the fourth quarter of fiscal year 2002.

Executive Officers of the Registrant

      The following table sets forth the names and ages of all executive officers of the Registrant as of June 14, 2002. A summary of the background and experience of each of these individuals is set forth below.

      Thomas P. Raimondi, Jr. was named our President and Chief Executive Officer in December 1999 and Vice Chairman of the Board of Directors in April 2001. From July 1998 to December 1999, Mr. Raimondi was our Chief Operating Officer. Mr. Raimondi served as Senior Vice President and General Manager from May 1996 until July 1998 and was Vice President, Strategic Planning, Product Marketing, and Director of Marketing from 1987 until May 1996. Mr. Raimondi resigned from Caldera Systems, Inc. Board of Directors in July 2002.

      Keith Clark was named our Senior Vice President and General Manager Europe in April 2000. Mr. Clark was our Vice President European Operations from June 1994 to April 2000. Mr. Clark joined us in January 1990 as European Client Services Manager. Before joining us, Mr. Clark served in a number of senior-management positions within Europe during a ten-year period for System Industries, Inc., a data-storage company in the DEC marketplace.

      Mark A. Franzen was named our Chief Financial Officer and Secretary in June 2002. Before joining MTI, from November 1999 to June 2002, Mr. Franzen was Chief Financial Officer of Y Media Corporation, a start-up company in the digital imaging fabless semiconductor industry. Mr. Franzen served as Chief Financial Officer for various hi-tech companies from March 1980 to June 1999 including Storage Concepts, Level One Communications and Micro Peripherals, Inc. He served as Chief Financial Officer for R&G Sloane Manufacturer, a manufacturer of molded and excluded plastic from August 1975 to March 1980, and Senior Audit Manager for Price Waterhouse from January 1967 to July 1975.

      Venki Venkataraman was named Senior Vice President of Product Planning in February 2002. Mr. Venkataraman served as Senior Vice President of Operations and Services from September 2000 to January 2002, as Senior Vice President of Manufacturing from June 1998 to August 2000 and as Vice President of Operations from April 1996 to June 1998. Before joining MTI, Mr. Venkataraman served in several capacities for The Foxboro Company, a division of Siebe PLC, from August 1988 to April 1996. His most recent position with Foxboro was Manager of Product Development for the systems products division, a post he held for two years.

      Kenneth D. Simpson was named Vice President, Information Technology and Chief Information Officer in March 2001. Before joining MTI, Mr. Simpson was a consultant in SAP National Practice for marchFirst, a full-service information-systems consulting firm, from January 2000 to March 2001. Mr. Simpson served as Director of Information Technology for Digital Generation Systems, a leading provider of electronic delivery of commercials from the advertising industry to the broadcast industry, from September 1998 to December 1999. Before joining Digital Generation, Mr. Simpson served as Director of Information Systems for Tri Valley Growers, a food manufacturing company, from July 1995 to September 1998.

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PART II

Item 5.     Market for the Registrant’s Common Equity and Related Stockholder Matters

Principal Market and Prices

      Our common stock is quoted on the Nasdaq National Market. The following table sets forth the range of high and low sales prices per share of our common stock for each quarterly period as reported on The Nasdaq National Market for the periods indicated. The price of our common stock at the close of business on June 14, 2002 was $0.5200. See “Risk Factors — Our securities may be removed from Nasdaq listing.”

Number of Common Stockholders

      The approximate number of record holders of our common stock as of June 14, 2002 was 376.

Dividends

      We never have declared or paid any dividends. We currently expect to retain earnings for use in the operation of our business and, therefore, do not anticipate declaring or paying any cash dividends in the foreseeable future. Also, the terms of the Canopy Loan Agreement prohibit us from declaring or paying any cash dividends.

Warrants

      No warrants were exercised during fiscal year 2002.

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Securities Authorized for Issuance

      The following table sets forth certain information as of April 6, 2002 with respect to equity compensation plans under which our equity securities are authorized for issuance:

(1)	The 2001 Non-Employee Director Option Program functions as part of the 2001 Stock Incentive Plan.
(2)	2,001 shares and 50 shares related to the 2001 Stock Incentive Plan and the 2001 Non-Employee Director Option Program, respectively.
(3)	The maximum aggregate number of shares allocated for the SIP increases by 3% annually, subject to terms and conditions of the SIP.

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Item 6.     Selected Financial Data

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Certain statements set forth herein are not historical or based on historical facts and constitute “forward-looking statements” involving known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements, expressed or implied, by such forward-looking statements. Forward-looking statements include, but are not limited to, statements about the our Restructuring, revenue, markets, margin, the effect of accounting changes, attempts to raise additional funds or to secure an additional credit facility, proprietary product sales, customers, service and support costs, investment in research and development, foreign currency hedging activity, anticipated decreases in spending, dependence on new products, international sales and quarterly fluctuations. Our transition to sales of integrated solutions and focus of sales efforts on Global 2000 accounts may not be successful. We may fail to achieve anticipated revenue levels and efficiencies of operation. Given these uncertainties, investors in our common stock are cautioned not to place undue reliance on such forward-looking statements. Recent terrorist attacks in the United States, as well as future events occurring in response to or in connection with them, including, without limitation, future terrorist attacks against United States targets, actual conflicts involving the United States or its allies, or military or trade disruptions could negatively impact our business, financial condition, results of operations and may result in increased volatility in the market price of our common stock. See “Risk Factors.” This discussion and analysis should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto contained elsewhere in this report.

Restructuring

      We are continuing to implement our Restructuring activities in an effort to reduce operating expenses. Over the past two years, we have reduced our workforce headcount by approximately 45% and have recently shut down our facilities in Sunnyvale, California; Boston, Massachusetts; Austin, Texas; Denver, Colorado; Florida and North Carolina. We have begun the process, which we expect to complete by the second quarter of fiscal 2003, of consolidating all manufacturing and assembly operations into our facility in Dublin, Ireland. We also anticipate reducing the amount of space leased for our corporate headquarters after our Anaheim lease expires in January 2003.

      As part of the Restructuring, we plan to emphasize our expertise in the design, deployment and servicing of integrated solutions for the enterprise-storage marketplace. We anticipate changing our product sales mix away from proprietary products to integrated products, such as Vivant 400, an IBM/ Mylex-based product. We also anticipate selling a higher proportion of non-MTI branded products. Although we expect to continue to develop and manufacture proprietary products, we plan to do so at significantly reduced levels, including lower research and development expenditures. The transition to integrated products is expected to have a negative impact on our gross margins.

      The primary goal of the Restructuring is to reduce costs. We believe the Restructuring may have other benefits as well, including: the ability to offer a wider range of products; greater flexibility in designing solutions for our customers; and the ability to react more quickly to changing technologies.

      We face significant risks and uncertainties in connection with the Restructuring and we have incurred substantial charges in connection with the Restructuring, described below. Despite the Restructuring activities that have taken place to date, we have continued to incur recurring losses from operations. There can be no assurance that the Restructuring will be successful or that the anticipated cost savings will be realized. Please see “Risk Factors” for additional risks related to the Restructuring.

Critical Accounting Policies

      Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities as of the date of our financial statements.

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      We based our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially produce materially different results under different assumptions and conditions. We believe the following critical accounting policies, among others, reflect significant judgments and estimates used in the preparation of our consolidated financial statements. For a detailed discussion of the application of these and other accounting policies, see notes to the consolidated financial statements.

      Revenue Recognition. Sales of our equipment are recorded upon shipment, net of an allowance for estimated returns, as long as no significant post-delivery obligations exist and collection of the resulting receivable is probable and the amount is determinable. Product sales are not contingent upon customer testing, approval and/or acceptance. Revenue from equipment maintenance contracts is recorded as deferred income when billed and is recognized as earned over the period in which the services are provided, primarily straight-line over the term of the contract. We accrue for warranty expense at the time revenue is recognized and maintain a warranty accrual for the estimated future warranty obligation based upon the relationship between historical and anticipated warranty costs and sales volumes.

      We apply Statement of Position (“SOP”) 97-2, “Software Revenue Recognition” as amended by SOP 98-9, “Modification of SOP 97-2 with Respect to Certain Transactions,” whereby revenue is recognized from software licenses, provided the software has been delivered to the customer, persuasive evidence of an arrangement exists, the price charged to the customer is fixed or determinable at fair value and there are no significant obligations on our part related to the sale and the resulting receivable is deemed collectible, net of an allowance for returns, cancellations and maintenance, including vendor and post-contract support obligations. Revenue from maintenance agreements is recognized ratably over the term of the related agreement. Revenue from consulting and other software-related services is recognized as the services are rendered.

      Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments for services. We analyze accounts receivable, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our customers deteriorates, resulting in an inability to make payments, additional allowances may be required.

      Income Taxes. We are required to estimate our income taxes which includes estimating our current income taxes as well as measuring the temporary differences resulting from different treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets or liabilities. We apply Statement 109, “Accounting for Income Taxes”; under the asset and liability method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, net of a valuation allowance. We have recorded a full valuation allowance against our deferred tax assets as management has determined that it is more likely than not that these assets will not be utilized. In the event that actual results differ from our estimates, our provision for income taxes could be materially impacted.

      Valuation of Goodwill and Other Intangible Assets. We assess the impairment of goodwill and other intangible assets in accordance with Financial Accounting Standards Board Statement No. 142 on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of acquired assets or the strategy for our overall business, and significant negative industry or economic trends. Upon the adoption of Statement No. 142 in fiscal 2002, the carrying value of our goodwill and other intangible assets was determined to not be impaired. Changes in assumptions and estimates included within this analysis could produce significantly different results than those identified above and those recorded in the consolidated financial statements.

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      Inventories. Inventories are valued at the lower of cost (first-in, first-out) or market, net of an allowance for obsolete, slow-moving, and unsalable inventory. The allowance is based upon management’s review of inventories on-hand, historical product sales, and forecasts. We use rolling forecasts based upon anticipated product orders to determine our component and product inventory requirements. Lead times for products, materials and components that we order may vary significantly and depend upon factors such as specific supplier requirements, contract terms and current market demand. As a result, our product and component requirement forecasts may not be accurate. If we overestimate our product or component requirements, we may have excess inventory, which could lead to additional excess and obsolete charges.

Results of Operations

      The following table sets forth selected items from the Consolidated Statements of Operations as a percentage of total revenue for the periods indicated, except for product gross profit and service gross profit, which are expressed as a percentage of the related revenue. This information should be read in conjunction with the Selected Financial Data and Consolidated Financial Statements included elsewhere herein:

      Net Product Revenue: Net product revenue for fiscal year 2002 decreased $42.3 million, or 38% from fiscal year 2001. This decrease was the result of decreased revenue of $22.8 million, $17.6 million and $1.9 million from server products, tape libraries and software products, respectively. Server products revenue in fiscal year 2002 from the Vivant product family was $36.0 million, down from $42.7 million in fiscal 2001. The decrease was primarily due to the decrease in sales volume, mainly from the decrease in sales of our proprietary products resulting from the global economic slowdown and our inability to penetrate Global 2000 customers. Increased competition has also contributed to the decline in revenue. Our business is greatly affected by general economic and business conditions. Continued softness in the information technology market in both the United States and in Europe and consumers’ uncertainty about the global economic condition could result in further reduced demand for our products and services. As a result of the weakened global economy, consumers are postponing or reducing expenditures, causing our revenue, our operating results and our financial condition to decline. The downturn also has led to Restructuring actions such as, but not limited to, the relocation of manufacturing activities, complete or partial abandonment of underutilized facilities, headcount reduction, fixed asset write offs and inventory write offs. As a result, we are shifting to integrated third party products. Further delays or reductions in information technology spending could have a material adverse effect on demand for our products and services, and thus, our operating results.

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      Net product revenue for fiscal year 2001 decreased $66.0 million, or 37% from fiscal year 2000. This decrease was primarily the result of decreased revenues of $63.7 million and $2.1 million from server products and software products, respectively. Server products revenues in fiscal year 2001 from the Vivant product family was $42.7 million, down from $67.7 million in fiscal 2000. We transitioned our sales focus during fiscal 2000 towards our proprietary products and away from our third party resale products. As a result of this transition, we increased our sales efforts with IRBs. However, during fiscal 2001, because of the lack of liquidity and resulting higher risk of success of the IRBs, we experienced a decrease in demand for our proprietary products from IRBs. We elected to pursue sales to Fortune 1000 and Global 2000 customers. These customers typically have a longer procurement cycle, which adversely affected net product revenue during fiscal year 2001. Moreover, the secondary effect of the many IRB collapses affected our ability to grow revenues. Furthermore, a weakening economy resulted in a decreasing demand for the information-storage systems, software and services.

      Service Revenue: Service revenue was $48.4 million for fiscal year 2002, a decrease of $1.5 million, or 3%, from fiscal year 2001. This decrease was primarily due to our inability to fully offset lost revenue from maintenance contract that expired with revenue from renewed and new maintenance contracts. The lower number of renewals is attributable to the loss of customers to competitors during the fiscal year. Due to concerns about our financial position, existing customers may be more reluctant to renew their maintenance contracts.

      Service revenue was $49.9 million for fiscal year 2001, an increase of $0.5 million, or 1%, from fiscal year 2000. Increased revenue from maintenance contracts for increased field population was the main cause of this increase.

      Product Gross Profit: Product gross profit was $13.1 million for fiscal year 2002, a decrease of $26.2 million, or 67%, from fiscal year 2001. The gross profit percentage of net product sales was 19% for fiscal year 2002 as compared to 35% for fiscal year 2001. This decrease was primarily due to additional inventory reserves of $4.9 million in the first quarter and $2.1 million in the fourth quarter of fiscal year 2002, which consisted primarily of additional reserves for Gladiator 6700, 8700 and 8900 inventories. Furthermore, increased pricing competition and reduced manufacturing efficiencies resulting from lower production volumes as well as changes in product mix contributed to the lower product gross margin. Although our Restructuring activities are designed to lower our cost structure and increase product gross profit at lower production volumes, there can be no assurance that such activities will be successful. In addition, product gross profit may decline further in connection with our shift to integrated third party products, as we may face increased pricing competition for such products from a greater number of competitors selling the same third party products.

      Product gross profit was $39.3 million for fiscal year 2001, a decrease of $31.9 million, or 45%, from fiscal year 2000. The gross profit percentage of net product sales was 35% for fiscal year 2001 as compared to 40% for fiscal year 2000. This decrease resulted from a domestic increase in revenue concentration from back-up products, which historically carry a significantly lower margin than our proprietary storage products. This decrease was partly offset by a European increase in revenue concentration from proprietary products, primarily Vivant. Also, lower operating volumes caused a significant decrease in our ability to absorb our manufacturing overhead, which reduced our product gross margin.

      Service Gross Profit: Service gross profit for fiscal year 2002 increased $4.0 million, or 27%, from fiscal year 2001. The gross profit percentage for service revenue was 39% in fiscal year 2002, as compared to 29% for fiscal year 2001. The increase in service-gross profit was primarily attributable to decreased infrastructure costs resulting from reduced manpower, mandatory pay cuts, mandatory vacations, and cost control on travel-related expenses.

      Service gross profit for fiscal year 2001 decreased $4.2 million, or 22%, from fiscal year 2000. The gross-profit percentage for service revenue was 29% in fiscal year 2001, as compared to 38% for fiscal year 2000. The decrease in service-gross profit was primarily attributable to increased employment costs from the hiring of additional staff anticipated for service offerings. We expected the number of installed Vivant units to increase in fiscal year 2001 over fiscal 2000 levels. During the first nine months of fiscal year 2001, we hired more service-and-support staff. We were upgrading the skills of our staff to support the increased volume of proprietary product and service offerings. As a result, service cost of revenue increased in fiscal year 2001. This cost did not continue to increase in fiscal year 2002 because we now have sufficient field-service staff.

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      Selling, General and Administrative Expenses: Selling, general and administrative expenses in fiscal year 2002 decreased $23.0 million, or 35%, over fiscal year 2001. The decrease in selling, general and administrative expenses was due to substantial reduction in salary and benefit expenses by $11.1 million which resulted from reduced headcounts, elimination of amortization of goodwill of $2.7 million, reduction in bad debt expense by $3.4 million, reduction in communication and freight charges by $ 0.5 million, reduction in marketing and promotional expenses by $0.3 million, reduction in professional and consulting fees by $0.6 million, and reduction in travel and lodging expenses by $4.4 million. Please see “Critical Accounting Policies” for greater detail regarding goodwill accounting.

      Selling, general and administrative expenses in fiscal year 2001 increased $1.7 million, or 3%, over fiscal year 2000. This increase was because of bad debt expense of $4.3 million, primarily as a result of internet-related customer non-payments, and a $2.2 million charge to write down goodwill related to the purchase of certain product lines from RAXCO, Inc. There were other expenses of $.9 million in legal. These increases were partly offset by lower salary, commission and bonus expense of $5.0 million.

      Research and Development Expenses: Research and development expenses in fiscal year 2002 decreased $6.4 million, or 33%, from fiscal year 2001. This decrease was primarily due to headcount reductions, substantially lower project costs, reduced travel and lodging expenses and consulting fees. During the fourth quarter of fiscal year 2002, we abandoned our under-utilized research and development facility in Sunnyvale, California, and consolidated our research and development activities in the Anaheim, California and Westmont, Illinois facilities. Pursuant to the Restructuring, we plan to devote fewer resources developing proprietary products and plan to consolidate our operations to avoid redundancy at the two facilities, with the Westmont facility serving as our interoperability center while the Anaheim center will become our sustaining and software development facility. As a result, research and development expenses are expected to continue to decrease in fiscal year 2003.

      Research and development expenses in fiscal year 2001 increased $3.1 million, or 19%, from fiscal year 2000. This increase was primarily for increased development costs associated with hiring more staff to complete expansion of the Vivant product line at the high end and also to expand our reach to the mid-range product line.

      Restructuring: During the fourth quarter of fiscal year 2002, we recorded a restructuring charge of $4.9 million which consisted of $4.3 million, $0.3 million and $0.3 million charges related to abandonment of either underutilized or historically unprofitable facilities, headcount reduction of 56 employees or 13%, and disposal of fixed assets, respectively. Of the 56 employees terminated, 15, 8, 6, 10, 14 and 3 were from Sales, Marketing, General and Administrative, Field Services, Research and Development and Manufacturing departments, respectively. The expected cash impact of the restructuring charge is $0.28 million, related to severance, of which $0.07 million was paid in fiscal year 2002. The remaining $0.21 million will be paid in fiscal year 2003. We are attempting to complete transitioning our manufacturing facility to Dublin, Ireland by the end of the second quarter of fiscal year 2003. In order to further reduce expenses, in June 2002, we approved additional Restructuring actions such as, but not limited to, additional facility and headcount reductions in the first half of fiscal year 2003. As a result of the Restructuring, we expect to reduce our domestic and European quarterly expense run-rate by approximately $1.4 million and $0.04 million, respectively. However, there can be no assurance that our expenses will be reduced to this extent.

      The amount accrued for the fourth quarter fiscal year 2002 Restructuring activities as of April 6, 2002, was as follows:

      During the fourth quarter of fiscal year 2001, we included a charge of $0.4 million for severance in operating expenses. Of this charge, $0.3 million and $0.1 million were paid during fiscal year 2001 and fiscal

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      Other Income, Net: Other income, net in fiscal year 2002 decreased $0.07 million, or 2%, over fiscal year 2001. This decrease was primarily due to decreased income from EMC as we received the last payment for a patent sale in fiscal 2001, coupled with a decrease in interest expense. These decreases were partially offset by a favorable sales tax refund of $0.7 million in fiscal year 2002.

      Other income, net in fiscal year 2001 increased $0.4 million, or 11%, over fiscal year 2000. This increase was primarily from increased interest income and decreased interest expense in fiscal year 2001 as compared to the prior year. This was a result of increased average cash balance during the year and eliminated credit line balances.

      Equity in Net Loss and Write-Down of Net Investment of Affiliate: Equity in net loss of affiliate represents our proportionate share of Caldera’s net losses and amortization of the goodwill related to the investment made in Caldera in August 1999. The original investment in Caldera was $7.6 million and included: (a) cash payment of $3.0 million, (b) note payable of $3.0 million bearing interest at the prime rate plus one percent per annum and payable in two equal semi-annual payments beginning February 2000 and (c) investment costs of $1.6 million, including the issuance of a warrant to purchase 150,000 shares of our common stock. The excess of the our investment in Caldera over the related underlying equity in net assets of $6.9 million was being amortized on a straight-line basis over seven years. However, we adopted Statement 142 as of April 8, 2001, the beginning of fiscal year 2002, and therefore, ceased to amortize the remaining balance of goodwill related to the investment in Caldera of $4.2 million, which was written off during the third quarter of fiscal year 2002 due to an other than temporary decline in value and recognizing our proportional of share of Caldera’s net loss. Such loss has been included in “Equity in net loss of affiliate” in our fiscal year 2002 Consolidated Statement of Operations.

      Income Taxes: We recorded a net tax expense of $24.6 million for fiscal year 2002, $24.3 million related to the valuation allowance for deferred-tax assets recorded in the first quarter of fiscal year 2002. Because of the continued decline in the market value of our investment in Caldera and continued softness in the domestic and European markets for our products, management believes that it is more likely than not that we will not realize the benefits of the net deferred tax assets existing on April 6, 2002.

      We recorded a net tax expense of $3.5 million for fiscal year 2001, as compared to a net tax benefit of $15.1 million in fiscal year 2000. The increase was primarily because of the recording of a net $9.0 million expense related to the valuation allowance for deferred-tax assets. The net $9.0 million tax expense was partly offset by $5.5 million of tax benefit recorded in the first three quarters of fiscal year 2001. Our management believed, at the time base on our historical profitability, that it was more likely than not that we would realize the benefits of the net deferred tax asset existing at April 7, 2001 based on projected financial results and available tax planning strategies, including the realizable value of our Caldera investment. See Note 8 of Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

      We had cash and cash equivalents of $8.4 million and $16.3 million at April 6, 2002 and April 7, 2001, respectively, which was a decrease of $7.9 million. Net operating activities used cash of $6.4 million in fiscal year 2002, an increase in cash used of $24.6 million as compared to fiscal year 2001, primarily because of the net loss of $59.6 million which resulted from decreased revenues and margins. The net loss was partially offset by non-cash expenses of $49.2 million and cash provided by changes in operating assets and liabilities of $4.0 million. Net investing activities used cash of $3.3 million primarily as a result of capital equipment purchases. As of June 30, 2002, we had cash and cash equivalents of approximately $6.2 million.

      Net cash provided by financing activities was $2.2 million primarily because of borrowings from Canopy of $1.9 million, the exercise of stock options and the issuance of treasury shares, providing cash of $0.5 million, offset by capital lease payments of $0.2 million.

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      We have experienced recurring decreases in revenues and margins, which have resulted in significant losses and cash used in operations and have significantly reduced available working capital. As of April 6, 2002, working capital was $3.3 million, as compared to $27.5 million at the end of the prior fiscal year. In response, we have taken the following actions:

	•	During the fourth quarter of fiscal 2002, we implemented further Restructuring activities (see note 2), consisting primarily of a reduction in headcount and a complete or partial abandonment of under utilized facilities and fixed assets. As a result, we expect to reduce our quarterly cash outlays by approximately $2.0 million.
	•	In June 2002, the management approved additional Restructuring activities such as, but not limited to, a reduction in headcount of approximately 60 individuals domestically and consolidation of under utilized facilities, particularly exiting unused portions of the Anaheim, California facility. Of the 60 people, 16, 1, 7, 15 and 21 are from Sales, Marketing, General and Administration, Research and Development and Manufacturing departments, respectively. As a result, we will record a restructuring charge of approximately $1.0 million in the first quarter of fiscal year 2003 and expect to reduce our quarterly cash outlay by $1.2 million.
	•	In February 2002, we borrowed $1.9 million from Canopy, our largest stockholder. On June 27, 2002, in response to limited borrowing ability, we replaced our $15.0 million line of credit with Silicon Valley Bank with a $7.0 million revolving line of credit from Canopy. The outstanding $1.9 million loan has been converted to borrowings against this line of credit. The new line will mature on June 30, 2003, bearing an interest rate of nine percent per annum and will be secured by a security interest in substantially all of our assets. The Canopy Loan Agreement contains negative covenants placing certain restrictions on our ability to repurchase capital stock, pay dividends or make distributions, purchase or sell assets, incur liens on our assets, incur additional debt, merge with another entity, make loans or investments, amend our charter Certificate of Incorporation or bylaws or issue stock. Although we are currently in compliance with all of the terms of the Canopy Loan Agreement, and believe that we will remain in compliance, there can be no assurance that we will be able to borrow under the Canopy Loan Agreement. Canopy may terminate the Canopy Loan Agreement and declare all amounts outstanding immediately due and payable upon an event of default, including upon 30 days notice in the event that Canopy in good faith deems its interest in MTI to be insecure, the value of the collateral to have significantly declined, or the prospect of timely payment or performance to be impaired. Canopy owns approximately 14,463,000 shares, or 44.7%, of our issued and outstanding common stock. Raymond Noorda, Chairman of MTI, is also Chairman of the Canopy Group and the beneficial owner of the majority interest in the Canopy Group.

      We plan to undertake the following actions in the first half of fiscal 2003:

	•	Sell our remaining shares of Caldera Corporation common stock. We entered into an agreement on June 26, 2002, to sell our remaining shares to Caldera and we expect to collect approximately $1.1 million in net proceeds.
	•	Transition manufacturing from our Anaheim, California headquarters to our Dublin, Ireland facility further consolidating our Anaheim, California operations. All excess fixed assets and inventory will be brokered or re-deployed.

      Effective February 9, 1996, we entered into an agreement (the “EMC Agreement”) with EMC Corporation (“EMC”) in which we sold to EMC substantially all of our existing patents, patent applications and related rights. We were entitled to receive $30.0 million over the life of the EMC Agreement. The final payment of $5.0 million was received in January 2001. We also were entitled to receive royalty payments in the aggregate of up to a maximum of $30.0 million over the term of the EMC Agreement.

      As part of the maximum $30.0 million in royalties, minimum royalties of $10.0 million were to be received in five annual installments, beginning within thirty days of the first anniversary of the effective date of the EMC Agreement, and within thirty days of each subsequent anniversary thereof. As of March 2001, we had received all such installments. Also, as a result of a computer and technology agreement between EMC

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      We believe that revenues and margins are at sustainable levels and working capital is adequate to fund operations for at least the next twelve months. If, however, revenues and margins continue to decrease, we may seek additional financing alternatives such as additional bank borrowings and/or public or private offerings of equity or debt securities. No assurance can be given that additional sources of financing will be available or that if available, such financing will be on terms favorable to us. If additional sources of financing are not available, we intend to implement additional measures to conserve cash and reduce costs, which may include, among other things, making additional cost reductions. However, there is no assurance that such measures would be successful. See “Risk Factors — We will need additional financing to continue to carry on our existing operations, and such additional financing may not be available.”

      The following represents a comprehensive list of our contractual obligations and commitments as of April 6, 2002:

Recent Accounting Pronouncements

      The FASB recently issued Statement No. 143, Accounting for Asset Retirement Obligations addressing financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Statement 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset. Statement 143 also requires the enterprise to record the contra to the initial obligation as an increase to the carrying amount of the related long-lived asset and to depreciate that cost over the remaining useful life of the asset. The liability is changed at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the initial fair value measurement. Statement 143 is effective for fiscal years beginning after June 15, 2002. We are currently examining the impact of this pronouncement on the results of our operations and financial position, but currently believe the impact will not be material.

      On October 3, 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement No. 121. Statement 144 retains many of the fundamental provisions of Statement 121. Statement 144 also supersedes the accounting and reporting provisions of Accounting Principle Board Opinion 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (“APB 30”), for the disposal of a segment of a business. However, it retains the requirement in APB 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Statement 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. We will adopt Statement 144 in fiscal year 2003. The adoption is not expected to have a material impact on our results of operations or financial position.

      On April 30, 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement updates, clarifies and

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Inflation and Foreign Currency Exchange

      We recorded $0.5 million in foreign exchange losses during fiscal year 2002, which resulted from European currency exchange rate fluctuations. In order to minimize our exposure to foreign currency fluctuations, we have used hedging programs, currency forward contracts, currency options and/or other derivative financial instruments commonly used to reduce financial-market risks, none of which were outstanding at April 6, 2002. There can be no assurance, however, that such actions successfully will reduce our exposure to financial-market risks.

Risk Factors

      The non-historical information in this Form 10-K constitute forward-looking statements and involve risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “anticipates,” “intends,” “plans” and similar expressions. Our actual results may differ materially from those discussed in these statements. The sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” contain a discussion of some of the factors that could contribute to those differences. Factors that could contribute to these differences include those discussed below and elsewhere in this Form 10-K.

      We recently implemented Restructuring activities in an effort to reduce costs. These measures included reductions in our workforce and the elimination of certain under-utilized facilities, including offices in Sunnyvale, California, Boston, Massachusetts, Austin, Texas, Denver, Colorado, Florida and North Carolina. We reduced the number of our full-time employees from 549 on April 7, 2001 to 392 as of May 27, 2002. Please see “Significant Business Developments — Restructuring.”

      We may be unsuccessful in implementing the Restructuring. The Restructuring may fail to reduce expenses, fail to reduce expenses significantly enough or have other, unintended consequences, such as the loss of key employees, customers or a reduction of revenue. We may lose competitive advantages by shifting our focus away from proprietary products to third party, integrated products and may face greater competition for such product sales. We may be unsuccessful in differentiating ourselves from our competitors by emphasizing our service and support capabilities and could lose customers to the extent they have concerns about our financial viability. We may face increased competition for our services, especially with respect to customers purchasing third party products, who may perceive other companies as having comparable or greater expertise with respect to such products. Such customers may be less likely to enter support and maintenance contracts with us than customers who purchased our proprietary solutions.

      We cannot predict with any certainty the long-term impact of our workforce reductions and any reductions we are compelled to make in the future. Reductions in our workforce could negatively impact our financial condition and results of operations, as well as make it difficult to motivate and retain remaining

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      In the fourth quarter of fiscal 2002, we incurred $4.9 million in charges relating to the Restructuring and will incur additional charges in the first quarter of fiscal 2003 associated with additional restructuring actions. We also may incur additional or unexpected costs associated with the Restructuring, such as ongoing lease obligations at closed facilities or severance costs for terminated employees. By focusing more on third party, instead of proprietary products, we may become more reliant on third parties to supply us with products. In addition, we may incur additional costs associated with negotiating new contractual relationships to broaden our offering of third party products. There can be no assurance that we will be able to successfully negotiate contracts with third party manufacturers necessary to implement the Restructuring. A failure to successfully implement the Restructuring would have a material adverse impact on our operations.

      We require substantial working capital to fund our business. We use cash generated from our operations, equity capital, bank financings and sales of our equity securities to fund capital expenditures, as well as to invest in and operate our existing operations.

      We believe that our working capital, cash flow from operating activities and amounts available under the Canopy Loan Agreement, assuming our ability to borrow the full amount under the Canopy Loan Agreement, will be sufficient to meet our operating and capital expenditure requirements for at least the next twelve months. However, Canopy may terminate the Canopy Loan Agreement and declare all amounts outstanding immediately due and payable upon an event of default, including upon 30 days notice in the event that Canopy in good faith deems itself to be insecure, the value of the collateral to have significantly declined from the date of the Canopy Loan Agreement, or the prospect of timely payment or performance to be impaired. If the Canopy Loan Agreement were terminated and all outstanding amounts declared immediately due and payable, we would require additional financing. In addition, projections for our capital requirements are subject to numerous uncertainties, including the cost savings expected to be realized from the Restructuring, the amount of service and product revenue generated in fiscal 2003 and general economic conditions. Despite the Restructuring activities that have taken place to date, we have continued to incur recurring losses from operations. There can be no assurance that the Restructuring will be successful or that the anticipated cost savings will be realized. Also, in the longer term, if we do not realize substantial cost savings from our Restructuring and achieve profitability, we will require additional funds in order to carry on our operations, and may seek to raise such funds through bank borrowings or public or private offerings of equity or debt securities or from other sources. No assurance can be given that additional financing will be available or that, if available, will be on terms favorable to us.

      We may need additional sources of financing in order to carry on our operations as presently conducted, which may include bank borrowings or public or private offerings of equity or debt securities. We cannot assure you that such additional sources of financing will be available on acceptable terms, if at all. If additional financing is required but not available to us, we would have to implement additional measures to conserve cash and reduce costs, which may include, among other things, making additional cost reductions. However, there is no assurance that such measures would be successful. Our failure to raise required additional funds or to secure an additional credit facility would adversely affect our ability to:

	•	maintain, develop or enhance our product offerings;
	•	take advantage of future opportunities;
	•	respond to competitive pressures; or
	•	continue operations.

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      Additional funds raised through the issuance of equity securities or securities convertible into our common stock may have the following negative effects on the then current common stockholders:

	•	dilution in percentage of ownership in MTI; and
	•	the rights, preferences or privileges of the new security holders may be senior to those of the common stockholders.

      Our securities are currently listed and traded on the Nasdaq National Market. To maintain our listing, we must meet Nasdaq’s required continued listing standards including minimum stockholders’ equity, number of shareholders and bid price. On May 30, 2002, we received notice from Nasdaq that we were not in compliance with Nasdaq’s continued listing standards because the bid price of our common stock closed below $1.00 per share for 30 consecutive trading days. If we are not in compliance by August 28, 2002, we will be delisted. There can be no assurance that we will be in compliance with the continued listing standards in the future. If we are delisted, we may not be able to secure listing on other exchanges or quotation systems. This would materially adversely affect the price and liquidity of our common stock.

      Our business depends on general economic and business conditions. Continued softness in the information technology market in both the United States and in Europe and consumers’ uncertainty about the global economic condition could result in reduced demand for our products and services. As a result of the weakened global economy, consumers are postponing or reducing expenditures, causing our revenue, our operating results, and our financial condition to decline. The downturn also has led to restructuring actions. Further delays or reductions in information technology spending could have a material adverse effect on demand for our products and services, and thus, our operating results.

      Our profitability depends upon the demand for information storage hardware, software and services as a whole. A decreasing demand for information-storage systems, software and services because of a weakening economy or otherwise, will result in decreased earnings.

      We have experienced historically a significant portion of our orders, sales and shipments in the last month or weeks of each quarter. We expect this pattern to continue, and possibly to increase, in the future. This uneven pattern makes our ability to forecast revenues, earnings and working capital requirements for each quarter extremely difficult and uncertain. If we do not receive orders that we have anticipated or complete shipments within a given quarter, our results of operations could be harmed materially for that quarter. Also, we operate without a significant backlog of orders. As a result, our quarterly sales and operating results in any given quarter are dependent, in large part, upon the volume and timing of orders booked and products shipped during that quarter. Accordingly, we may be unable to adjust spending in a timely manner to compensate for any unanticipated decrease in our orders, sales or shipments. Therefore, any decline in the demand for our products and services, in relation to our forecast for any given quarter, could materially harm our results of operations.

      The markets for our products and services are intensely competitive, and we expect competition to intensify in the future. If we fail to maintain or enhance our competitive position, we could experience pricing

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	•	quality of service and support;
	•	responsiveness to customer and market needs;
	•	product price, quality, reliability and performance; and
	•	ability to sell, service and deploy new technology.

      We have a number of competitors in various markets, including: EMC, Hewlett-Packard, Sun Microsystems, IBM, and Network Appliance, each of which has substantially greater name recognition, engineering, manufacturing, and marketing capabilities, and greater financial, technological, and personnel resources than we do.

      We have experienced quarterly fluctuations in operating results and we anticipate that these fluctuations may continue into the future. These fluctuations have resulted from, and may continue to be caused by, a number of factors, including:

	•	changes in demand for our Vivant and S-Series lines of products and services;
	•	the introduction of new products by our competitors and competitive pricing pressures;
	•	the size, timing and terms of customer orders;
	•	the timing of the introduction of new products and new versions of our products;
	•	shifts in our product or services mix;
	•	changes in our operating expenditures;
	•	the timing of sales, marketing research and development expenditures; and
	•	decreases in our gross profit as a percentage of revenues for mature products.

      Accordingly, we believe that quarter to quarter comparisons of our operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indications of our future performance. We cannot assure you that we will be profitable on a quarter to quarter basis or that our future revenues and operating results will meet or exceed the expectations of securities analysts and investors, any of which could cause a significant adverse change in the trading price of our common stock.

      We believe that our ability to sell, deploy and service new, innovative products with features that respond to our customers’ changing demands and that incorporate new technological standards will be critical to our future success. We are dependent upon our ability to contract with manufacturers to sell their existing products, as well as new product introductions that address customer needs or achieve market acceptance. Any significant delay or failure by us to update our product offerings, train our staff to support and service such

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      Undetected software or hardware errors frequently occur in networking products when they are first introduced or as new versions of products are released. Our systems are complex, and from time to time we may find errors in our existing, new, or enhanced products. Also, our systems are combined with products and components made by other vendors, and if errors occur, it may be difficult to identify the source of the problem. These errors, whether caused by our or another vendor’s products, could:

	•	adversely affect sales of our products;
	•	cause us to incur significant warranty and repair costs;
	•	divert the attention of our engineering personnel from our product development efforts;
	•	cause significant customer relations problems;
	•	harm our competitive position;
	•	hurt our reputation; and
	•	cause purchase delays.

      Any of these effects could materially harm our business or results of operations.

      We currently purchase several key materials used in the manufacture of our products from single or limited source suppliers. For example, for our Vivant product line, we currently purchase disk drives from Seagate Technology, Inc. and Xyratex Corporation, chipsets from Arrow Electronics, a distributor of the QLogic chipsets, and RAID controllers for the Vivant “S” series from Xyratex, an original equipment manufacturer for IBM/ Mylex. We may fail to obtain required materials in a timely manner in the future, or could experience delays from evaluating and testing the products of potential alternative suppliers. The recent softening of demand in the telecommunications industry could adversely impact the financial condition of our suppliers, many of whom have limited financial resources. We have in the past, and may in the future, be required to provide advance payments in order to secure key materials from financially limited suppliers. Financial or other difficulties faced by these suppliers could limit the availability of key components or materials. Additionally, financial difficulties could impair our ability to recover advances made to these suppliers. Any interruption or delay in the supply of any of these materials, or the inability to obtain these materials from alternate sources at acceptable prices and within a reasonable amount of time, would impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders.

      We use rolling forecasts based upon anticipated product orders to determine our component and product inventory requirements. Lead times for products, materials and components that we order vary significantly and depend upon factors such as specific supplier requirements, contract terms and current market demand for such products or components. As a result, our product and component requirement forecasts may not be accurate. If we overestimate our product or component requirements, we may have excess inventory, which would increase our costs. If we underestimate our product or component requirements, we may have inadequate inventory, which could interrupt our manufacturing and integration and delay delivery of our

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      We believe that our success is dependent, to a significant extent, upon the efforts and abilities of our senior management team, particularly our executive officers. The loss of the services of our executive officers could harm materially our business. The failure to retain key members of our senior management team, or to implement a succession plan to prepare qualified individuals to join us upon the loss of a member of our senior management team, could materially harm our business. In addition, a number of the members of our senior management team joined us recently, as we replaced certain management personnel, including the recent termination of Paul Emery, our Chief Operating Officer and the hiring of Mark Franzen as Chief Financial Officer. Thus, our management team has had limited time to work together and as a result, may have difficulty working together to successfully manage our business.

      International sales and services represent a significant portion of our total revenue. For example, international sales and service revenue represented 34% of our total sales and service revenue for fiscal year 2002. If we are unable to maintain international market demand for our products and services, our results of operations could be materially harmed. Our international business is subject to the financial and operating risks of conducting business internationally, including:

	•	unexpected changes in, or impositions of, legislative or regulatory requirements;
	•	fluctuating exchange rates, tariffs and other barriers;
	•	difficulties in staffing and managing foreign subsidiary operations;
	•	import or export restrictions;
	•	greater difficulties in accounts receivable collection and longer payment cycles;
	•	potentially adverse tax consequences;
	•	potential hostilities and changes in diplomatic and trade relationships;
	•	changes in a country’s economic or political conditions; and
	•	differing customer and/or technology standards requirements.

      All of our sales and services in international markets are priced in the applicable local currencies and are subject to currency exchange rate fluctuations. We currently enter into foreign currency exchange contracts on a limited basis in an attempt to minimize foreign currency exposure. Such contracts can be costly or limited in their effectiveness. If we are faced with significant changes in the regulatory and business climate in our international markets, our business and results from operations could suffer.

      The terrorist attacks in New York and Washington, D.C. have disrupted commerce throughout the United States and Europe. The continued threat of terrorism within the United States and Europe and the military action and heightened security measures in response to such threat may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders, delays in collecting cash, a general decrease in corporate spending on information technology, or our inability to effectively market, manufacture or ship our products, our business and results of operations could be materially and adversely affected. We are unable to predict whether the threat of terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have any long-term material adverse effect on our business, results of operations or financial condition.

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      Our intellectual property includes patents, proprietary technology, trade secrets, copyrights, and trademarks. We rely upon a combination of intellectual property laws and employee and third-party non-disclosure agreements to protect our intellectual property rights. Third parties may infringe upon our intellectual property rights, and we may be unable to detect this unauthorized usage or to enforce our rights effectively. Any legal action that we may bring to protect our intellectual property rights could be expensive and distract our management from day-to-day operations. Further, the laws of some countries in which we sell our products do not protect our intellectual property rights to the same extent as do the laws in the United States. Unauthorized usage or misappropriation of our intellectual property could harm our business materially.

      Our business activities may infringe upon the proprietary rights of others, and other parties may assert infringement claims against us. In addition, in the future, we may receive communications from other parties asserting that our intellectual property infringes on their proprietary rights. If we become liable to any third party for infringing its intellectual property rights, we could be required to pay substantial damage awards and to develop non-infringing technology, obtain licenses, or to cease selling the applications that contain the infringing intellectual property. We could have to redesign our products, which could be costly and time consuming and could substantially delay product shipments, assuming that a redesign is feasible. We may be unable to develop non-infringing technology or to obtain licenses on commercially-reasonable terms, if at all. Litigation is subject to inherent uncertainties, and any outcome unfavorable to us could materially harm our business. Furthermore, we could incur substantial costs in defending against any intellectual-property litigation, and these costs could increase significantly if any dispute were to go to trial. Our defense of any litigation, regardless of the merits of the complaint, likely would be time-consuming, costly, and a distraction to our management personnel. Adverse publicity related to any intellectual property litigation also could harm the sale of our products and damage our competitive position.

      Our systems must comply with current industry standards and government regulations in the United States and internationally. Any new products and product enhancements that we introduce in the future also must meet industry standards and government regulations at the time they are introduced. Failure to comply with existing or evolving industry standards or to obtain timely domestic or foreign regulatory approvals could materially harm our business. In addition, such compliance may be time consuming and costly.

      Our systems integrate SAN and NAS technologies into single storage architecture. Components of the SAN and NAS must comply with evolving industry standards. We also depend upon companies that provide other components of the SAN and NAS to meet these standards. If our vendors or customers do not support the same industry standards that we do, or if competing standards emerge that we do not support, market acceptance of our products could suffer.

      From July through September 2000, several class action complaints were filed against us and several of our officers, alleging that we were aware of adverse information that we failed to disclose primarily during fiscal 2000 and, hence, that we violated specified provisions of the Securities Exchange Act of 1934 and the rules promulgated thereunder. The plaintiffs in those cases filed a consolidated amended complaint in the federal court for the Central District of California on or about December 5, 2000, making similar allegations. This consolidated complaint alleges a class period from July 22, 1999 to July 27, 2000 and alleges that the defendants were aware of certain adverse information that they failed to disclose during that period. We filed a

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      The plaintiffs have not specified the amount of damages they seek. Although we believe the alleged claims in this lawsuit are without merit and are defending the lawsuit vigorously, due to the inherent uncertainties of the litigation process and the judicial system, we are unable to predict the outcome of this litigation. This litigation may result in substantial costs and distract management’s attention and resources. As of April 6, 2002, we met the deductible of our insurance policy. In addition, this litigation may negatively impact our ability to attract new officers or directors. A judgment against us in this case could have a material adverse effect on our results of operations and liquidity.

      Raymond J. Noorda, our Chairman of the Board, is also the Chairman of the Board of Canopy and Ralph J. Yarro III, one of our Directors, is also the Director and President and Chief Executive Officer of Canopy. Canopy beneficially owns approximately 45% of our outstanding common stock and is able to substantially affect our actions which require stockholder approval, including the election of the Board of Directors and the approval of significant corporate transactions. This concentration of ownership may delay or prevent a change in control of us and will make some transactions difficult or impossible without Mr. Noorda’s or Mr. Yarro’s support.

      The value of your investment in our company could decline due to the impact of any of the following factors upon the market price of our common stock:

	•	variations between our actual and anticipated earnings;
	•	the timing and announcement of new products or services by us or by our competitors;
	•	services or technological innovations by us or by our competitors;
	•	failure of our results from operations to meet the expectations of public market analysts and investors;
	•	changes in revenue or earnings estimates by the investment community;
	•	speculation in the press or investment community about our business or our competitive position;
	•	potential de-listing from the NASDAQ exchange
	•	the volume of trading in our common stock; and
	•	market conditions broadly and the trading price of shares of technology companies generally.

      In addition, stock markets, particularly the Nasdaq National Market, have experienced extreme price and volume fluctuations, and the market prices of securities of companies such as ours have been highly volatile. These fluctuations have often been unrelated to the operating performance of such companies. Fluctuations such as these may affect the market price of our common stock. In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and could divert our management’s attention and resources.

      Our restated certificate of incorporation and amended and restated bylaws contain various provisions, including notice provisions, provisions for staggered terms of office of the board of directors, and provisions authorizing us to issue preferred stock, that may make it more difficult for a third party to acquire, or may discourage acquisition bids for, our company. Also, the rights of holders of our common stock may be affected adversely by the rights of holders of any preferred stock that we may issue in the future that would be senior to

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      Our European operations transact in foreign currencies and may be exposed to financial-market risk resulting from fluctuations in foreign-currency exchange rates, particularly the British Pound Sterling and the Euro. We have used and may continue to use hedging programs, currency forward contracts, currency options and/or other derivative financial instruments commonly used to reduce financial-market risks, none of which were outstanding at April 6, 2002. There can be no assurance that such actions successfully will reduce our exposure to financial-market risks.

      The information required by this Item is incorporated herein by reference to the consolidated financial statements and supplementary data listed in Item 14(a)(1) and 14(a)(2) of Part IV of this report.

      None.

PART III

      Information with respect to our directors is incorporated by reference to the information set forth in our 2002 Proxy Statement under the caption “Directors.” Information with respect to our executive officers is set forth in Part I, above, under the caption “Executive Officers of the Registrant.”

Item 11.     Executive Compensation

      The information set forth under the caption “Compensation of Directors and Executive Officers and Other Information” in our 2002 Proxy Statement is incorporated herein by reference.

Item 12.     Security Ownership of Certain Beneficial Owners and Management

      The information set forth under the caption “Voting Securities and Principal Holders Thereof” in our 2002 Proxy Statement is incorporated herein by reference.

Item 13.     Certain Relationships and Related Transactions

      The information set forth under the caption “Certain Transactions and Related Transactions” in our 2002 Proxy Statement is incorporated herein by reference.

PART IV

      The following Consolidated Financial Statements of MTI and the Independent Auditors’ Report are attached hereto beginning on pages 38 and 37.

      (a)(1) Consolidated Financial Statements:

	Independent Auditors’ Report
	Consolidated Balance Sheets as of April 6, 2002 and April 7, 2001

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	Consolidated Statements of Operations for fiscal years 2002, 2001 and 2000
	Consolidated Statements of Stockholders’ Equity for fiscal years 2002, 2001 and 2000
	Consolidated Statements of Cash Flows for fiscal years 2002, 2001 and 2000
	Notes to Consolidated Financial Statements

      (2) The following financial statement schedule for fiscal years 2002, 2001 and 2000 is submitted herewith:

	Schedule II — Valuation and Qualifying Accounts (See page 63)
	All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.

      (3) Exhibits included herewith (numbered in accordance with Item 601 of Regulation S-K):

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*	Management or compensatory plan or arrangement.

      (b) Reports on Form 8-K

      None.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 5th day of July 2002.

	MTI TECHNOLOGY CORPORATION

	By:	/s/ THOMAS P. RAIMONDI, JR.

	Thomas P. Raimondi, Jr.
	Vice Chairman, President and Chief
	Executive Officer

POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below, constitutes and appoints Thomas P. Raimondi, Jr. and Mark A. Franzen, jointly and severally, attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities to sign any and all amendments to this Report, and to file the same, and all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, and his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

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INDEX TO FINANCIAL STATEMENTS

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors

      We have audited the consolidated financial statements of MTI Technology Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MTI Technology Corporation and subsidiaries as of April 6, 2002 and April 7, 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended April 6, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

	KPMG LLP

Costa Mesa, California

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MTI TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS