##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended April 1, 2006                                                     
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to           .                                 

Commission file number 0-23418


MTI TECHNOLOGY CORPORATION


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 95-3601802                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. employer
    identification no.)

17595 Cartwright Road


Irvine, California 92614


(Address of principal executive offices, zip code)


Registrants telephone number, including area code:
(949) 251-1101


Securities registered pursuant to Section 12(b) of the
Act: None


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


Common stock, $0.001 par value


(Title of class)


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2




|                              |                         |                            
|----------------------------- | ----------------------- | ---------------------------
|Large accelerated filer     o | Accelerated filer     o | Non-accelerated filer     þ

12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE:












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TABLE OF CONTENTS



|                                                        |                                                                                                         |  |  |  |  |  |  | 
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                 
|                                                        | ITEM 1. BUSINESS                                                                                       
|                                                        | ITEM 1A. RISK FACTORS                                                                                  
|                                                        | ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                     
|                                                        | ITEM 2. PROPERTIES                                                                                     
|                                                        | ITEM 3. LEGAL PROCEEDINGS                                                                              
|                                                        | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            
|PART II                                                
|                                                        | ITEM 6. SELECTED FINANCIAL DATA                                                                        
|                                                        | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          
|                                                        | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS                                   
|                                                        | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|                                                        | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|                                                        | ITEM 9A. CONTROLS AND PROCEDURES                                                                       
|                                                        | ITEM 9B. OTHER INFORMATION                                                                             
|PART III                                               
|                                                        | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|                                                        | ITEM 11. EXECUTIVE COMPENSATION                                                                        
|                                                        | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                                        | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                                        | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                        
|PART IV                                                
|                                                        | ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                    
|SIGNATURES                                             
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|INDEPENDENT AUDITORS REPORT                           
|MTI TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS 
|CONSOLIDATED STATEMENTS OF OPERATIONS                  
|MTI TECHNOLOGY CORPORATION                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS                  
|MTI TECHNOLOGY CORPORATION                             
|SCHEDULE II                                            
|EXHIBIT 2.1                                            
|EXHIBIT 10.19                                          
|EXHIBIT 10.20                                          
|EXHIBIT 10.24                                          
|EXHIBIT 10.25                                          
|EXHIBIT 10.26                                          
|EXHIBIT 10.28                                          
|EXHIBIT 10.30                                          
|EXHIBIT 10.33                                          
|EXHIBIT 10.34                                          
|EXHIBIT 10.35                                          
|EXHIBIT 10.36                                          
|EXHIBIT 21.1                                           
|EXHIBIT 23.1                                           
|EXHIBIT 31.1                                           
|EXHIBIT 31.2                                           
|EXHIBIT 32.1                                           
|EXHIBIT 32.2                                           



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##### Table of Contents






PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

INTRODUCTION


885-7300. 10-K




OVERVIEW


e-mail


tm on-site 90-day




1



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Our Strategy


best-of






SIGNIFICANT BUSINESS DEVELOPMENTS




| |                                    
| | -----------------------------------
| | Collective Technologies Acquisition





| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | $6.0 million in cash;                                                                                                                    
|
| |  | a note in the amount of $2.0 million bearing interest at 5%
    and due in twelve quarterly payments beginning 90 days
    after closing;
|
| |  | 2,272,727 shares of our common stock;                                                                                                    
|
| |  | a warrant to purchase 1,000,000 shares of our common
    stock at an exercise price of $1.32 per share;                                  
|
| |  | assumption of certain liabilities.                                                                                                       

lock-up 10-K.


2



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| |                   
| | ------------------
| | Series B Financing





OUR MARKET




state-of




OUR STORAGE SOLUTION


best-of easy-to


3



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Storage infrastructure solutions that center on
    state-of-the-art,
    high-performance, high-availability networked storage systems
    from EMC (DAS, SAN, NAS and CAS). These solutions are designed
    to deliver fast, reliable and resilient on-line storage systems.
    Our solutions are integrated with easy to use storage resource
    management software that allows our customers to improve system
    administration productivity.
|
| |  | Information backup, recovery and archiving solutions that
    incorporate leading edge solutions from vendors such as EMC,
    Legato and Arkivio in combination with
    state-of-the-art tape
    libraries from Quantum, StorageTek and ADIC.                                                                                                                                                                                                       
|
| |  | Replication and availability services on both a local level and
    wide area basis to create operational copies of current data or
    for enhanced data protection and business continuity utilizing
    software and hardware services from EMC, Legato and other
    leading storage application software vendors.                                                                                                                                 
|
| |  | Server virtualization solutions from VMware that enable server
    consolidation and increased application mobility across server
    platforms to deliver operational cost savings and increased
    availability and business continuity.                                                                                                                                                                                                            
|
| |  | Information Lifecycle Management solutions that enable customers
    to reduce cost and control, track and manage information across
    storage platforms and applications in support of regulatory
    compliance and corporate governance initiatives.                                                                                                                                                                                              

GLOBAL CUSTOMER SOLUTIONS








4



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on-site


SALES AND MARKETING








ORDER BACKLOG




MANUFACTURING AND INTEGRATION SERVICES




COMPETITION




5



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10-K.


PROPRIETARY RIGHTS




SEASONALITY




EMPLOYEES




AVAILABILITY OF SEC FILINGS


1-800-SEC-0330. 8-K, 10-K 10-Q,







|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

FORWARD-LOOKING STATEMENTS


10-K


6



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10-K




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our belief that we receive favorable pricing, rebates and access
    to training from EMC;                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | our belief that complexity is the key weakness in the IT storage
    environment;                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | our beliefs regarding trends toward fully integrated storage
    solutions and insufficient access to those solutions in the
    mid-enterprise market;                                                                                                                                                                                                                                                                                                               
|
| |  | our belief that the quality, reliability, and continuing support
    of our products and the expertise of our professional services
    staff will be of greater importance to our customer base;                                                                                                                                                                                                                                                                     
|
| |  | our market strategy to become the preferred provider for sales,
    professional services and maintenance to the mid-enterprise
    market for information infrastructure solutions;                                                                                                                                                                                                                                                                                  
|
| |  | our belief that EMC products are a world-class product brand;                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | our total solutions approach and the ability of the EMC product
    brand to meet our customers needs and to track their
    buying decisions;                                                                                                                                                                                                                                                                                                                       
|
| |  | our belief that order backlog as of any particular date is not
    meaningful as it is not necessarily indicative of future sales
    levels;                                                                                                                                                                                                                                                                                                                         
|
| |  | our beliefs regarding the principal elements of competition;                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | our anticipation of greater demand for our products and services
    in our third fiscal quarter;                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | the factors upon which our future depends, which, in addition to
    our cost-reduction initiatives, include improving revenues and
    margins, continuing our relationship with EMC, expanding our
    service offerings, receiving market acceptance of new products
    and services, recruiting, hiring, training and retaining
    significant numbers of qualified personnel, forecasting revenues
    and expenses, controlling expenses, and managing assets;
|
| |  | our belief that our current cash and receivable balances will be
    sufficient to meet our operating and capital expenditure
    requirements for at least the next 12 months;                                                                                                                                                                                                                                                                                       
|
| |  | our belief regarding the timing and risk of undetected software
    or hardware errors;                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | our belief that our success is dependent to a significant extent
    on our personnel, including our executive officers;                                                                                                                                                                                                                                                                                                                                              
|
| |  | our focus on increasing EMC product sales;                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | our belief that we are currently in compliance with Nasdaq
    Capital Market continued listing requirements;                                                                                                                                                                                                                                                                                                                                                         
|
| |  | our expectation to retain earnings and not to declare or pay any
    cash dividends in the near future;                                                                                                                                                                                                                                                                                                                                                               
|
| |  | our expectation that the loss of hardware maintenance revenue
    will be mitigated by an increase in professional service revenue
    and software maintenance revenue; and                                                                                                                                                                                                                                                                                          
|
| |  | our business outlook, including all statements in the section
    titled Outlook in Item 7.
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations.                                                                                                                                                                                                                                                                         



7



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| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent upon EMC as the main supplier for our
    storage solutions, and disruptions in supply or significant
    increases in costs could harm our business materially.







| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Our stock ownership is concentrated in a few stockholders
    who may be able to influence corporate decisions.









| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any amendment of the Companys charter or bylaws that
    adversely affects the holders of Series A, or
    Series B, as applicable;                             
|
| |  | any authorization of a class of capital stock ranking senior to,
    or on parity with, the Series A, or Series B, as
    applicable;                            
|
| |  | any increase in the size of the Companys Board of
    Directors to greater than eight members or any change in the
    classification of the Board of Directors;

8



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| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | certain redemptions or repurchases of capital stock;                                                                                                                                                                                                                   
|
| |  | acquisitions of capital stock or assets from other entities;                                                                                                                                                                                                           
|
| |  | effecting, or entering into any agreement to effect, any merger,
    consolidation, recapitalization, reorganization, liquidation,
    dissolution, winding up or similar transaction (a
    Liquidation Event) involving the Company or any of
    its subsidiaries;
|
| |  | any sale of assets of the Company or a subsidiary which is
    outside the ordinary course of business;                                                                                                                                                                
|
| |  | any purchase of assets of or an equity interest in another
    entity for more than $5.0 million; and                                                                                                                                                                  
|
| |  | any incurrence of additional debt for borrowed money in excess
    of $1.0 million.                                                                                                                                                                                    







| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our pending acquisition of the operating assets of
    Collective Technologies, LLC is expected to benefit us, but we
    may not realize any anticipated benefits due to challenges
    associated with integrating our companies and costs we incur
    from the acquisition.





| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | successfully integrating our operations, technologies, products
    and services with those of Collective;                                 
|
| |  | retaining and expanding customer and supplier relationships;                                                                               
|
| |  | coordinating and integrating the service capabilities of
    Collective into our company;                                                  
|
| |  | preserving service and other important relationships that we and
    Collective have, and resolving potential conflicts that may
    arise;

9



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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | assimilating the personnel of Collective and integrating the
    business cultures of both companies;
|
| |  | maintaining employee morale and motivation; and                                                      
|
| |  | reducing administrative costs associated with the operations of
    Collective.                      





| |                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our stockholders may be diluted by the conversion of
    outstanding Series A and Series B and the exercise of
    warrants to purchase common stock issued in our June 2004 and
    November 2005 private placements, and by our pending acquisition
    of Collective, if consummated.









10



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| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A significant portion of our revenues occurs in the last
    month of a given quarter. Consequently, our results of
    operations for any particular quarter are difficult to
    predict.





| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a history of operating losses, and our future
    operating results may depend on the success of our cost
    reduction initiatives and on other factors.









| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | We are subject to financial and operating risks associated
    with international sales and services.





| |   |                                                        
| | - | -------------------------------------------------------
| |  | fluctuating exchange rates, tariffs and other barriers;

11



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





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | The storage market is characterized by rapid technological
    change, and our success will depend on EMCs ability to
    develop new products.





| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The markets for the products and services that we sell are
    intensely competitive, which may lead to reduced sales of our
    products, reduced profits and reduced market share for our
    business.





| |   |                                                         
| | - | --------------------------------------------------------
| |  | quality of professional services consulting and support;
|
| |  | responsiveness to customer and market needs;            
|
| |  | product price, quality, reliability and performance; and
|
| |  | ability to sell, service and deploy new technology.     





12



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small-to




| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | We may need additional financing to continue to carry on
    our existing operations and such additional financing may not be
    available.







| |   |                                                      
| | - | -----------------------------------------------------
| |  | grow the business;                                   
|
| |  | maintain or enhance our product or service offerings;
|
| |  | respond to competitive pressures; and                
|
| |  | continue operations.                                 





| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | dilution in percentage of ownership in MTI;                                                                                                            
|
| |  | economic dilution if the pricing terms offered to investors are
    more favorable to them than the current market price; and                          
|
| |  | subordination of the rights, preferences or privileges of common
    stockholders to the rights, preferences or privileges of new
    security holders.

13



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| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are party to long term, non-cancelable facility leases
    for facilities which we do not use and may not be able to
    sublease on terms that will offset our lease obligations, which
    may result in a continuing unfavorable impact on our cash
    position.





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly results may fluctuate from period to period.
    Therefore, historical results may not be indicative of future
    results or be helpful in evaluating the results of our
    business.





| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | the size, timing and terms of customer orders;                                                    
|
| |  | the introduction of new products by our competitors and
    competitive pricing pressures;        
|
| |  | the timing of the introduction of new products and new versions
    of best-of-breed
    products;
|
| |  | shifts in our product or services mix;                                                            
|
| |  | changes in our operating expenditures;                                                            
|
| |  | decreases in our gross profit as a percentage of revenues for
    mature products; and            
|
| |  | changes in foreign currency exchange rates.                                                       

quarter-to quarter-to period-to


|               |       |         |        |         |        |           |       |          |              |   |              |        |   |   |        |         |  
|-------------- | ----- | ------- | ------ | ------- | ------ | --------- | ----- | -------- | ------------ | - | ------------ | ------ | - | - | ------ | ------- | -
|               |       |         |        |         |        |           |       | Net Loss |             
|               |       |         |        |         |        | Operating |       |          | Attributable |  
|               |       | Total   |        |         | Gross  |           |       | Income   |              |   | to Common    |       
|               |       | Revenue |        |         | Profit |           |       | (Loss)   |              |   | Shareholders |       
|               |       |         |        |         |        |           |       |          |              |   |              |       
|2006           |       |         |        |         |        |           |       |          |              |   |              |        |   |   |        |        
|Fourth quarter |       | $       | 43,915 |         |        | $         | 8,589 |          |              | $ | (117         | )      |   | $ | (1,253 | )      
|Third quarter  |       |         | 40,162 |         |        |           | 7,887 |          |              |   | (1,557       | )      |   |   | (2,988 | )      
|Second quarter |       |         | 31,635 |         |        |           | 6,401 |          |              |   | (3,463       | )      |   |   | (4,148 | )      
|First quarter  |       |         | 39,331 |         |        |           | 8,078 |          |              |   | (2,090       | )      |   |   | (3,622 | )      
|               |       |         |        |         |        |           |       |          |              |   |              |       
|               | Total |         | $      | 155,043 |        |           | $     | 30,955   |              |   | $            | (7,227 | ) |   | $      | (12,011 | )
|               |       |         |        |         |        |           |       |          |              |   |              |       



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our solutions are complex and may contain undetected
    software or hardware errors that could be difficult, costly, and
    time-consuming to repair.



14



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| |   |                                                         
| | - | --------------------------------------------------------
| |  | adversely affect our sales;                             
|
| |  | cause us to incur significant warranty and repair costs;
|
| |  | cause significant customer relations problems;          
|
| |  | harm our competitive position;                          
|
| |  | hurt our reputation; and                                
|
| |  | cause purchase delays.                                  





| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | All domestic employment at MTI, including employment of
    our domestic key personnel, is at will.





| |                                                                   
| | ------------------------------------------------------------------
| | We may have difficulty managing any future growth
    effectively.







| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | We may face inherent costly damages or litigation costs if
    third parties claim that we infringe upon their intellectual
    property rights.



15



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| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we and our partners are unable to comply with evolving
    industry standards and government regulations, we may be unable
    either to sell our solutions or to be competitive in the
    marketplace.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our stock price may be volatile, which could lead to
    losses by investors and to securities litigation.





| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | failure of our results from operations to meet the expectations
    of public market analysts and investors;      
|
| |  | the timing and announcement of new or enhanced products or
    services by us, our partners or by our competitors;
|
| |  | speculation in the press or investment community about our
    business or our competitive position;              
|
| |  | the volume of trading in our common stock; and                                                                    
|
| |  | market conditions and the trading price of shares of technology
    companies generally.                          





| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not have registered, or we may not have had an
    exemption from registering, certain options under the California
    securities laws and may incur liability to repurchase the
    options or face potential claims under the California securities
    laws.



16



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| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to achieve and maintain effective internal
    controls in accordance with Section 404 of the
    Sarbanes-Oxley Act could have a material adverse effect on our
    business and stock price.





| |                                                         
| | --------------------------------------------------------
| | We may fail to comply with Nasdaq Marketplace
    Rules.

over-the




| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | We have adopted anti-takeover defenses that could affect
    the price of our common stock.






ITEM 1B.     UNRESOLVED STAFF
COMMENTS









|        |           
|------- | ----------
|ITEM 2. | PROPERTIES



17



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|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS








|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS






PART II




|        |                                                                              
|------- | -----------------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
    STOCKHOLDER MATTERS

PRINCIPAL MARKET AND PRICES




|                 |  |            |      |  |     |  |      | 
|---------------- |  | ---------- | ---- |  | --- |  | ---- | 
|                 |  | Bid Prices |     
|                 |  |            |     
|                 |  | High       |      |  | Low | 
|                 |  |            |      |  |     | 
|FISCAL YEAR 2005 |  |            |      |  |     |  |      | 
|First Quarter    |  |            | 4.05 |  |     |  | 1.84 | 
|Second Quarter   |  |            | 2.49 |  |     |  | 1.41 | 
|Third Quarter    |  |            | 2.70 |  |     |  | 1.40 | 
|Fourth Quarter   |  |            | 2.96 |  |     |  | 1.48 | 
|FISCAL YEAR 2006 |  |            |      |  |     |  |      | 
|First Quarter    |  |            | 2.48 |  |     |  | 1.40 | 
|Second Quarter   |  |            | 2.38 |  |     |  | 1.68 | 
|Third Quarter    |  |            | 1.99 |  |     |  | 1.18 | 
|Fourth Quarter   |  |            | 1.64 |  |     |  | 1.22 | 

18



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NUMBER OF COMMON STOCKHOLDERS




DIVIDENDS






UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS


8-K


ISSUER PURCHASES OF EQUITY SECURITIES


10b-18(a)(3)


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS




19



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|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

10-K.


|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |         |        |         |   |         |        |         |  
|---------------------------------------------------------------- | -------------------------------------- | ------------------------ | ------- | ------ | -------- | - | ------- | -------- | ------- | - | -------- | ------ | ------ | -------- | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                                                 |                                        | Fiscal Year Ended        |        
|                                                                 |                                        |                          |        
|                                                                 |                                        | April 1,                 |         |        | April 2, |   |         | April 3, |         |   | April 5, |        |        | April 6, |        
|                                                                 |                                        | 2006                     |         |        | 2005     |   |         | 2004     |         |   | 2003     |        |        | 2002     |        
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|SELECTED STATEMENT OF
    OPERATIONS DATA:                       |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |         |        |         |   |         |       
|Net product revenue                                              |                                        | $                        | 116,326 |        |          | $ | 93,703  |          |         | $ | 46,442   |        |        | $        | 40,101  |        |         | $ | 69,519  |       
|Service revenue                                                  |                                        |                          | 38,717  |        |          |   | 38,910  |          |         |   | 36,723   |        |        |          | 42,285  |        |         |   | 48,399  |       
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|                                                                 |                                        | Total revenue(1)         |         |        | 155,043  |   |         |          | 132,613 |   |          |        | 83,165 |          |         |        | 82,386  |   |         |        | 117,918 |  
|Product gross profit                                             |                                        |                          | 21,858  |        |          |   | 19,805  |          |         |   | 11,473   |        |        |          | 7,153   |        |         |   | 13,053  |       
|Service gross profit                                             |                                        |                          | 9,097   |        |          |   | 5,714   |          |         |   | 10,333   |        |        |          | 14,645  |        |         |   | 18,648  |       
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|                                                                 |                                        | Gross profit(1)(2)       |         |        | 30,955   |   |         |          | 25,519  |   |          |        | 21,806 |          |         |        | 21,798  |   |         |        | 31,701  |  
|Operating expense:                                               |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |         |        |         |   |         |       
|                                                                 | Selling, general and administrative(5) |                          |         | 37,091 |          |   |         | 39,078   |         |   |          | 28,935 |        |          |         | 27,754 |         |   |         | 43,211 |        
|                                                                 | Research and development               |                          |         |       |          |   |         |         |         |   |          | 776    |        |          |         | 5,238  |         |   |         | 12,742 |        
|                                                                 | Restructuring charges                  |                          |         | 1,091  |          |   |         | 2,024    |         |   |          | (211   | )      |          |         | 1,467  |         |   |         | 4,911  |        
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|                                                                 |                                        | Total operating expenses |         |        | 38,182   |   |         |          | 41,102  |   |          |        | 29,500 |          |         |        | 34,459  |   |         |        | 60,864  |  
|                                                                 |                                        | Operating loss           |         |        | (7,227   | ) |         |          | (15,583 | ) |          |        | (7,694 | )        |         |        | (12,661 | ) |         |        | (29,163 | )
|Interest and other income (expense), net(3)                      |                                        |                          | (104    | )      |          |   | (500    | )        |         |   | 631      |        |        |          | 1,008   |        |         |   | 4,182   |       
|Gain (loss) on foreign currency transactions                     |                                        |                          | (720    | )      |          |   | 318     |          |         |   | 29       |        |        |          | 639     |        |         |   | (542    | )     
|Equity in net loss and write-down of net investment of affiliate |                                        |                          |        |        |          |   |        |          |         |   |         |        |        |          |        |        |         |   | (9,504  | )     
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|                                                                 |                                        | Loss before income taxes |         |        | (8,051   | ) |         |          | (15,765 | ) |          |        | (7,034 | )        |         |        | (11,014 | ) |         |        | (35,027 | )
|Income tax expense (benefit)(4)                                  |                                        |                          | 51      |        |          |   | 22      |          |         |   | (3,168   | )      |        |          | 205     |        |         |   | 24,598  |       
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|Net loss                                                         |                                        |                          | (8,102  | )      |          |   | (15,787 | )        |         |   | (3,866   | )      |        |          | (11,219 | )      |         |   | (59,625 | )     
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|Amortization of preferred stock discount                         |                                        |                          | (1,970  | )      |          |   | (880    | )        |         |   |         |        |        |          |        |        |         |   |        |       
|Dividend on preferred stock                                      |                                        |                          | (1,939  | )      |          |   | (953    | )        |         |   |         |        |        |          |        |        |         |   |        |       
|Net loss applicable to common shareholders                       |                                        | $                        | (12,011 | )      |          | $ | (17,620 | )        |         | $ | (3,866   | )      |        | $        | (11,219 | )      |         | $ | (59,625 | )     
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|Net loss per share:                                              |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |         |        |         |   |         |       
|                                                                 | Basic and diluted                      |                          | $       | (0.34  | )        |   | $       | (0.51    | )       |   | $        | (0.12  | )      |          | $       | (0.34  | )       |   | $       | (1.83  | )      
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|Weighted average shares used in per share computations:          |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |         |        |         |   |         |       
|                                                                 | Basic and diluted                      |                          |         | 35,541 |          |   |         | 34,476   |         |   |          | 33,482 |        |          |         | 32,852 |         |   |         | 32,548 |        
|                                                                 |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |        
|SELECTED BALANCE SHEET DATA:                                     |                                        |                          |         |        |          |   |         |          |         |   |          |        |        |          |         |        |         |   |         |       
|Cash and cash equivalents                                        |                                        | $                        | 21,660  |        |          | $ | 12,191  |          |         | $ | 3,017    |        |        | $        | 9,833   |        |         | $ | 8,420   |       
|Working capital                                                  |                                        |                          | 13,540  |        |          |   | 2,256   |          |         |   | 2,743    |        |        |          | 2,071   |        |         |   | 8,263   |       
|Total assets                                                     |                                        |                          | 84,622  |        |          |   | 62,866  |          |         |   | 46,612   |        |        |          | 44,556  |        |         |   | 61,698  |       
|Short-term debt                                                  |                                        |                          | 5,167   |        |          |   | 3,745   |          |         |   | 4,109    |        |        |          | 1,901   |        |         |   | 2,035   |       
|Long-term debt, less current maturities                          |                                        |                          |        |        |          |   |        |          |         |   | 95       |        |        |          | 286     |        |         |   | 461     |       
|Total stockholders equity (deficit)                             |                                        | $                        | (3,630  | )      |          | $ | (2,369  | )        |         | $ | 7,141    |        |        | $        | 8,974   |        |         | $ | 20,113  |       

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On March 31, 2003, we became an exclusive reseller of EMC
    products and services. See further discussion of this transition
    and its impact on result of operations in the Results of
    Operations section of Managements Discussion and
    Analysis.                                                                                                                                                                             
|   
|(2) | Includes charges related to production and service inventory
    write-offs of $589, $2,681, $1,469, $1,950, and $8,850 for
    fiscal years 2006, 2005, 2004, 2003, and 2002, respectively.                                                                                                                                                                                                                                                  
|   
|(3) | Includes $3,600 in fiscal year 2002 related to the gain on sale
    of patents. Includes $1,200 in fiscal year 2003 related to the
    gain on sale of SCO common stock.                                                                                                                                                                                                                                                                      
|   
|(4) | Includes tax expense related to a deferred tax asset valuation
    allowance adjustment of $24,300 in fiscal year 2002. Fiscal year
    2004 includes a tax benefit of $(3,200) related to an IRS
    settlement refund. See Note 6 to the Notes to the
    Consolidated Financial Statements.                                                                                                                                                
|   
|(5) | Selling, general and administrative expenses for fiscal year
    2006 noted above were $132 higher than what was reported in our
    press release dated May 25, 2006 due to the fact that a
    customer filed for Chapter 11 bankruptcy subsequent to the
    press release but prior to the filing of this Annual Report on
    Form 10-K. As
    such, the accounts receivable from that customer was written-off
    as of April 1, 2006.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS





OVERVIEW AND EXECUTIVE SUMMARY






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have increased product revenue significantly during the past
    two fiscal years. We recorded product revenue of
    $93.7 million in fiscal 2005, a 102% increase from fiscal
    2004. Furthermore, we recorded product revenue of
    $116.3 million in fiscal 2006, a 24% increase from fiscal
    2005. In order to achieve this revenue growth, we invested
    heavily in sales and service resources which led to increased
    losses in fiscal 2005. In fiscal 2006, we moderated headcount
    additions and reduced spending which led to decreased operating
    losses as compared to fiscal 2005.                                                                                                                                                                                                                                                                                                                                    
|
| |  | Maintenance revenue has been negatively impacted due to the
    comprehensive warranty provided on EMC products. We resell EMC
    hardware products with up to a three-year warranty and a
    seven-day, twenty-four hour service level. In contrast, MTI
    proprietary products were generally sold with a one year
    warranty and a five day, nine hour service level. Therefore, the
    sale of proprietary products provided an opportunity to generate
    maintenance revenue earlier due to the shorter warranty period
    and allowed the Company to generate maintenance revenue during
    the warranty period by selling maintenance contracts increasing
    the service level to seven days a week, twenty-four hours a day.
    We expect the loss of hardware maintenance revenue to be
    mitigated by an increase in professional service revenue as well
    as software maintenance revenue on new technology installations.



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| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue  We recorded total revenue of
    $155.0 million in fiscal 2006, an increase of 17% from
    fiscal 2005;                  
|
| |  | Service Gross Profit  We recorded service
    gross profit percentage of 23.5% in fiscal 2006 compared to
    14.7% in fiscal 2005;
|
| |  | Operating Loss  We recorded an operating loss
    of $7.2 million in fiscal 2006 compared to
    $15.6 million in fiscal 2005.     

OUTLOOK






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We expect product revenue to continue to grow in fiscal 2007. We
    expect product revenue to follow, to some extent, the seasonal
    patterns experienced in fiscal 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | If we are able to achieve the performance based rebates from
    EMC, we expect our product margin percentage to increase
    modestly as compared to fiscal 2006, however, our product
    margins can be volatile and are subject to many factors
    including competitive market forces.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | We expect that service revenue will increase sequentially due to
    anticipated growth in our professional service business as well
    as continued sales of software maintenance contracts. If our
    acquisition of Collective is consummated as planned,
    professional services revenue is expected to increase beginning
    in our second quarter of fiscal 2007. We also expect service
    revenue to be driven by sales of hardware maintenance contracts
    as the warranty period on EMC products sold in previous years
    begin to expire. If we are able to achieve growth in service
    revenue, we expect service margins to improve as we are able to
    further leverage our existing service resources.

CRITICAL ACCOUNTING POLICIES




Revenue recognition.




| |                 
| | ----------------
| | Hardware revenue

00-21, 00-21)


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| |   |                                              
| | - | ---------------------------------------------
| |  | persuasive evidence of an arrangement exists;
|
| |  | delivery has occurred;                       
|
| |  | fee is fixed or determinable; and            
|
| |  | collectability is reasonably assured.        







| |                 
| | ----------------
| | Software revenue

00-21,


97-2,


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97-2


03-05, 03-05). 03-05, 97-2. 97-2 00-21




| |                
| | ---------------
| | Service revenue





| |                              
| | -----------------------------
| | Multiple element arrangements

00-21 97-2. 00-21,




| |      
| | -----
| | Other

00-21.


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00-21.




| |         
| | --------
| | Shipping





Product warranty.


Allowance for doubtful accounts and product returns.


Income taxes.


Valuation of goodwill.


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Inventories. (first-in,


RESULTS OF OPERATIONS




|                                             |                |                   |      |       |          |  |      |          |    |  |      |       |   
|-------------------------------------------- | -------------- | ----------------- | ---- | ----- | -------- |  | ---- | -------- | -- |  | ---- | ----- | --
|                                             |                | Fiscal Year Ended |     
|                                             |                |                   |     
|                                             |                | April 1,          |      |       | April 2, |  |      | April 3, |   
|                                             |                | 2006              |      |       | 2005     |  |      | 2004     |   
|                                             |                |                   |      |       |          |  |      |          |   
|Net product revenue                          |                |                   | 75.0 | %     |          |  | 70.7 | %        |    |  | 55.8 | %    
|Service revenue                              |                |                   | 25.0 |       |          |  | 29.3 |          |    |  | 44.2 |      
|                                             |                |                   |      |       |          |  |      |          |   
|                                             | Total revenue  |                   |      | 100.0 |          |  |      | 100.0    |    |  |      | 100.0 |   
|Product gross profit                         |                |                   | 18.8 |       |          |  | 21.1 |          |    |  | 24.7 |      
|Service gross profit                         |                |                   | 23.5 |       |          |  | 14.7 |          |    |  | 28.1 |      
|                                             |                |                   |      |       |          |  |      |          |   
|                                             | Gross profit   |                   |      | 20.0  |          |  |      | 19.2     |    |  |      | 26.2  |   
|Selling, general and administrative          |                |                   | 23.9 |       |          |  | 29.4 |          |    |  | 34.8 |      
|Research and development                     |                |                   |     |       |          |  |     |          |    |  | 0.9  |      
|Restructuring charges                        |                |                   | 0.7  |       |          |  | 1.5  |          |    |  | (0.3 | )    
|                                             |                |                   |      |       |          |  |      |          |   
|                                             | Operating loss |                   |      | (4.7  | )        |  |      | (11.7    | )  |  |      | (9.2  | ) 
|Other income (expense), net                  |                |                   | (0.1 | )     |          |  | (0.4 | )        |    |  | 0.8  |      
|Gain (loss) on foreign currency transactions |                |                   | (0.4 | )     |          |  | 0.2  |          |    |  |     |      
|Income tax benefit                           |                |                   |     |       |          |  |     |          |    |  | 3.8  |      
|                                             |                |                   |      |       |          |  |      |          |   
|                                             | Net loss       |                   |      | (5.2  | )%       |  |      | (11.9    | )% |  |      | (4.6  | )%
|                                             |                |                   |      |       |          |  |      |          |   

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| |                                              
| | ---------------------------------------------
| | Fiscal year 2006 compared to Fiscal year 2005

Net product revenue:


|                     |                       |                  |      |      |                  |   |      |       |  |   |      |       |  |        |      |      |       |   |      |      |  |   |      |      | 
|-------------------- | --------------------- | ---------------- | ---- | ---- | ---------------- | - | ---- | ----- |  | - | ---- | ----- |  | ------ | ---- | ---- | ----- | - | ---- | ---- |  | - | ---- | ---- | 
|                     |                       | Fiscal Year 2006 |      |      | Fiscal Year 2005 |  
|                     |                       |                  |      |      |                  |  
|                     |                       | US               |      |      | Europe           |   |      | Total |  |   | US   |       |  | Europe |      |      | Total |  
|                     |                       |                  |      |      |                  |   |      |       |  |   |      |       |  |        |      |      |       |  
|Server revenue       |                       | $                | 47.1 |      |                  | $ | 31.5 |       |  | $ | 78.6 |       |  | $      | 43.2 |      |       | $ | 25.7 |      |  | $ | 68.9 |     
|Software revenue     |                       |                  | 17.6 |      |                  |   | 3.5  |       |  |   | 21.1 |       |  |        | 12.5 |      |       |   | 2.8  |      |  |   | 15.3 |     
|Tape library revenue |                       |                  | 10.3 |      |                  |   | 6.3  |       |  |   | 16.6 |       |  |        | 2.5  |      |       |   | 7.0  |      |  |   | 9.5  |     
|                     |                       |                  |      |      |                  |   |      |       |  |   |      |       |  |        |      |      |       |  
|                     | Total product revenue |                  | $    | 75.0 |                  |   | $    | 41.3  |  |   | $    | 116.3 |  |        | $    | 58.2 |       |   | $    | 35.5 |  |   | $    | 93.7 | 
|                     |                       |                  |      |      |                  |   |      |       |  |   |      |       |  |        |      |      |       |  



Service Revenue:


|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |   |      |      |  |   |      |      | 
|----------------------------- | --------------------- | ---------------- | ---- | ---- | ---------------- | - | ---- | ----- |  | - | ---- | ---- |  | ------ | ---- | ---- | ----- | - | ---- | ---- |  | - | ---- | ---- | 
|                              |                       | Fiscal Year 2006 |      |      | Fiscal Year 2005 |  
|                              |                       |                  |      |      |                  |  
|                              |                       | US               |      |      | Europe           |   |      | Total |  |   | US   |      |  | Europe |      |      | Total |  
|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |  
|Professional services revenue |                       | $                | 7.8  |      |                  | $ | 4.4  |       |  | $ | 12.2 |      |  | $      | 5.6  |      |       | $ | 2.9  |      |  | $ | 8.5  |     
|Maintenance revenue           |                       |                  | 10.2 |      |                  |   | 16.3 |       |  |   | 26.5 |      |  |        | 12.9 |      |       |   | 17.5 |      |  |   | 30.4 |     
|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |  
|                              | Total service revenue |                  | $    | 18.0 |                  |   | $    | 20.7  |  |   | $    | 38.7 |  |        | $    | 18.5 |       |   | $    | 20.4 |  |   | $    | 38.9 | 
|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |  



3-year,




27



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Product Gross Profit:


Service Gross Profit:


Selling, General and Administrative: 10-K.


Restructuring:


Interest and Other Expense, Net:


28



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Gain on Foreign Currency Transactions:


Income Tax Expense (Benefit):




| |                                              
| | ---------------------------------------------
| | Fiscal year 2005 compared to Fiscal year 2004

Net product revenue:


|       |                       |                   |      |      |               |   |      |        |  |   |      |      | 
|------ | --------------------- | ----------------- | ---- | ---- | ------------- | - | ---- | ------ |  | - | ---- | ---- | 
|       |                       | Fiscal Year Ended |     
|       |                       |                   |     
|       |                       | April 2, 2005     |      |      | April 3, 2004 |   |      | Change | 
|       |                       |                   |      |      |               |   |      |        | 
|US     |                       | $                 | 58.2 |      |               | $ | 23.3 |        |  | $ | 34.9 |     
|Europe |                       |                   | 35.5 |      |               |   | 23.1 |        |  |   | 12.4 |     
|       |                       |                   |      |      |               |   |      |        | 
|       | Total product revenue |                   | $    | 93.7 |               |   | $    | 46.4   |  |   | $    | 47.3 | 
|       |                       |                   |      |      |               |   |      |        | 



Service Revenue:


|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |   |      |      |  |   |      |      | 
|----------------------------- | --------------------- | ---------------- | ---- | ---- | ---------------- | - | ---- | ----- |  | - | ---- | ---- |  | ------ | ---- | ---- | ----- | - | ---- | ---- |  | - | ---- | ---- | 
|                              |                       | Fiscal Year 2005 |      |      | Fiscal Year 2004 |  
|                              |                       |                  |      |      |                  |  
|                              |                       | US               |      |      | Europe           |   |      | Total |  |   | US   |      |  | Europe |      |      | Total |  
|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |  
|Professional Services Revenue |                       | $                | 5.6  |      |                  | $ | 2.9  |       |  | $ | 8.5  |      |  | $      | 1.6  |      |       | $ | 1.2  |      |  | $ | 2.8  |     
|Maintenance Revenue           |                       |                  | 12.9 |      |                  |   | 17.5 |       |  |   | 30.4 |      |  |        | 16.6 |      |       |   | 17.3 |      |  |   | 33.9 |     
|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |  
|                              | Total Service Revenue |                  | $    | 18.5 |                  |   | $    | 20.4  |  |   | $    | 38.9 |  |        | $    | 18.2 |       |   | $    | 18.5 |  |   | $    | 36.7 | 
|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |  

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3-year




Product Gross Profit:


Service Gross Profit:


Selling, General and Administrative:


30



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Research and Development:


Restructuring:


Interest and Other Expense, Net:


Gain on Foreign Currency Transactions:


Income Tax Expense (Benefit):


LIQUIDITY AND CAPITAL RESOURCES




31



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| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | $6.0 million in cash;                                                                                                                    
|
| |  | a note in the amount of $2.0 million bearing interest at 5%
    and due in twelve quarterly payments beginning 90 days
    after closing;
|
| |  | 2,272,727 shares of our common stock;                                                                                                    
|
| |  | a warrant to purchase 1,000,000 shares of our common
    stock at an exercise price of $1.32 per share;                                  
|
| |  | assumptions of certain liabilities.                                                                                                      

lock-up 10-K.


S-8.




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|                    |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            |  |   |     |  |  |  |   | 
|------------------- |  | ----------------------------- | ---- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ---- | - | --- | ---------- |  | - | --- |  |  |  | - | 
|                    |  | Payments Due by Fiscal Period |     
|                    |  |                               |     
|                    |  | Total                         |      |  | 2007 |   |     | 2008 |  |   | 2009 |  |  | 2010 |     |  | 2011 |   |     | Thereafter | 
|                    |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            | 
|                    |  | (In millions)                 |     
|Line of Credit      |  | $                             | 5.2  |  |      | $ | 5.2 |      |  |   |     |  |  |      |    |  |      |   |    |            |  |   |    |  |  |  |  | 
|Operating Leases(1) |  |                               | 8.1  |  |      |   | 3.1 |      |  |   | 2.7  |  |  |      | 1.1 |  |      |   | 1.0 |            |  |   | 0.3 |  |  |  |  | 
|                    |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            | 
|                    |  | $                             | 13.4 |  |      | $ | 8.3 |      |  | $ | 2.7  |  |  | $    | 1.1 |  |      | $ | 1.0 |            |  | $ | 0.3 |  |  |  |  | 
|                    |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            | 






|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Represents lease obligations, net of anticipated sublease cash
    receipts.



INFLATION AND FOREIGN CURRENCY EXCHANGE











|         |                                                                
|-------- | ---------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISKS





34



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|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

10-K.







|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures


13a-15(e) 15d-15(e)


Changes in Internal Control over Financial Reporting








35



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|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



S-K







|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS



SECURITIES AUTHORIZED FOR ISSUANCE




|                                                             |                                  |                      |           |           |                   |                      |      |                      |  |  |           |           | 
|------------------------------------------------------------ | -------------------------------- | -------------------- | --------- | --------- | ----------------- | -------------------- | ---- | -------------------- |  |  | --------- | --------- | 
|                                                             |                                  |                      |           |           |                   | Number of Securities |     
|                                                             |                                  | Number of Securities |           |           | Weighted-Average  |                      |      | Remaining Available  | 
|                                                             |                                  | to be Issued Upon    |           |           | Exercise Price of |                      |      | for Future Issuance  | 
|                                                             |                                  | the Exercise of      |           |           | Outstanding       |                      |      | under Equity         | 
|                                                             |                                  | Outstanding Options, |           |           | Options,          |                      |      | Compensation Plans   | 
|                                                             |                                  | Warrants and         |           |           | Warrants and      |                      |      | (Excluding           | 
|                                                             |                                  | Rights(1)            |           |           | Rights(1)         |                      |      | Securities Reflected | 
|Plan Category                                                |                                  | (#)                  |           |           | ($)               |                      |      | in Column (a))       | 
|                                                             |                                  |                      |           |           |                   |                      |      |                      | 
|                                                             |                                  | (a)                  |           |           | (b)               |                      |      | (c)                  | 
|Equity Compensation Plans Approved by Security Holders:      |                                  |                      |           |           |                   |                      |      |                      |  |  |           |          
|2001 Stock Option Plan which includes the 2001 Director Plan |                                  |                      | 6,790,013 | (2)       |                   | $                    | 1.78 |                      |  |  | 2,497,075 | (3)      
|                                                             | All other terminated stock plans |                      |           | 2,818,897 |                   |                      | $    | 8.28                 |  |  |           |          | 
|Warrants:                                                    |                                  |                      |           |           |                   |                      |      |                      |  |  |           |          
|                                                             | Ralph Yarro                      |                      |           | 150,000   |                   |                      | $    | 18.75                |  |  |           |          | 
|Equity Compensation Plans Not Approved by Security Holders:  |                                  |                      |           |           |                   |                      |      |                      |  |  |           |          
|                                                             | None                             |                      |           |          |                   |                      |      |                     |  |  |           |          | 
|                                                             |                                  |                      |           |           |                   |                      |      |                      | 
|                                                             | Total:                           |                      |           | 9,758,910 |                   |                      |      |                      |  |  |           | 2,497,075 | 
|                                                             |                                  |                      |           |           |                   |                      |      |                      | 

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|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2001 Non-Employee Director Option Program functions as part
    of the 2001 Stock Incentive Plan.                                                                                                         
|   
|(2) | 6,265,013 shares and 525,000 shares related to the
    2001 Stock Incentive Plan (the SIP) and the 2001
    Non-Employee Director Option Program (the 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. 2,415,431 and 81,644 shares related to the SIP and the
    Program.






|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES






PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES







| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Report of Independent Registered Public Accounting
    Firm  Grant Thornton LLP         
|
| | Independent Auditors Report  BDO Simpson Xavier                                        
|
| | Consolidated Balance Sheets as of April 1, 2006 and
    April 2, 2005                    
|
| | Consolidated Statements of Operations for the fiscal years ended
    2006, 2005, and 2004



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Consolidated Statements of Stockholders Equity (Deficit)
    for the fiscal years ended 2006, 2005, and 2004



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Consolidated Statements of Cash Flows for the fiscal years ended
    2006, 2005 and 2004
|
| | Notes to Consolidated Financial Statements                                              





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedule II  Valuation and Qualifying Accounts
    (See page 70)                                                                                                      
|
| | All other schedules are omitted because they are not applicable
    or the required information is shown in the Consolidated
    Financial Statements or notes thereto.





| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | An exhibit index has been filed as part of this report and is
    incorporated herein by this reference.

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SIGNATURES


10-K




| |                           
| | --------------------------
| | MTI TECHNOLOGY CORPORATION



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

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

POWER OF ATTORNEY


attorneys-in 10-K, attorneys-in




|                                                              |  |                                                                                       |  |               |  | 
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                                     |  | Title                                                                                 |  | Date         
|                                                              |  |                                                                                       |  |              
|                                                             
|/s/ THOMAS P. RAIMONDI, JR.     (Thomas
    P. Raimondi, Jr.) |  | Chairman, President and
    Chief Executive Officer
    (Principal Executive Officer) |  | June 29, 2006
|                                                             
|/s/ SCOTT POTERACKI     (Scott
    Poteracki)                 |  | Chief Financial Officer and Secretary
    (Principal Financial Officer)               |  | June 29, 2006
|                                                             
|/s/ TODD WILLIAMS     (Todd
    Williams)                     |  | Vice President and Corporate Controller
    (Principal Accounting Officer)            |  | June 29, 2006
|                                                             
|/s/ LAWRENCE P. BEGLEY     (Lawrence
    P. Begley)           |  | Director                                                                              |  | June 29, 2006
|                                                             
|/s/ FRANZ L. CRISTIANI     (Franz
    L. Cristiani)           |  | Director                                                                              |  | June 29, 2006
|                                                             
|/s/ WILLIAM MUSTARD     (William
    Mustard)                 |  | Director                                                                              |  | June 29, 2006
|                                                             
|/s/ MICHAEL PEHL     (Michael
    Pehl)                       |  | Director                                                                              |  | June 29, 2006

38



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|                                          |  |          |  |               |  | 
|----------------------------------------- |  | -------- |  | ------------- |  | 
|Signature                                 |  | Title    |  | Date         
|                                          |  |          |  |              
|                                         
|/s/ JOHN REPP     (John
    Repp)         |  | Director |  | June 29, 2006
|                                         
|/s/ KENT D. SMITH     (Kent
    D. Smith) |  | Director |  | June 29, 2006

39



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INDEX TO FINANCIAL STATEMENTS


|                                                                                                                                            |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                            |  | Page |   
|                                                                                                                                            |  |      |   
|Report of Independent Registered Public
    Accounting Firm  Grant Thornton LLP                                                            |  |      | 41 | 
|Independent Auditors
    Report  BDO Simpson Xavier                                                                                       |  |      | 42 | 
|Consolidated Balance Sheets as of
    April 1, 2006 and April 2, 2005                                                                       |  |      | 43 | 
|Consolidated Statements of Operations for
    the fiscal years ended April 1, 2006, April 2, 2005
    and April 3, 2004                     |  |      | 44 | 
|Consolidated Statements of
    Stockholders Equity (Deficit) for the fiscal years ended
    April 1, 2006, April 2, 2005 and April 3, 2004 |  |      | 45 | 
|Consolidated Statements of Cash Flows for
    the fiscal years ended April 1, 2006, April 2, 2005
    and April 3, 2004                     |  |      | 46 | 
|Notes to Consolidated Financial
    Statements                                                                                              |  |      | 47 | 
|FINANCIAL STATEMENT SCHEDULE                                                                                                                |  |      |    | 
|Schedule II  Valuation and
    Qualifying Accounts                                                                                         |  |      | 70 | 

40



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                       
| | ----------------------
| | /s/ Grant Thornton LLP





41



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INDEPENDENT AUDITORS REPORT














| |                       
| | ----------------------
| | /s/ BDO Simpson Xavier





42



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MTI TECHNOLOGY CORPORATION


CONSOLIDATED BALANCE SHEETS


|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |   |        |          |        |  
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | -------- | -------- | - | ------ | -------- | ------ | -
|                                      |                                                                                                                                                                                                                         | April 1,                                                                                                                                                                                                                |        |          | April 2, |  
|                                      |                                                                                                                                                                                                                         | 2006                                                                                                                                                                                                                    |        |          | 2005     |  
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      |                                                                                                                                                                                                                         | (In thousands except per                                                                                                                                                                                                |       
|                                      |                                                                                                                                                                                                                         | share amounts)                                                                                                                                                                                                          |       
|ASSETS                               
|Current assets:                       |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |   |        |         
|                                      | Cash and cash equivalents                                                                                                                                                                                               |                                                                                                                                                                                                                         | $      | 21,660   |          |   | $      | 12,191   |       
|                                      | Accounts receivable, less allowance for doubtful accounts and
    sales returns of $514 and $451 in 2006 and 2005, respectively                                                                                         |                                                                                                                                                                                                                         |        | 37,803   |          |   |        | 33,866   |       
|                                      | Inventories, net                                                                                                                                                                                                        |                                                                                                                                                                                                                         |        | 10,466   |          |   |        | 3,723    |       
|                                      | Prepaid expenses and other receivables                                                                                                                                                                                  |                                                                                                                                                                                                                         |        | 8,712    |          |   |        | 6,971    |       
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      |                                                                                                                                                                                                                         | Total current assets                                                                                                                                                                                                    |        |          | 78,641   |   |        |          | 56,751 |  
|                                      | Property, plant and equipment, net                                                                                                                                                                                      |                                                                                                                                                                                                                         |        | 555      |          |   |        | 708      |       
|                                      | Goodwill, net                                                                                                                                                                                                           |                                                                                                                                                                                                                         |        | 5,184    |          |   |        | 5,184    |       
|                                      | Other assets                                                                                                                                                                                                            |                                                                                                                                                                                                                         |        | 242      |          |   |        | 223      |       
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      |                                                                                                                                                                                                                         | Total assets                                                                                                                                                                                                            |        | $        | 84,622   |   |        | $        | 62,866 |  
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                     
|LIABILITIES AND STOCKHOLDERS DEFICIT
|Current liabilities:                  |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |   |        |         
|                                      | Line of credit                                                                                                                                                                                                          |                                                                                                                                                                                                                         | $      | 5,167    |          |   | $      | 3,667    |       
|                                      | Current portion of capital lease obligations                                                                                                                                                                            |                                                                                                                                                                                                                         |        |         |          |   |        | 78       |       
|                                      | Accounts payable                                                                                                                                                                                                        |                                                                                                                                                                                                                         |        | 36,952   |          |   |        | 24,474   |       
|                                      | Accrued liabilities                                                                                                                                                                                                     |                                                                                                                                                                                                                         |        | 10,315   |          |   |        | 9,489    |       
|                                      | Accrued restructuring charges                                                                                                                                                                                           |                                                                                                                                                                                                                         |        | 847      |          |   |        | 2,767    |       
|                                      | Deferred revenue, current                                                                                                                                                                                               |                                                                                                                                                                                                                         |        | 11,820   |          |   |        | 14,020   |       
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      |                                                                                                                                                                                                                         | Total current liabilities                                                                                                                                                                                               |        |          | 65,101   |   |        |          | 54,495 |  
|                                      | Deferred revenue, noncurrent                                                                                                                                                                                            |                                                                                                                                                                                                                         |        | 4,305    |          |   |        | 3,695    |       
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      |                                                                                                                                                                                                                         | Total liabilities                                                                                                                                                                                                       |        |          | 69,406   |   |        |          | 58,190 |  
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      | Series A redeemable convertible preferred stock,
    567 shares issued and outstanding at April 1, 2006 and
    April 2, 2005 net of discount of $6,584 and $7,955 at
    April 1, 2006 and April 2, 2005, respectively |                                                                                                                                                                                                                         |        | 8,416    |          |   |        | 7,045    |       
|                                      | Series B redeemable convertible preferred stock,
    1,582 shares issued and outstanding April 1, 2006, net
    of discount of $9,570                                                                                   |                                                                                                                                                                                                                         |        | 10,430   |          |   |        |         |       
|                                      | Stockholders deficit:                                                                                                                                                                                                  |                                                                                                                                                                                                                         |        |          |          |   |        |          |       
|                                      |                                                                                                                                                                                                                         | Preferred stock, $.001 par value; 5,000 shares
    authorized; issued and outstanding 2,149 and 567 shares at
    April 1, 2006 and April 2, 2005, respectively,
    included in redeemable convertible preferred stock |        |          |         |   |        |          |       |  
|                                      |                                                                                                                                                                                                                         | Common stock, $.001 par value; 80,000 shares
    authorized; issued and outstanding 36,024 and 35,159 shares
    at April 1, 2006 and April 2, 2005, respectively                                                       |        |          | 36       |   |        |          | 35     |  
|                                      | Additional paid-in capital                                                                                                                                                                                              |                                                                                                                                                                                                                         |        | 155,365  |          |   |        | 145,345  |       
|                                      | Deferred Compensation                                                                                                                                                                                                   |                                                                                                                                                                                                                         |        | (326     | )        |   |        | (605     | )     
|                                      | Accumulated deficit                                                                                                                                                                                                     |                                                                                                                                                                                                                         |        | (155,779 | )        |   |        | (143,768 | )     
|                                      | Accumulated other comprehensive loss                                                                                                                                                                                    |                                                                                                                                                                                                                         |        | (2,926   | )        |   |        | (3,376   | )     
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      |                                                                                                                                                                                                                         | Total stockholders deficit                                                                                                                                                                                             |        |          | (3,630   | ) |        |          | (2,369 | )
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  
|                                      |                                                                                                                                                                                                                         | $                                                                                                                                                                                                                       | 84,622 |          |          | $ | 62,866 |         
|                                      |                                                                                                                                                                                                                         |                                                                                                                                                                                                                         |        |          |          |  



43



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CONSOLIDATED STATEMENTS OF OPERATIONS


FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2, 2005 AND
APRIL 3, 2004


|                                                        |                   |                                       |                          |        |         |         |         |        |         |         |        |        |        |        |  
|------------------------------------------------------- | ----------------- | ------------------------------------- | ------------------------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------ | ------ | ------ | ------ | -
|                                                        |                   | 2006                                  |                          |        | 2005    |         |         | 2004   |        
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|                                                        |                   | (In thousands, except per share data) |                         
|Net product revenue                                     |                   | $                                     | 116,326                  |        |         | $       | 93,703  |        |         | $       | 46,442 |       
|Service revenue                                         |                   |                                       | 38,717                   |        |         |         | 38,910  |        |         |         | 36,723 |       
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|                                                        |                   | Total revenue                         |                          |        | 155,043 |         |         |        | 132,613 |         |        |        | 83,165 |       
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|Product cost of revenue                                 |                   |                                       | 94,468                   |        |         |         | 73,898  |        |         |         | 34,969 |       
|Service cost of revenue                                 |                   |                                       | 29,620                   |        |         |         | 33,196  |        |         |         | 26,390 |       
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|                                                        |                   |                                       | Total cost of revenue    |        |         | 124,088 |         |        |         | 107,094 |        |        |        | 61,359 |  
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|                                                        |                   |                                       | Gross profit             |        |         | 30,955  |         |        |         | 25,519  |        |        |        | 21,806 |  
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|Operating expenses:                                     |                   |                                       |                          |        |         |         |         |        |         |         |        |       
|Selling, general and administrative                     |                   |                                       | 37,091                   |        |         |         | 39,078  |        |         |         | 28,935 |       
|Research and development                                |                   |                                       |                         |        |         |         |        |        |         |         | 776    |       
|Restructuring charges                                   |                   |                                       | 1,091                    |        |         |         | 2,024   |        |         |         | (211   | )     
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|                                                        |                   |                                       | Total operating expenses |        |         | 38,182  |         |        |         | 41,102  |        |        |        | 29,500 |  
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|                                                        |                   |                                       | Operating loss           |        |         | (7,227  | )       |        |         | (15,583 | )      |        |        | (7,694 | )
|Interest and other income (expense), net                |                   |                                       | (104                     | )      |         |         | (500    | )      |         |         | 631    |       
|Gain (loss) on foreign currency transactions            |                   |                                       | (720                     | )      |         |         | 318     |        |         |         | 29     |       
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|Loss before income tax expense (benefit)                |                   |                                       | (8,051                   | )      |         |         | (15,765 | )      |         |         | (7,034 | )     
|Income tax expense (benefit)                            |                   |                                       | 51                       |        |         |         | 22      |        |         |         | (3,168 | )     
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|Net loss                                                |                   |                                       | (8,102                   | )      |         |         | (15,787 | )      |         |         | (3,866 | )     
|Amortization of preferred stock discount                |                   |                                       | (1,970                   | )      |         |         | (880    | )      |         |         |       |       
|Dividend on preferred stock                             |                   |                                       | (1,939                   | )      |         |         | (953    | )      |         |         |       |       
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|Net loss applicable to common shareholders              |                   | $                                     | (12,011                  | )      |         | $       | (17,620 | )      |         | $       | (3,866 | )     
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|Net loss per share applicable to common shareholders:   |                   |                                       |                          |        |         |         |         |        |         |         |        |       
|                                                        | Basic and diluted |                                       | $                        | (0.34  | )       |         | $       | (0.51  | )       |         | $      | (0.12  | )     
|                                                        |                   |                                       |                          |        |         |         |         |        |        
|Weighted average shares used in per share computations: |                   |                                       |                          |        |         |         |         |        |         |         |        |       
|                                                        | Basic and diluted |                                       |                          | 35,541 |         |         |         | 34,746 |         |         |        | 33,482 |       
|                                                        |                   |                                       |                          |        |         |         |         |        |        



44



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MTI TECHNOLOGY CORPORATION


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2, 2005 AND
APRIL 3, 2004


|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------- |  | -------------- | ------ |  | ---------- | - | -- | -------- |  | ----------- | ------------ | ----- | ----- | ------------- | ------------- | ----- | ------ | ------------- | -------- | --------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                    |  |                |        |  |            |   |    |          |  | Accumulated |              |       | Total |               |               | Total |       
|                                                    |  | Common Stock   |        |  | Additional |   |    |          |  |             |              | Other |       |               | Stockholders |       |        | Comprehensive |         
|                                                    |  |                |        |  | Paid-In    |   |    | Deferred |  |             | Accumulated  |       |       | Comprehensive |               |       | Equity |               |          | Income    | 
|                                                    |  | Shares         |        |  | Amount     |   |    | Capital  |  |             | Compensation |       |       | Deficit       |               |       | Loss   |               |          | (Deficit) |  |   | (Loss) |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|                                                    |  | (In thousands) |       
|Balance at April 5, 2003                            |  |                | 32,969 |  |            | $ | 33 |          |  | $           | 134,931      |       |       |               |              |       |        | $             | (122,282 | )         |  | $ | (3,708 | ) |  | $ | 8,974   |   |  |   |         |  
|Net loss                                            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               | (3,866   | )         |  |   |       |   |  |   | (3,866  | ) |  | $ | (3,866  | )
|Foreign currency translation adjustments            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               |         |           |  |   | 648    |   |  |   | 648     |   |  |   | 648     |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Comprehensive loss for the year ended April 3, 2004 |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |   |  |   |         |   |  |   | (3,218  | )
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Shares issued under Employee Stock Purchase Plan    |  |                | 133    |  |            |   |   |          |  |             | 76           |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 76      |   |  |   |         |  
|Exercise of stock options                           |  |                | 1,331  |  |            |   | 1  |          |  |             | 1,269        |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 1,270   |   |  |   |         |  
|Issuance of restricted stock                        |  |                |       |  |            |   |   |          |  |             | 271          |       |       |               | (271          | )     |        |               |         |           |  |   |       |   |  |   |        |   |  |   |         |  
|Deferred compensation                               |  |                |       |  |            |   |   |          |  |             |             |       |       |               | 40            |       |        |               |         |           |  |   |       |   |  |   | 40      |   |  |   |         |  
|Warrant conversion                                  |  |                | 40     |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   |        |   |  |   |         |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Balance at April 3, 2004                            |  |                | 34,473 |  |            |   | 34 |          |  |             | 136,547      |       |       |               | (231          | )     |        |               | (126,148 | )         |  |   | (3,060 | ) |  |   | 7,142   |   |  |   |         |  
|Net loss                                            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               | (15,787  | )         |  |   |       |   |  |   | (15,787 | ) |  |   | (15,787 | )
|Foreign currency translation adjustments            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               |         |           |  |   | (316   | ) |  |   | (316    | ) |  |   | (316    | )
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Comprehensive loss for the year ended April 2, 2005 |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |   |  |   |         |   |  |   | (16,103 | )
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Shares issued under Employee Stock Purchase Plan    |  |                | 104    |  |            |   |   |          |  |             | 161          |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 161     |   |  |   |         |  
|Exercise of stock options                           |  |                | 582    |  |            |   | 1  |          |  |             | 698          |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 699     |   |  |   |         |  
|Issuance of restricted stock                        |  |                |       |  |            |   |   |          |  |             | 540          |       |       |               | (540          | )     |        |               |         |           |  |   |       |   |  |   |        |   |  |   |         |  
|Deferred compensation                               |  |                |       |  |            |   |   |          |  |             |             |       |       |               | 166           |       |        |               |         |           |  |   |       |   |  |   | 166     |   |  |   |         |  
|Discount related to Series A preferred stock        |  |                |       |  |            |   |   |          |  |             | 8,835        |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 8,835   |   |  |   |         |  
|Issuance fees related to preferred stock            |  |                |       |  |            |   |   |          |  |             | (1,436       | )     |       |               |              |       |        |               |         |           |  |   |       |   |  |   | (1,436  | ) |  |   |         |  
|Dividend on preferred stock                         |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               | (953     | )         |  |   |       |   |  |   | (953    | ) |  |   |         |  
|Amortization of preferred stock discount            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               | (880     | )         |  |   |       |   |  |   | (880    | ) |  |   |         |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Balance at April 2, 2005                            |  |                | 35,159 |  |            |   | 35 |          |  |             | 145,345      |       |       |               | (605          | )     |        |               | (143,768 | )         |  |   | (3,376 | ) |  |   | (2,369  | ) |  |   |         |  
|Net loss                                            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               | (8,102   | )         |  |   |       |   |  |   | (8,102  | ) |  |   | (8,102  | )
|Foreign currency translation adjustments            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               |         |           |  |   | 450    |   |  |   | 450     |   |  |   | 450     |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Comprehensive loss for the year ended April 1, 2006 |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |   |  |   |         |   |  | $ | (7,652  | )
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Shares issued under Employee Stock Purchase Plan    |  |                | 140    |  |            |   |   |          |  |             | 193          |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 193     |   |  |   |         |  
|Exercise of stock options                           |  |                | 610    |  |            |   | 1  |          |  |             | 560          |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 561     |   |  |   |         |  
|Deferred compensation                               |  |                | 115    |  |            |   |   |          |  |             | (42          | )     |       |               | 279           |       |        |               |         |           |  |   |       |   |  |   | 237     |   |  |   |         |  
|Discount related to Series B preferred stock        |  |                |       |  |            |   |   |          |  |             | 10,169       |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 10,169  |   |  |   |         |  
|Issuance fees related to preferred stock            |  |                |       |  |            |   |   |          |  |             | (860         | )     |       |               |              |       |        |               |         |           |  |   |       |   |  |   | (860    | ) |  |   |         |  
|Dividend on preferred stock                         |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               | (1,939   | )         |  |   |       |   |  |   | (1,939  | ) |  |   |         |  
|Amortization of preferred stock discount            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               | (1,970   | )         |  |   |       |   |  |   | (1,970  | ) |  |   |         |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Balance at April 1, 2006                            |  |                | 36,024 |  |            | $ | 36 |          |  | $           | 155,365      |       |       | $             | (326          | )     |        | $             | (155,779 | )         |  | $ | (2,926 | ) |  | $ | (3,630  | ) |  |   |         |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  



45



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MTI TECHNOLOGY CORPORATION








CONSOLIDATED STATEMENTS OF CASH FLOWS


FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2, 2005 AND
APRIL 3, 2004


|                                                                                |                                      |                                                         |         |       |        |   |         |      |         |   |         |   |        |  
|------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------------------- | ------- | ----- | ------ | - | ------- | ---- | ------- | - | ------- | - | ------ | -
|                                                                                |                                      | 2006                                                    |         |       | 2005   |   |         | 2004 |        
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|                                                                                |                                      | (In thousands)                                          |        
|Cash flows from operating activities:                                           |                                      |                                                         |         |       |        |   |         |      |         |   |         |  
|Net loss                                                                        |                                      | $                                                       | (8,102  | )     |        | $ | (15,787 | )    |         | $ | (3,866  | )
|Adjustments to reconcile net loss to net cash used in operating
    activities: |                                      |                                                         |         |       |        |   |         |      |         |   |         |  
|                                                                                |                                      | Depreciation and amortization                           |         |       | 487    |   |         |      | 1,282   |   |         |   | 1,419  |  
|                                                                                |                                      | Provision for losses on accounts receivable, net        |         |       | 197    |   |         |      | 14      |   |         |   | 25     |  
|                                                                                |                                      | Provision for inventory obsolescence                    |         |       | 589    |   |         |      | 2,681   |   |         |   | 1,469  |  
|                                                                                |                                      | Loss on disposal of fixed assets                        |         |       |       |   |         |      | 96      |   |         |   | 210    |  
|                                                                                |                                      | Restructuring charges                                   |         |       | 1,091  |   |         |      | 2,024   |   |         |   | (211   | )
|                                                                                |                                      | Non-cash compensation from issuance of restricted stock |         |       | 237    |   |         |      | 166     |   |         |   | 40     |  
|Changes in assets and liabilities:                                              |                                      |                                                         |         |       |        |   |         |      |         |   |         |  
|                                                                                |                                      | Accounts receivable                                     |         |       | (3,886 | ) |         |      | (11,323 | ) |         |   | (8,540 | )
|                                                                                |                                      | Inventories                                             |         |       | (7,301 | ) |         |      | (233    | ) |         |   | 625    |  
|                                                                                |                                      | Prepaid expenses, other receivables and other assets    |         |       | (1,654 | ) |         |      | 1,213   |   |         |   | (4,087 | )
|                                                                                |                                      | Accounts payable                                        |         |       | 12,648 |   |         |      | 10,706  |   |         |   | 5,052  |  
|                                                                                |                                      | Deferred revenue                                        |         |       | (1,592 | ) |         |      | 1,387   |   |         |   | (887   | )
|                                                                                |                                      | Accrued and other liabilities                           |         |       | (3,887 | ) |         |      | 3,422   |   |         |   | (2,202 | )
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Net cash used in operating activities                                           |                                      |                                                         | (11,173 | )     |        |   | (4,352  | )    |         |   | (10,953 | )
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Cash flows from investing activities:                                           |                                      |                                                         |         |       |        |   |         |      |         |   |         |  
|                                                                                |                                      | Capital expenditures for property, plant and equipment  |         |       | (360   | ) |         |      | (661    | ) |         |   | (157   | )
|                                                                                |                                      | Proceeds from the sale of property, plant and equipment |         |       |       |   |         |      |        |   |         |   | 50     |  
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Net cash used in investing activities                                           |                                      |                                                         | (360    | )     |        |   | (661    | )    |         |   | (107    | )
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Cash flows from financing activities:                                           |                                      |                                                         |         |       |        |   |         |      |         |   |         |  
|                                                                                |                                      | Net borrowings (payments) on line of credit             |         |       | 1,500  |   |         |      | (266    | ) |         |   | 2,193  |  
|                                                                                |                                      | Proceeds from exercise of stock options                 |         |       | 753    |   |         |      | 860     |   |         |   | 1,346  |  
|                                                                                |                                      | Proceeds from issuance of preferred stock, net          |         |       | 19,140 |   |         |      | 13,564  |   |         |   |       |  
|                                                                                |                                      | Payment of capital lease obligations                    |         |       | (78    | ) |         |      | (193    | ) |         |   | (176   | )
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Net cash provided by financing activities                                       |                                      |                                                         | 21,315  |       |        |   | 13,965  |      |         |   | 3,363   |  
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Effect of exchange rate changes on cash                                         |                                      |                                                         | (313    | )     |        |   | 222     |      |         |   | 881     |  
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Net increase (decrease) in cash and cash equivalents                            |                                      |                                                         | 9,469   |       |        |   | 9,174   |      |         |   | (6,816  | )
|Cash and cash equivalents at beginning of year                                  |                                      |                                                         | 12,191  |       |        |   | 3,017   |      |         |   | 9,833   |  
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Cash and cash equivalents at end of year                                        |                                      | $                                                       | 21,660  |       |        | $ | 12,191  |      |         | $ | 3,017   |  
|                                                                                |                                      |                                                         |         |       |        |   |         |      |        
|Supplemental disclosures of cash flow information:                              |                                      |                                                         |         |       |        |   |         |      |         |   |         |  
|                                                                                | Cash paid during the year for:       |                                                         |         |       |        |   |         |      |         |   |         |   |       
|                                                                                |                                      | Interest                                                |         | $     | 285    |   |         | $    | 432     |   |         | $ | 241    |  
|                                                                                |                                      | Income taxes                                            |         |       | 64     |   |         |      | 7       |   |         |   | 166    |  
|Non-cash investing and financing activities:                                    |                                      |                                                         |         |       |        |   |         |      |         |   |         |  
|                                                                                | Accrued dividends on preferred stock |                                                         | $       | 1,939 |        |   | $       | 953  |         |   |         |  |       



46



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##### Table of Contents









MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)




|    |                                           
|--- | ------------------------------------------
|(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |        
| | -------
| | Company

tm ® on-site




| |                                          
| | -----------------------------------------
| | Basis of Financial Statement Presentation







| |            
| | -----------
| | Fiscal Year





| |                 
| | ----------------
| | Use of Estimates



47



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##### Table of Contents





| |                    
| | -------------------
| | Revenue Recognition





| |                 
| | ----------------
| | Hardware revenue

00-21, 00-21)




| |   |                                              
| | - | ---------------------------------------------
| |  | persuasive evidence of an arrangement exists;
|
| |  | delivery has occurred;                       
|
| |  | fee is fixed or determinable; and            
|
| |  | collectability is reasonably assured.        







| |                 
| | ----------------
| | Software revenue

00-21,


48



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##### Table of Contents



97-2, 97-2


03-05, 03-05). 03-05, 97-2. 97-2 00-21




| |                
| | ---------------
| | Service revenue





| |                              
| | -----------------------------
| | Multiple element arrangements

00-21 97-2. 00-21,


49



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##### Table of Contents





| |      
| | -----
| | Other

00-21.


00-21.




| |         
| | --------
| | Shipping





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |            
| | -----------
| | Inventories

(first-in,




| |                              
| | -----------------------------
| | Property, Plant and Equipment



50



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##### Table of Contents





| |                                                  
| | -------------------------------------------------
| | Allowance for Doubtful Accounts and Sales Returns





| |                                        
| | ---------------------------------------
| | Accounting for Stock-Based Compensation





|                                                                                                                                                  |  |      |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                                                                  |  | 2006 |         |   | 2005 |   |         | 2004 | 
|                                                                                                                                                  |  |      |         |   |      |   |         |      | 
|Net loss applicable to common shareholders, as reported                                                                                           |  | $    | (12,011 | ) |      | $ | (17,620 | )    |  | $ | (3,866 | )
|Add: Stock-based compensation expense included in reported net
    loss, net of related tax effects                                               |  |      | 237     |   |      |   | 166     |      |  |   | 40     |  
|Deduct: Stock-based employee compensation expense determined
    under the fair value based method for all awards, net of related
    tax effects |  |      | (2,512  | ) |      |   | (2,945  | )    |  |   | (5,571 | )
|                                                                                                                                                  |  |      |         |   |      |   |         |      | 
|Pro forma net loss applicable to common shareholders                                                                                              |  | $    | (14,286 | ) |      | $ | (20,399 | )    |  | $ | (9,397 | )
|                                                                                                                                                  |  |      |         |   |      |   |         |      | 
|Net loss per share:                                                                                                                               |  |      |         |   |      |   |         |      |  |   |        |  
|Basic and diluted, as reported                                                                                                                    |  | $    | (0.34   | ) |      | $ | (0.51   | )    |  | $ | (0.12  | )
|                                                                                                                                                  |  |      |         |   |      |   |         |      | 
|Basic and diluted, pro forma                                                                                                                      |  | $    | (0.40   | ) |      | $ | (0.59   | )    |  | $ | (0.28  | )
|                                                                                                                                                  |  |      |         |   |      |   |         |      | 



|                                               |  |      |      |   |      |   |      |      |  |   |      |  
|---------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                               |  | 2006 |      |   | 2005 |   |      | 2004 | 
|                                               |  |      |      |   |      |   |      |      | 
|Weighted-average fair value of options granted |  | $    | 1.11 |   |      | $ | 1.54 |      |  | $ | 1.49 |  
|Expected volatility                            |  |      | 0.8  |   |      |   | 0.7  |      |  |   | 0.9  |  
|Risk-free interest rate                        |  |      | 4.22 | % |      |   | 3.86 | %    |  |   | 3.15 | %
|Expected life (years)                          |  |      | 5.0  |   |      |   | 5.0  |      |  |   | 5.0  |  
|Dividend yield                                 |  |      |     |   |      |   |     |      |  |   |     |  

51



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| |             
| | ------------
| | Income taxes





| |                               
| | ------------------------------
| | Intangible assets and goodwill





| |                 
| | ----------------
| | Foreign currency





| |                                                               
| | --------------------------------------------------------------
| | Concentration of credit risk and dependence upon
    suppliers



52



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##### Table of Contents







| |               
| | --------------
| | Loss per share





| |                                    
| | -----------------------------------
| | Fair value of financial instruments





| |                                     
| | ------------------------------------
| | Recently Issued Accounting Standards





53



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|    |              
|--- | -------------
|(2) | RESTRUCTURING





| |                           
| | --------------------------
| | 2005 Restructuring Program







| |            
| | -----------
| | Fiscal 2006

|                    |       |           |     |            |                |   |     |             |  |   |         |        |   |   |     |     | 
|------------------- | ----- | --------- | --- | ---------- | -------------- | - | --- | ----------- |  | - | ------- | ------ | - | - | --- | --- | 
|                    |       |           |     | Additional |                |   |     |             | 
|                    |       | Beginning |     |            | Charges During |   |     | Utilization |  |   | Ending  |       
|Category            |       | Balance   |     |            | 2006           |   |     | During 2006 |  |   | Balance |       
|                    |       |           |     |            |                |   |     |             |  |   |         |       
|Facilities actions  |       | $         | 930 |            |                | $ |    |             |  | $ | (327    | )      |   | $ | 603 |    
|Workforce reduction |       |           | 941 |            |                |   | 941 |             |  |   | (1,853  | )      |   |   | 29  |    
|                    |       |           |     |            |                |   |     |             |  |   |         |       
|                    | Total |           | $   | 1,871      |                |   | $   | 941         |  |   | $       | (2,180 | ) |   | $   | 632 | 
|                    |       |           |     |            |                |   |     |             |  |   |         |       



| |            
| | -----------
| | Fiscal 2005

|                    |       |           |       |            |                |   |             |   |  |         |      |      |   |   |     |       | 
|------------------- | ----- | --------- | ----- | ---------- | -------------- | - | ----------- | - |  | ------- | ---- | ---- | - | - | --- | ----- | 
|                    |       |           |       | Additional |                |   |             |  
|                    |       | Initial   |       |            | Charges During |   | Utilization |   |  | Ending  |     
|Category            |       | Provision |       |            | 2005           |   | During 2005 |   |  | Balance |     
|                    |       |           |       |            |                |   |             |   |  |         |     
|Facilities actions  |       | $         | 1,011 |            |                | $ |            |   |  | $       | (81  | )    |   | $ | 930 |      
|Workforce reduction |       |           | 1,161 |            |                |   |            |   |  |         | (220 | )    |   |   | 941 |      
|                    |       |           |       |            |                |   |             |   |  |         |      |     
|                    | Total |           | $     | 2,172      |                |   | $           |  |  |         | $    | (301 | ) |   | $   | 1,871 | 
|                    |       |           |       |            |                |   |             |   |  |         |      |     







| |                           
| | --------------------------
| | 2002 Restructuring Program



54



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| |            
| | -----------
| | Fiscal 2006

|                    |       |           |     |            |                |   |     |             |  |   |         |      |   |   |     |     | 
|------------------- | ----- | --------- | --- | ---------- | -------------- | - | --- | ----------- |  | - | ------- | ---- | - | - | --- | --- | 
|                    |       |           |     | Additional |                |   |     |             | 
|                    |       | Beginning |     |            | Charges During |   |     | Utilization |  |   | Ending  |     
|Category            |       | Balance   |     |            | 2006           |   |     | During 2006 |  |   | Balance |     
|                    |       |           |     |            |                |   |     |             |  |   |         |     
|Facilities actions  |       | $         | 896 |            |                | $ | 150 |             |  | $ | (831    | )    |   | $ | 215 |    
|Workforce reduction |       |           |    |            |                |   |    |             |  |   |        |      |   |   |    |    
|                    |       |           |     |            |                |   |     |             |  |   |         |     
|                    | Total |           | $   | 896        |                |   | $   | 150         |  |   | $       | (831 | ) |   | $   | 215 | 
|                    |       |           |     |            |                |   |     |             |  |   |         |     



| |            
| | -----------
| | Fiscal 2005

|                    |       |           |       |            |                |   |      |             |   |   |         |      |   |   |     |     | 
|------------------- | ----- | --------- | ----- | ---------- | -------------- | - | ---- | ----------- | - | - | ------- | ---- | - | - | --- | --- | 
|                    |       |           |       | Additional |                |   |      |             |  
|                    |       | Beginning |       |            | Charges During |   |      | Utilization |   |   | Ending  |     
|Category            |       | Balance   |       |            | 2005           |   |      | During 2005 |   |   | Balance |     
|                    |       |           |       |            |                |   |      |             |   |   |         |     
|Facilities actions  |       | $         | 1,830 |            |                | $ | (148 | )           |   | $ | (786    | )    |   | $ | 896 |    
|Workforce reduction |       |           |      |            |                |   |     |             |   |   |        |      |   |   |    |    
|                    |       |           |       |            |                |   |      |             |   |   |         |     
|                    | Total |           | $     | 1,830      |                |   | $    | (148        | ) |   | $       | (786 | ) |   | $   | 896 | 
|                    |       |           |       |            |                |   |      |             |   |   |         |     



| |            
| | -----------
| | Fiscal 2004

|                    |       |           |       |            |                |   |      |             |   |   |         |      |   |   |       |       | 
|------------------- | ----- | --------- | ----- | ---------- | -------------- | - | ---- | ----------- | - | - | ------- | ---- | - | - | ----- | ----- | 
|                    |       |           |       | Additional |                |   |      |             |  
|                    |       | Beginning |       |            | Charges During |   |      | Utilization |   |   | Ending  |     
|Category            |       | Balance   |       |            | 2004           |   |      | During 2004 |   |   | Balance |     
|                    |       |           |       |            |                |   |      |             |   |   |         |     
|Facilities actions  |       | $         | 2,931 |            |                | $ | (211 | )           |   | $ | (890    | )    |   | $ | 1,830 |      
|Workforce reduction |       |           |      |            |                |   |     |             |   |   |        |      |   |   |      |      
|                    |       |           |       |            |                |   |      |             |   |   |         |     
|                    | Total |           | $     | 2,931      |                |   | $    | (211        | ) |   | $       | (890 | ) |   | $     | 1,830 | 
|                    |       |           |       |            |                |   |      |             |   |   |         |     







|    |            
|--- | -----------
|(3) | INVENTORIES



|                              |  |          |        |  |          |   |       | 
|----------------------------- |  | -------- | ------ |  | -------- | - | ----- | 
|                              |  | April 1, |        |  | April 2, |  
|                              |  | 2006     |        |  | 2005     |  
|                              |  |          |        |  |          |  
|Finished goods                |  | $        | 9,611  |  |          | $ | 2,846 | 
|Service spares and components |  |          | 854    |  |          |   | 877   | 
|                              |  |          |        |  |          |  
|                              |  | $        | 10,466 |  |          | $ | 3,723 | 
|                              |  |          |        |  |          |  



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|    |                                                    
|--- | ---------------------------------------------------
|(4) | COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS



|                              |  |          |       |  |          |   |       | 
|----------------------------- |  | -------- | ----- |  | -------- | - | ----- | 
|                              |  | April 1, |       |  | April 2, |  
|                              |  | 2006     |       |  | 2005     |  
|                              |  |          |       |  |          |  
|Prepaid maintenance contracts |  | $        | 6,312 |  |          | $ | 5,252 | 
|Other                         |  |          | 2,400 |  |          |   | 1,719 | 
|                              |  |          |       |  |          |  
|                              |  | $        | 8,712 |  |          | $ | 6,971 | 
|                              |  |          |       |  |          |  



|                                               |  |          |         |   |          |   |         |  
|---------------------------------------------- |  | -------- | ------- | - | -------- | - | ------- | -
|                                               |  | April 1, |         |   | April 2, |  
|                                               |  | 2006     |         |   | 2005     |  
|                                               |  |          |         |   |          |  
|Office furniture and fixtures                  |  | $        | 10,977  |   |          | $ | 10,951  |  
|Machinery and equipment                        |  |          | 8,580   |   |          |   | 8,706   |  
|Leasehold improvements                         |  |          | 2,098   |   |          |   | 2,160   |  
|                                               |  |          |         |   |          |  
|                                               |  |          | 21,656  |   |          |   | 21,817  |  
|Less accumulated depreciation and amortization |  |          | (21,101 | ) |          |   | (21,109 | )
|                                               |  |          |         |   |          |  
|                                               |  | $        | 555     |   |          | $ | 708     |  
|                                               |  |          |         |   |          |  





|                          |  |          |        |  |          |   |       | 
|------------------------- |  | -------- | ------ |  | -------- | - | ----- | 
|                          |  | April 1, |        |  | April 2, |  
|                          |  | 2006     |        |  | 2005     |  
|                          |  |          |        |  |          |  
|Salaries and benefits     |  | $        | 2,661  |  |          | $ | 3,273 | 
|Sales tax                 |  |          | 2,236  |  |          |   | 2,602 | 
|Preferred stock dividends |  |          | 2,892  |  |          |   | 953   | 
|Customer deposits         |  |          | 519    |  |          |   | 990   | 
|Commissions               |  |          | 684    |  |          |   | 694   | 
|Warranty costs            |  |          | 662    |  |          |   | 598   | 
|Other                     |  |          | 661    |  |          |   | 379   | 
|                          |  |          |        |  |          |  
|                          |  | $        | 10,315 |  |          | $ | 9,489 | 
|                          |  |          |        |  |          |  



| |                   
| | ------------------
| | Product warranties



56



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|                                       |  |          |      |   |          |   |      |  
|-------------------------------------- |  | -------- | ---- | - | -------- | - | ---- | -
|                                       |  | April 1, |      |   | April 2, |  
|                                       |  | 2006     |      |   | 2005     |  
|                                       |  |          |      |   |          |  
|Balance at the beginning of the period |  | $        | 598  |   |          | $ | 603  |  
|Current year warranty charges          |  |          | 833  |   |          |   | 650  |  
|Utilization                            |  |          | (769 | ) |          |   | (655 | )
|                                       |  |          |      |   |          |  
|Balance at the end of the period       |  | $        | 662  |   |          | $ | 598  |  
|                                       |  |          |      |   |          |  



|    |     
|--- | ----
|(5) | DEBT



| |                                     
| | ------------------------------------
| | Credit Agreement and Lines of Credit









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|    |             
|--- | ------------
|(6) | INCOME TAXES



|        |  |                   |        |   |          |   |         |          |  |   |        |  
|------- |  | ----------------- | ------ | - | -------- | - | ------- | -------- |  | - | ------ | -
|        |  | Fiscal Year Ended |       
|        |  |                   |       
|        |  | April 1,          |        |   | April 2, |   |         | April 3, | 
|        |  | 2006              |        |   | 2005     |   |         | 2004     | 
|        |  |                   |        |   |          |   |         |          | 
|U.S.    |  | $                 | (5,737 | ) |          | $ | (8,948  | )        |  | $ | (5,554 | )
|Foreign |  |                   | (2,314 | ) |          |   | (6,817  | )        |  |   | (1,480 | )
|        |  |                   |        |   |          |   |         |          | 
|        |  | $                 | (8,051 | ) |          | $ | (15,765 | )        |  | $ | (7,034 | )
|        |  |                   |        |   |          |   |         |          | 



|      |         |         |        |        |          |   |       |   |  |   |        |        |  
|----- | ------- | ------- | ------ | ------ | -------- | - | ----- | - |  | - | ------ | ------ | -
|      |         | Current |        |        | Deferred |   | Total |  
|      |         |         |        |        |          |   |       |  
|2006: |         |         |        |        |          |   |       |   |  |   |        |       
|      | Federal |         | $      |       |          |   | $     |  |  |   | $      |       |  
|      | State   |         |        | 39     |          |   |       |  |  |   |        | 39     |  
|      | Foreign |         |        | 12     |          |   |       |  |  |   |        | 12     |  
|      |         |         |        |        |          |   |       |   | 
|      |         | $       | 51     |        |          | $ |      |   |  | $ | 51     |       
|      |         |         |        |        |          |   |       |   | 
|2005: |         |         |        |        |          |   |       |   |  |   |        |       
|      | Federal |         | $      |       |          |   | $     |  |  |   | $      |       |  
|      | State   |         |        | 3      |          |   |       |  |  |   |        | 3      |  
|      | Foreign |         |        | 19     |          |   |       |  |  |   |        | 19     |  
|      |         |         |        |        |          |   |       |   | 
|      |         | $       | 22     |        |          | $ |      |   |  | $ | 22     |       
|      |         |         |        |        |          |   |       |   | 
|2004: |         |         |        |        |          |   |       |   |  |   |        |       
|      | Federal |         | $      | (3,127 | )        |   | $     |  |  |   | $      | (3,127 | )
|      | State   |         |        | 6      |          |   |       |  |  |   |        | 6      |  
|      | Foreign |         |        | (47    | )        |   |       |  |  |   |        | (47    | )
|      |         |         |        |        |          |   |       |   | 
|      |         | $       | (3,168 | )      |          | $ |      |   |  | $ | (3,168 | )     
|      |         |         |        |        |          |   |       |   | 



|                                                                  |  |                   |       |    |          |  |       |          |  |  |       |   
|----------------------------------------------------------------- |  | ----------------- | ----- | -- | -------- |  | ----- | -------- |  |  | ----- | --
|                                                                  |  | Fiscal Year Ended |      
|                                                                  |  |                   |      
|                                                                  |  | April 1,          |       |    | April 2, |  |       | April 3, | 
|                                                                  |  | 2006              |       |    | 2005     |  |       | 2004     | 
|                                                                  |  |                   |       |    |          |  |       |          | 
|Federal statutory rate                                            |  |                   | (34.0 | )% |          |  | (34.0 | )%       |  |  | (35.0 | )%
|Effect of foreign operations                                      |  |                   | 2.6   |    |          |  | 0.1   |          |  |  | (0.6  | ) 
|State taxes, net of federal benefit                               |  |                   | (3.4  | )  |          |  | (3.3  | )        |  |  | (5.8  | ) 
|Change in valuation allowance                                     |  |                   | (10.6 | )  |          |  | 30.4  |          |  |  | 37.9  |   
|Elimination of reserve for tax audit                              |  |                   |      |    |          |  |      |          |  |  | (20.8 | ) 
|Tax benefit from NOL carry-back                                   |  |                   |      |    |          |  |      |          |  |  | (23.7 | ) 
|Non-deductible expenses                                           |  |                   | 2.2   |    |          |  | 0.7   |          |  |  | 2.9   |   
|Change to beginning deferred tax assets                           |  |                   | 33.4  |    |          |  | 3.5   |          |  |  |      |   
|Expiration of NOL                                                 |  |                   | 24.4  |    |          |  |      |          |  |  |      |   
|Change in effective state tax rate in valuing deferred tax assets |  |                   | (11.9 | )  |          |  |      |          |  |  |      |   
|Other                                                             |  |                   | (2.1  | )  |          |  | 2.7   |          |  |  | 0.1   |   
|                                                                  |  |                   |       |    |          |  |       |          | 
|                                                                  |  |                   | 0.6   | %  |          |  | 0.1   | %        |  |  | (45.0 | )%
|                                                                  |  |                   |       |    |          |  |       |          | 

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|                                 |  |      |        |  |      |   |        |      |  |   |        | 
|-------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                 |  | 2006 |        |  | 2005 |   |        | 2004 | 
|                                 |  |      |        |  |      |   |        |      | 
|Tax operating loss carryforwards |  | $    | 51,523 |  |      | $ | 49,951 |      |  | $ | 43,588 | 
|Intangible assets                |  |      | 1,912  |  |      |   | 2,304  |      |  |   | 2,707  | 
|Accrued expenses                 |  |      | 415    |  |      |   | 2,389  |      |  |   | 2,174  | 
|Inventory reserves               |  |      | 161    |  |      |   | 378    |      |  |   | 1,398  | 
|Depreciation                     |  |      | 268    |  |      |   | 643    |      |  |   | 1,306  | 
|Deferred income                  |  |      | 612    |  |      |   | 559    |      |  |   | 403    | 
|Other                            |  |      | 4,109  |  |      |   | 3,617  |      |  |   | 3,466  | 
|                                 |  |      |        |  |      |   |        |      | 
|                                 |  |      | 59,000 |  |      |   | 59,839 |      |  |   | 55,042 | 
|Less valuation allowance         |  |      | 59,000 |  |      |   | 59,839 |      |  |   | 55,042 | 
|                                 |  |      |        |  |      |   |        |      | 
|                                 |  | $    |       |  |      | $ |       |      |  | $ |       | 
|                                 |  |      |        |  |      |   |        |      | 











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|    |                     
|--- | --------------------
|(7) | STOCKHOLDERS EQUITY



| |                   
| | ------------------
| | Net Loss Per Share



|                                      |                                                                                               |      |       |         |      |   |       |         |   |   |       |        |  
|------------------------------------- | --------------------------------------------------------------------------------------------- | ---- | ----- | ------- | ---- | - | ----- | ------- | - | - | ----- | ------ | -
|                                      |                                                                                               | 2006 |       |         | 2005 |   |       | 2004    |  
|                                      |                                                                                               |      |       |         |      |   |       |         |  
|Numerator:                            |                                                                                               |      |       |         |      |   |       |         |   |   |       |       
|                                      | Net loss                                                                                      |      | $     | (8,102  | )    |   | $     | (15,787 | ) |   | $     | (3,866 | )
|                                      | Amortization of preferred stock discount                                                      |      |       | (1,970  | )    |   |       | (880    | ) |   |       |       |  
|                                      | Dividend on preferred stock                                                                   |      |       | (1,939  | )    |   |       | (953    | ) |   |       |       |  
|                                      |                                                                                               |      |       |         |      |   |       |         |  
|                                      | Net loss applicable to common shareholders                                                    |      | $     | (12,011 | )    |   | $     | (17,620 | ) |   | $     | (3,866 | )
|                                      |                                                                                               |      |       |         |      |   |       |         |  
|Denominator:                          |                                                                                               |      |       |         |      |   |       |         |   |   |       |       
|                                      | Denominator for net loss per share, basic and diluted
    weighted-average shares outstanding |      |       | 35,541  |      |   |       | 34,476  |   |   |       | 33,482 |  
|                                      |                                                                                               |      |       |         |      |   |       |         |  
|Net loss per share, basic and diluted |                                                                                               | $    | (0.34 | )       |      | $ | (0.51 | )       |   | $ | (0.12 | )     
|                                      |                                                                                               |      |       |         |      |   |       |         |  







| |                                     
| | ------------------------------------
| | Series A Convertible Preferred Stock





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10-K.




| |                                     
| | ------------------------------------
| | Series B Convertible Preferred Stock







61



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##### Table of Contents











| |                        
| | -----------------------
| | Stock Purchase Warrants





| |              
| | -------------
| | Stock Options





62



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##### Table of Contents









| |                                      
| | -------------------------------------
| | Non-Employee Directors Option Program





63



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|                                     |  |        |        |          |                |   |      | 
|------------------------------------ |  | ------ | ------ | -------- | -------------- | - | ---- | 
|                                     |  |        |        | Weighted |               
|                                     |  |        |        | Average  |               
|                                     |  | Shares |        |          | Exercise Price |  
|                                     |  |        |        |          |                |  
|Options outstanding at April 6, 2002 |  |        | 10,558 |          |                | $ | 6.62 | 
|Granted                              |  |        | 3,556  |          |                |   | 0.53 | 
|Exercised                            |  |        |       |          |                |   |     | 
|Forfeited                            |  |        | (3,881 | )        |                |   | 5.42 | 
|                                     |  |        |        |          |                |  
|Options outstanding at April 5, 2003 |  |        | 10,233 |          |                |   | 4.97 | 
|Granted                              |  |        | 3,385  |          |                |   | 2.11 | 
|Exercised                            |  |        | (1,352 | )        |                |   | 0.96 | 
|Forfeited                            |  |        | (1,434 | )        |                |   | 4.97 | 
|                                     |  |        |        |          |                |  
|Options outstanding at April 3, 2004 |  |        | 10,832 |          |                |   | 4.97 | 
|Granted                              |  |        | 2,331  |          |                |   | 2.46 | 
|Exercised                            |  |        | (501   | )        |                |   | 1.33 | 
|Forfeited                            |  |        | (1,255 | )        |                |   | 6.34 | 
|                                     |  |        |        |          |                |  
|Options outstanding at April 2, 2005 |  |        | 11,407 |          |                |   | 4.12 | 
|Granted                              |  |        | 1,051  |          |                |   | 1.58 | 
|Exercised                            |  |        | (610   | )        |                |   | .92  | 
|Forfeited                            |  |        | (2,239 | )        |                |   | 5.74 | 
|                                     |  |        |        |          |                |  
|Options outstanding at April 1, 2006 |  |        | 9,609  |          |                | $ | 3.70 | 
|                                     |  |        |        |          |                |  





|                        |  |             |       |          |             |  |          |                |  |   |           |          |         |          |       |  |  |   |       | 
|----------------------- |  | ----------- | ----- | -------- | ----------- |  | -------- | -------------- |  | - | --------- | -------- | ------- | -------- | ----- |  |  | - | ----- | 
|                        |  |             |       |          |             |  |          | Exercisable(1) | 
|                        |  |             |       | Weighted |             |  |          |                |  |  
|                        |  |             |       | Average  |             |  | Weighted |                |  |   |           | Weighted |        
|                        |  | Number of   |       |          | Remaining   |  |          | Average        |  |   |           |          | Average |         
|                        |  | Options     |       |          | Contractual |  |          | Exercise       |  |   | Number of |          |         | Exercise |      
|Range of Exercise Price |  | Outstanding |       |          | Life        |  |          | Price          |  |   | Options   |          |         | Price    |      
|                        |  |             |       |          |             |  |          |                |  |   |           |          |         |          |      
|$0.27-$0.38             |  |             | 180   |          |             |  | 6.61     |                |  | $ | 0.33      |          |         |          | 180   |  |  | $ | 0.33  | 
|0.55-0.55               |  |             | 1,188 |          |             |  | 6.25     |                |  |   | 0.55      |          |         |          | 1,188 |  |  |   | 0.55  | 
|0.57-1.49               |  |             | 1,129 |          |             |  | 7.21     |                |  |   | 1.32      |          |         |          | 687   |  |  |   | 1.24  | 
|1.54-1.75               |  |             | 1,041 |          |             |  | 8.51     |                |  |   | 1.69      |          |         |          | 550   |  |  |   | 1.71  | 
|1.80-2.12               |  |             | 880   |          |             |  | 6.20     |                |  |   | 1.99      |          |         |          | 803   |  |  |   | 1.99  | 
|2.20-2.20               |  |             | 1,569 |          |             |  | 7.64     |                |  |   | 2.20      |          |         |          | 1,222 |  |  |   | 2.20  | 
|2.25-2.70               |  |             | 1,065 |          |             |  | 8.36     |                |  |   | 2.65      |          |         |          | 434   |  |  |   | 2.61  | 
|2.72-4.12               |  |             | 1,190 |          |             |  | 5.65     |                |  |   | 3.64      |          |         |          | 1,033 |  |  |   | 3.72  | 
|4.56-19.13              |  |             | 970   |          |             |  | 2.97     |                |  |   | 7.44      |          |         |          | 971   |  |  |   | 7.44  | 
|22.38-36.88             |  |             | 397   |          |             |  | 3.80     |                |  |   | 30.27     |          |         |          | 396   |  |  |   | 30.27 | 
|                        |  |             |       |          |             |  |          |                |  |   |           |          |         |          |      
|                        |  |             | 9,609 |          |             |  | 6.56     |                |  | $ | 3.70      |          |         |          | 7,464 |  |  | $ | 4.15  | 
|                        |  |             |       |          |             |  |          |                |  |   |           |          |         |          |      

Note




|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Options exercisable at April 1, 2006, April 2, 2005
    and April 3, 2004, were 7,463,679 7,904,875 and 6,902,848
    respectively.

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| |                             
| | ----------------------------
| | Employee Stock Purchase Plan





| |                             
| | ----------------------------
| | Issuance of Restricted Stock







|    |                              
|--- | -----------------------------
|(8) | COMMITMENTS AND CONTINGENCIES



| |       
| | ------
| | Leases





|           |  |   |       | 
|---------- |  | - | ----- | 
|2007       |  | $ | 3,054 | 
|2008       |  |   | 2,698 | 
|2009       |  |   | 1,102 | 
|2010       |  |   | 947   | 
|2011       |  |   | 347   | 
|Thereafter |  |   |      | 
|           |  |   |      
|           |  | $ | 8,148 | 
|           |  |   |      



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| |           
| | ----------
| | Litigation





| |                                       
| | --------------------------------------
| | Employment Agreements/ Indemnification











|    |                                               
|--- | ----------------------------------------------
|(9) | BUSINESS SEGMENT AND INTERNATIONAL INFORMATION

mark-up




|         |                |               |   |        |         |  |   |        |         |  |   |        |        | 
|-------- | -------------- | ------------- | - | ------ | ------- |  | - | ------ | ------- |  | - | ------ | ------ | 
|         |                | 2006          |   |        | 2005    |  |   | 2004   |        
|         |                |               |   |        |         |  |   |        |        
|Revenue: |                |               |   |        |         |  |   |        |         |  |   |       
|         | United States  |               | $ | 92,973 |         |  | $ | 76,646 |         |  | $ | 41,408 |       
|         | Germany        |               |   | 23,833 |         |  |   | 23,383 |         |  |   | 15,430 |       
|         | France         |               |   | 22,416 |         |  |   | 21,803 |         |  |   | 13,248 |       
|         | United Kingdom |               |   | 15,821 |         |  |   | 9,706  |         |  |   | 12,625 |       
|         | Ireland        |               |   |       |         |  |   | 1,075  |         |  |   | 454    |       
|         |                |               |   |        |         |  |   |        |        
|         |                | Total revenue |   | $      | 155,043 |  |   | $      | 132,613 |  |   | $      | 83,165 | 
|         |                |               |   |        |         |  |   |        |        

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|                         |                |              |                 |        |          |        |       |          |        |        |       |        |        |        | 
|------------------------ | -------------- | ------------ | --------------- | ------ | -------- | ------ | ----- | -------- | ------ | ------ | ----- | ------ | ------ | ------ | 
|                         |                | April 2,     |                 |        | April 2, |        |       | April 3, |       
|                         |                | 2005         |                 |        | 2005     |        |       | 2004     |       
|                         |                |              |                 |        |          |        |       |          |       
|Identifiable assets:     |                |              |                 |        |          |        |       |          |        |        |       |       
|                         | United States  |              | $               | 51,297 |          |        | $     | 29,431   |        |        | $     | 22,184 |       
|                         | Germany        |              |                 | 7,722  |          |        |       | 11,133   |        |        |       | 6,139  |       
|                         | France         |              |                 | 13,460 |          |        |       | 12,985   |        |        |       | 8,562  |       
|                         | United Kingdom |              |                 | 6,765  |          |        |       | 3,587    |        |        |       | 4,048  |       
|                         | Ireland        |              |                 | 194    |          |        |       | 546      |        |        |       | 877    |       
|                         |                |              |                 |        |          |        |       |          |       
|                         |                |              | Tangible assets |        |          | 79,438 |       |          |        | 57,682 |       |        |        | 41,810 | 
|Goodwill  United States |                |              | 3,059           |        |          |        | 3,059 |          |        |        | 3,059 |       
|Goodwill  Europe        |                |              | 2,125           |        |          |        | 2,125 |          |        |        | 2,125 |       
|                         |                |              |                 |        |          |        |       |          |       
|                         |                | Total assets |                 | $      | 84,622   |        |       | $        | 62,866 |        |       | $      | 46,994 |       
|                         |                |              |                 |        |          |        |       |          |       



|               |  |      |         |  |      |   |         |      |  |   |        | 
|-------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|               |  | 2006 |         |  | 2005 |   |         | 2004 | 
|               |  |      |         |  |      |   |         |      | 
|Server         |  | $    | 78,573  |  |      | $ | 68,847  |      |  | $ | 28,716 | 
|Tape libraries |  |      | 16,555  |  |      |   | 9,446   |      |  |   | 12,024 | 
|Software       |  |      | 21,198  |  |      |   | 15,410  |      |  |   | 5,702  | 
|Service        |  |      | 38,717  |  |      |   | 38,910  |      |  |   | 36,723 | 
|               |  |      |         |  |      |   |         |      | 
|               |  | $    | 155,043 |  |      | $ | 132,613 |      |  | $ | 83,165 | 
|               |  |      |         |  |      |   |         |      | 





|     |                           
|---- | --------------------------
|(10) | RELATED-PARTY TRANSACTIONS







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|     |                  
|---- | -----------------
|(11) | EMPLOYEE BENEFITS





|     |                                     
|---- | ------------------------------------
|(12) | QUARTERLY FINANCIAL DATA (UNAUDITED)



|               |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |   |        |         |   |  |       |   | 
|-------------- | ----- | ------- | ------ | ------- | ------ | --------- | ----- | ------ |  | -------- | ------------ | ------- | ---------- | ------------ | ------ | ------- | --------- | - | ------ | ------- | - |  | ----- | - | 
|               |       |         |        |         |        |           |       |        |  |          |              | Net     |           
|               |       |         |        |         |        |           |       |        |  |          |              | Income  |           
|               |       |         |        |         |        |           |       |        |  | Net Loss |              |         | (loss) per |             
|               |       |         |        |         |        | Operating |       |        |  |          | Attributable |         |            | Share,       |       
|               |       | Total   |        |         | Gross  |           |       | Income |  |          | Net Income   |         |            | to Common    |        |         | Basic and |  
|               |       | Revenue |        |         | Profit |           |       | (loss) |  |          | (loss)       |         |            | Shareholders |        |         | Diluted   |  
|               |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |  
|2006           |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |   |        |         |   |  |       |  
|Fourth quarter |       | $       | 43,915 |         |        | $         | 8,589 |        |  | $        | (117         | )       |            | $            | 201    |         |           | $ | (1,253 | )       |   |  | (0.03 | )
|Third quarter  |       |         | 40,162 |         |        |           | 7,887 |        |  |          | (1,557       | )       |            |              | (1,787 | )       |           |   | (2,988 | )       |   |  | (0.08 | )
|Second quarter |       |         | 31,635 |         |        |           | 6,401 |        |  |          | (3,463       | )       |            |              | (3,513 | )       |           |   | (4,148 | )       |   |  | (0.12 | )
|First quarter  |       |         | 39,331 |         |        |           | 8,078 |        |  |          | (2,090       | )       |            |              | (3,003 | )       |           |   | (3,622 | )       |   |  | (0.10 | )
|               |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |  
|               | Total |         | $      | 155,043 |        |           | $     | 30,955 |  |          | $            | (7,227  | )          |              | $      | (8,102  | )         |   | $      | (12,011 | ) |  |       |   | 
|               |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |  
|2005           |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |   |        |         |   |  |       |  
|Fourth quarter |       | $       | 35,562 |         |        | $         | 4,487 |        |  | $        | (8,223       | )       |            | $            | (8,908 | )       |           | $ | (9,515 | )       |   |  | (0.27 | )
|Third quarter  |       |         | 39,515 |         |        |           | 7,772 |        |  |          | (3,255       | )       |            |              | (2,612 | )       |           |   | (3,205 | )       |   |  | (0.09 | )
|Second quarter |       |         | 31,500 |         |        |           | 7,213 |        |  |          | (2,408       | )       |            |              | (2,478 | )       |           |   | (2,981 | )       |   |  | (0.09 | )
|First quarter  |       |         | 26,036 |         |        |           | 6,047 |        |  |          | (1,697       | )       |            |              | (1,789 | )       |           |   | (1,919 | )       |   |  | (0.06 | )
|               |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |  
|               | Total |         | $      | 132,613 |        |           | $     | 25,519 |  |          | $            | (15,583 | )          |              | $      | (15,787 | )         |   | $      | (17,620 | ) |  |       |   | 
|               |       |         |        |         |        |           |       |        |  |          |              |         |            |              |        |         |           |  









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|     |                  
|---- | -----------------
|(13) | SUBSEQUENT EVENTS





| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | $6,000 in cash;                                                                                                                
|
| |  | a note in the amount of $2,000 bearing interest at 5% and due in
    twelve quarterly payments beginning 90 days after closing;
|
| |  | 2,272,727 shares of the Companys common stock;                                                                                
|
| |  | a warrant to purchase 1,000,000 shares of the
    Companys common stock at an exercise price of
    $1.32 per share;          
|
| |  | assumption of certain liabilities.                                                                                             

lock-up






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SCHEDULE II


MTI TECHNOLOGY CORPORATION


VALUATION AND QUALIFYING ACCOUNTS


FOR THE FISCAL YEARS ENDED APRIL 1, 2006, APRIL 2,
2005 AND APRIL 3, 2004


|                         |                                 |                |     |               |           |   |         |         |  |   |            |      |   |   |     |     | 
|------------------------ | ------------------------------- | -------------- | --- | ------------- | --------- | - | ------- | ------- |  | - | ---------- | ---- | - | - | --- | --- | 
|                         |                                 |                |     | Allowance for |           |   | Amounts |         |  |  
|                         |                                 | Balance at     |     |               | Bad Debts |   |         | Charged |  |   | Balance at |     
|                         |                                 | Beginning of   |     |               | and Sales |   |         | Against |  |   | End of     |     
|                         |                                 | Period         |     |               | Returns   |   |         | Reserve |  |   | Period     |     
|                         |                                 |                |     |               |           |   |         |         |  |   |            |     
|                         |                                 | (In thousands) |    
|Description              |                                 |                |     |               |           |   |         |         |  |   |            |      |   |   |     |    
|Year ended April 1, 2006 |                                 |                |     |               |           |   |         |         |  |   |            |      |   |   |     |    
|                         | Allowance for doubtful accounts |                | $   | 251           |           |   | $       | 197     |  |   | $          | (87  | ) |   | $   | 361 | 
|                         | Allowance for sales returns     |                |     | 200           |           |   |         | 402     |  |   |            | (449 | ) |   |     | 153 | 
|                         |                                 |                |     |               |           |   |         |         |  |   |            |     
|                         |                                 | $              | 451 |               |           | $ | 599     |         |  | $ | (536       | )    |   | $ | 514 |    
|                         |                                 |                |     |               |           |   |         |         |  |   |            |     
|Year ended April 2, 2005 |                                 |                |     |               |           |   |         |         |  |   |            |      |   |   |     |    
|                         | Allowance for doubtful accounts |                | $   | 237           |           |   | $       | 14      |  |   | $          |     |   |   | $   | 251 | 
|                         | Allowance for sales returns     |                |     | 200           |           |   |         | 170     |  |   |            | (170 | ) |   |     | 200 | 
|                         |                                 |                |     |               |           |   |         |         |  |   |            |     
|                         |                                 | $              | 437 |               |           | $ | 184     |         |  | $ | (170       | )    |   | $ | 451 |    
|                         |                                 |                |     |               |           |   |         |         |  |   |            |     
|Year ended April 3, 2004 |                                 |                |     |               |           |   |         |         |  |   |            |      |   |   |     |    
|                         | Allowance for doubtful accounts |                | $   | 276           |           |   | $       | 25      |  |   | $          | (64  | ) |   | $   | 237 | 
|                         | Allowance for sales returns     |                |     | 200           |           |   |         |        |  |   |            |     |   |   |     | 200 | 
|                         |                                 |                |     |               |           |   |         |         |  |   |            |     
|                         |                                 | $              | 476 |               |           | $ | 25      |         |  | $ | (64        | )    |   | $ | 437 |    
|                         |                                 |                |     |               |           |   |         |         |  |   |            |     

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EXHIBIT INDEX


10-K:




| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Financial Statements and Financial Statement Schedule.
    See Index to Consolidated Financial Statements and Financial
    Statement Schedule at Item 15(a)(1) and 15(a)(2) on
    Page 36 of this Report.
|
| | (2) Exhibits. Exhibits identified below as on file with the
    Securities and Exchange Commission are incorporated herein by
    reference as exhibits hereto.                                                

|        |        |  |                     |                                                                                                                                                        |      |  |      |            |  |  |             |  |  |                  
|------- | ------ |  | ------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ---- |  | ---- | ---------- |  |  | ----------- |  |  | -----------------
|        |        |  |                     | Incorporated by Reference                                                                                                                             
|Exhibit |        |  |                     |                                                                                                                                                        |     
|Number  |        |  | Exhibit Description |                                                                                                                                                        | Form |  |      | Exhibit(s) |  |  | Filing Date
|        |        |  |                     |                                                                                                                                                        |      |  |      |            |  |  |            
|        | 2.1    |  |                     | Asset Purchase Agreement, dated June 6, 2006, between MTI
    Technology Corporation and Collective Technologies, LLC                                  |      |  |      |            |  |  |             |  |  |                  
|        | 3.1    |  |                     | Restated Certificate of Incorporation of the Company                                                                                                   |      |  | S-1  |            |  |  | 3.1         |  |  | February 11, 1994
|        | 3.2    |  |                     | Certificate of Amendment of Restated Certificate of
    Incorporation of the Company                                                                   |      |  | 14-C |            |  |  | A           |  |  | April 3, 2000    
|        | 3.3    |  |                     | Amended and Restated Bylaws of the Company                                                                                                             |      |  | 10-Q |            |  |  | 3.3         |  |  | February 19, 2002
|        | 3.4    |  |                     | Certificate of Designation of Series B Convertible
    Preferred Stock                                                                                 |      |  | 8-K  |            |  |  | 3.1         |  |  | November 3, 2005 
|        | 3.5    |  |                     | Certificate of Designation of Series A Convertible
    Preferred Stock                                                                                 |      |  | 8-K  |            |  |  | 3.2         |  |  | November 3, 2005 
|        | 4.1    |  |                     | Specimen of Amended Stock Certificate                                                                                                                  |      |  | 10-K |            |  |  | 4.2         |  |  | July 11, 2003    
|        | 4.2    |  |                     | Form of Common Stock Purchase Warrant                                                                                                                  |      |  | 8-K  |            |  |  | 4.1         |  |  | November 3, 2005 
|        | 4.3    |  |                     | Amended and Restated Investor Rights Agreement, dated
    November 2, 2005, by and among the Company and the
    Investors set forth therein           |      |  | 8-K  |            |  |  | 10.1        |  |  | November 3, 2005 
|        | 4.4    |  |                     | Amended and Restated Registration Rights Agreement, dated
    January 11, 2002, between the Company and Silicon Valley
    Bank                        |      |  | 10-Q |            |  |  | 4.8         |  |  | February 19, 2002
|        | 10.1   |  |                     | Letter Agreement, dated October 11, 2005, by and among the
    Company, EMC Corporation and certain affiliates of Advent
    International Corporation |      |  | 8-K  |            |  |  | 10.1        |  |  | October 12, 2005 
|        | 10.2   |  |                     | Severance and Release Agreement dated November 21, 2005 by
    and between the Company and Jon Caputo                                                  |      |  | 8-K  |            |  |  | 10.1        |  |  | November 22, 2005
|        | 10.3*  |  |                     | Form of Nonqualified Stock Option Agreement under the Stock
    Incentive Plan                                                                         |      |  | S-1  |            |  |  | 10.14       |  |  | March 21, 1994   
|        | 10.4*  |  |                     | Form of Indemnification Agreement for Officers of the Company                                                                                          |      |  | 10-K |            |  |  | 10.2        |  |  | July 11, 2003    
|        | 10.5*  |  |                     | Form of Indemnification Agreement for Directors of the Company                                                                                         |      |  | 10-K |            |  |  | 10.3        |  |  | July 11, 2003    
|        | 10.6 * |  |                     | Form of Change of Control Agreement 1987 Incentive Stock Option
    and Nonqualified                                                                   |      |  | 8-K  |            |  |  | 10.1        |  |  | February 13, 2006
|        | 10.7*  |  |                     | Stock Option Plan of the Company                                                                                                                       |      |  | S-1  |            |  |  | 10.21       |  |  | February 11, 1994
|        | 10.8*  |  |                     | Form of Incentive Stock Option Agreement under the Stock
    Incentive Plan                                                                            |      |  | S-1  |            |  |  | 10.30       |  |  | March 21, 1994   
|        | 10.9*  |  |                     | Form of Nonqualified Common Stock Option Agreement under the
    1987 Stock Option Plan                                                                |      |  | S-1  |            |  |  | 10.23       |  |  | February 11, 1994
|        | 10.10  |  |                     | Directors Non-Qualified Stock Option Plan                                                                                                             |      |  | S-1  |            |  |  | 10.32       |  |  | March 21, 1994   



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##### Table of Contents



|        |        |  |                     |                                                                                                                                                                     |      |  |      |            |  |  |             |  |  |                  
|------- | ------ |  | ------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | ---------- |  |  | ----------- |  |  | -----------------
|        |        |  |                     | Incorporated by Reference                                                                                                                                          
|Exhibit |        |  |                     |                                                                                                                                                                     |     
|Number  |        |  | Exhibit Description |                                                                                                                                                                     | Form |  |      | Exhibit(s) |  |  | Filing Date
|        |        |  |                     |                                                                                                                                                                     |      |  |      |            |  |  |            
|        | 10.11  |  |                     | Loan and Security Agreement, dated November 13, 2002, by
    and between Comerica Bank California and the Company                                                   |      |  | 10-Q |            |  |  | 10.70       |  |  | November 19, 2002
|        | 10.12* |  |                     | 1996 Stock Incentive Plan, as amended                                                                                                                               |      |  | 10-Q |            |  |  | 10.29       |  |  | November 16, 1999
|        | 10.13  |  |                     | Severance Agreement, dated as of July 15, 1998, between the
    Company and Tom Raimondi                                                                            |      |  | 10-K |            |  |  | 10.30       |  |  | August 2, 1999   
|        | 10.14  |  |                     | Severance Agreement, dated as of February 7, 2001, between
    the Company and Keith Clark                                                                          |      |  | 10-K |            |  |  | 10.24       |  |  | June 12, 2001    
|        | 10.15* |  |                     | MTI Technology Corporation 2001 Stock Incentive Plan                                                                                                                |      |  | 10-K |            |  |  | 10.30       |  |  | June 12, 2001    
|        | 10.16* |  |                     | MTI Technology Corporation 2001 Non-Employee Director Option
    Program                                                                                            |      |  | 10-K |            |  |  | C           |  |  | July 15, 2003    
|        | 10.17* |  |                     | MTI Technology Corporation 2001 Employee Stock Purchase Plan                                                                                                        |      |  | 10-K |            |  |  | 10.32       |  |  | June 12, 2001    
|        | 10.18  |  |                     | Third Amendment to Loan and Security Agreement, dated as of
    June 15, 2005, by and between Comerica Bank and the Company                                         |      |  | 10-K |            |  |  | 10.95       |  |  | July 18, 2005    
|        | 10.19* |  |                     | Summary of Executive Compensation and Bonus Arrangements                                                                                                            |      |  |      |            |  |  |             |  |  |                  
|        | 10.20* |  |                     | Summary of Director Compensation Arrangements                                                                                                                       |      |  |      |            |  |  |             |  |  |                  
|        | 10.21  |  |                     | Contract of Employment between the Company and Keith Clark                                                                                                          |      |  | 10-K |            |  |  | 10.1        |  |  | August 1, 2005   
|        | 10.22  |  |                     | Lease Agreement, dated August 2, 2005, by and between
    CalWest Industrial Holdings, LLC and the Company                                                          |      |  | 8-K  |            |  |  | 10.1        |  |  | August 8, 2005   
|        | 10.23  |  |                     | Securities Purchase Agreement, dated August 19, 2005, by
    and among the Company, EMC Corporation, and certain affiliates
    of Advent International Corporation |      |  | 8-K  |            |  |  | 10.1        |  |  | August 22, 2005  
|        | 10.24* |  |                     | Form of Restricted Stock Award Agreement under the 2001 Stock
    Incentive Plan                                                                                    |      |  |      |            |  |  |             |  |  |                  
|        | 10.25* |  |                     | Form of Stock Option Award Agreement (Officers) under the 2001
    Stock Incentive Plan                                                                             |      |  |      |            |  |  |             |  |  |                  
|        | 10.26* |  |                     | Form of Stock Option Award Agreement (Employees) under the 2001
    Stock Incentive Plan                                                                            |      |  |      |            |  |  |             |  |  |                  
|        | 10.27  |  |                     | EMC Security Agreement, dated December 30, 2004                                                                                                                     |      |  | 8-K  |            |  |  | 99.1        |  |  | January 6, 2005  
|        | 10.28  |  |                     | Termination of EMC Security Agreement, dated December 30,
    2004                                                                                                  |      |  |      |            |  |  |             |  |  |                  
|        | 10.29  |  |                     | Amendment to Second Waiver and Consent, dated June 20,
    2006, between the Company and The Canopy Group                                                           |      |  | 8-K  |            |  |  | 10.2        |  |  | June 26, 2006    
|        | 10.30  |  |                     | Second Waiver and Consent, dated December 28, 2004, between
    the Company and The Canopy Group                                                                    |      |  |      |            |  |  |             |  |  |                  
|        | 10.31  |  |                     | Fourth Amendment to Loan and Security Agreement, dated
    June 20, 2006, between Comerica Bank and the Company                                                     |      |  | 8-K  |            |  |  | 10.1        |  |  | June 26, 2006    
|        | 10.32  |  |                     | Warrant, dated June 20, 2006, issued by the Company to The
    Canopy Group                                                                                         |      |  | 8-K  |            |  |  | 10.3        |  |  | June 26, 2006    
|        | 10.33* |  |                     | MTI Technology Corporation 2006 Stock Incentive Plan (CT)                                                                                                           |      |  |      |            |  |  |             |  |  |                  



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|        |        |  |                     |                                                                                                                                            |      |  |  |            |  |  |             |  |  | 
|------- | ------ |  | ------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ---- |  |  | ---------- |  |  | ----------- |  |  | 
|        |        |  |                     | Incorporated by Reference                                                                                                                 
|Exhibit |        |  |                     |                                                                                                                                            |     
|Number  |        |  | Exhibit Description |                                                                                                                                            | Form |  |  | Exhibit(s) |  |  | Filing Date
|        |        |  |                     |                                                                                                                                            |      |  |  |            |  |  |            
|        | 10.34* |  |                     | Form of Restricted Stock Award Agreement under the 2006 Stock
    Incentive Plan (CT)                                                      |      |  |  |            |  |  |             |  |  | 
|        | 10.35* |  |                     | Form of Stock Option Award Agreement (Officers) under the 2006
    Stock Incentive Plan (CT)                                               |      |  |  |            |  |  |             |  |  | 
|        | 10.36* |  |                     | Form of Stock Option Award Agreement (Employees) under the 2006
    Stock Incentive Plan (CT)                                              |      |  |  |            |  |  |             |  |  | 
|        | 21.1   |  |                     | List of Subsidiaries                                                                                                                       |      |  |  |            |  |  |             |  |  | 
|        | 23.1   |  |                     | Consent of  Grant Thornton LLP                                                                                                            |      |  |  |            |  |  |             |  |  | 
|        | 24.1   |  |                     | Powers of Attorney                                                                                                                         |      |  |  |            |  |  |             |  |  | 
|        | 31.1   |  |                     | Certification by CEO pursuant to Rule 13a-14(a) or
    15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 |      |  |  |            |  |  |             |  |  | 
|        | 31.2   |  |                     | Certification by CFO pursuant to Rule 13a-14(a) or
    15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 |      |  |  |            |  |  |             |  |  | 
|        | 32.1   |  |                     | Certification by CEO pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002      |      |  |  |            |  |  |             |  |  | 
|        | 32.2   |  |                     | Certification by CFO pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002      |      |  |  |            |  |  |             |  |  | 






|  |                                                
|- | -----------------------------------------------
|* | Management or compensatory plan or arrangement.