##### 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 2, 2005                                                     
|          
|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.)

14661 Franklin Avenue


Tustin, California 92780


(Address of principal executive offices, zip code)


Registrants telephone number, including area code:


(714) 481-7800


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)


þ o


o þ






o


DOCUMENTS INCORPORATED BY REFERENCE:












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TABLE OF CONTENTS



|              |                                                                                                                                |  |  |  |  |  |  | 
|------------- | ------------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I       
|              | ITEM 1. BUSINESS                                                                                                              
|              | ITEM 2. PROPERTIES                                                                                                            
|              | 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                                             
|              | 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 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 STOCKHOLDERS MATTERS                      
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                       
|              | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                               
|PART IV      
|              | ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                           
|EXHIBIT INDEX
|EXHIBIT 10.95
|EXHIBIT 10.96
|EXHIBIT 10.97
|EXHIBIT 21   
|EXHIBIT 23.1 
|EXHIBIT 23.2 
|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






OVERVIEW




tm




1



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Our Strategy








SIGNIFICANT BUSINESS DEVELOPMENTS




| |                   
| | ------------------
| | Sale of Securities





| |                                                 
| | ------------------------------------------------
| | Financial Restructurings and Reductions in Staff



2



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OUR MARKET








OUR STORAGE SOLUTION








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;

3



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| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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; and                                                                      
|
| |  | 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








SALES AND MARKETING




4



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ORDER BACKLOG




MANUFACTURING AND INTEGRATION SERVICES




COMPETITION






5



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PROPRIETARY RIGHTS








SEASONALITY




EMPLOYEES




AVAILABILITY OF SEC FILINGS









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





6



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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 2004 |  |            |      |  |     |  |      | 
|First Quarter    |  |            | 1.19 |  |     |  | 0.85 | 
|Second Quarter   |  |            | 1.98 |  |     |  | 0.90 | 
|Third Quarter    |  |            | 2.87 |  |     |  | 1.57 | 
|Fourth Quarter   |  |            | 3.73 |  |     |  | 2.23 | 
|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 | 

NUMBER OF COMMON STOCKHOLDERS




DIVIDENDS




7



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ISSUER PURCHASES OF EQUITY SECURITIES




RECENT SALES OF UNREGISTERED SECURITIES






8



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



|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |         |        |         |   |         |        |         |  
|---------------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ------ | -------- | - | ------ | -------- | ------ | - | -------- | ------ | ------- | -------- | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                                                 |                                     | Fiscal Year Ended        |        
|                                                                 |                                     |                          |        
|                                                                 |                                     | April 2,                 |         |        | April 3, |   |        | April 5, |        |   | April 6, |        |         | April 7, |        
|                                                                 |                                     | 2005                     |         |        | 2004     |   |        | 2003     |        |   | 2002     |        |         | 2001     |        
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|SELECTED STATEMENT OF OPERATIONS DATA:                           |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |         |        |         |   |         |       
|Net product revenue                                              |                                     | $                        | 93,703  |        |          | $ | 46,442 |          |        | $ | 40,101   |        |         | $        | 69,519  |        |         | $ | 111,820 |       
|Service revenue                                                  |                                     |                          | 38,910  |        |          |   | 36,723 |          |        |   | 42,285   |        |         |          | 48,399  |        |         |   | 49,870  |       
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|                                                                 |                                     | Total revenue(1)         |         |        | 132,613  |   |        |          | 83,165 |   |          |        | 82,386  |          |         |        | 117,918 |   |         |        | 161,690 |  
|Product gross profit                                             |                                     |                          | 19,805  |        |          |   | 11,473 |          |        |   | 7,153    |        |         |          | 13,053  |        |         |   | 39,291  |       
|Service gross profit                                             |                                     |                          | 5,714   |        |          |   | 10,333 |          |        |   | 14,645   |        |         |          | 18,648  |        |         |   | 14,628  |       
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|                                                                 |                                     | Gross profit(1)(2)       |         |        | 25,519   |   |        |          | 21,806 |   |          |        | 21,798  |          |         |        | 31,701  |   |         |        | 53,919  |  
|Operating expense:                                               |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |         |        |         |   |         |       
|                                                                 | Selling, general and administrative |                          |         | 39,078 |          |   |        | 28,935   |        |   |          | 27,754 |         |          |         | 43,211 |         |   |         | 66,249 |        
|                                                                 | Research and development            |                          |         |       |          |   |        | 776      |        |   |          | 5,238  |         |          |         | 12,742 |         |   |         | 19,095 |        
|                                                                 | Restructuring charges               |                          |         | 2,024  |          |   |        | (211     | )      |   |          | 1,467  |         |          |         | 4,911  |         |   |         | 393    |        
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|                                                                 |                                     | Total operating expenses |         |        | 41,102   |   |        |          | 29,500 |   |          |        | 34,459  |          |         |        | 60,864  |   |         |        | 85,737  |  
|                                                                 |                                     | Operating loss           |         |        | (15,583  | ) |        |          | (7,694 | ) |          |        | (12,661 | )        |         |        | (29,163 | ) |         |        | (31,818 | )
|Interest and other income (expense), net(3)                      |                                     |                          | (500    | )      |          |   | 631    |          |        |   | 1,008    |        |         |          | 4,182   |        |         |   | 4,258   |       
|Gain (loss) on foreign currency transactions                     |                                     |                          | 318     |        |          |   | 29     |          |        |   | 639      |        |         |          | (542    | )      |         |   | (552    | )     
|Equity in net loss and write-down of net investment of affiliate |                                     |                          |        |        |          |   |       |          |        |   |         |        |         |          | (9,504  | )      |         |   | (4,800  | )     
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|                                                                 |                                     | Loss before income taxes |         |        | (15,765  | ) |        |          | (7,034 | ) |          |        | (11,014 | )        |         |        | (35,027 | ) |         |        | (32,912 | )
|Income tax expense (benefit)(4)                                  |                                     |                          | 22      |        |          |   | (3,168 | )        |        |   | 205      |        |         |          | 24,598  |        |         |   | 3,529   |       
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|Net loss                                                         |                                     |                          | (15,787 | )      |          |   | (3,866 | )        |        |   | (11,219  | )      |         |          | (59,625 | )      |         |   | (36,441 | )     
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|Amortization of preferred stock discount                         |                                     |                          | (880    | )      |          |   |       |          |        |   |         |        |         |          |        |        |         |   |        |       
|Dividend on preferred stock                                      |                                     |                          | (953    | )      |          |   |       |          |        |   |         |        |         |          |        |        |         |   |        |       
|Net loss applicable to common shareholders                       |                                     | $                        | (17,620 | )      |          | $ | (3,866 | )        |        | $ | (11,219  | )      |         | $        | (59,625 | )      |         | $ | (36,441 | )     
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|Net loss per share:                                              |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |         |        |         |   |         |       
|                                                                 | Basic and diluted                   |                          | $       | (0.51  | )        |   | $      | (0.12    | )      |   | $        | (0.34  | )       |          | $       | (1.83  | )       |   | $       | (1.13  | )      
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|Weighted average shares used in per share computations:          |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |         |        |         |   |         |       
|                                                                 | Basic and diluted                   |                          |         | 34,476 |          |   |        | 33,482   |        |   |          | 32,852 |         |          |         | 32,548 |         |   |         | 32,233 |        
|                                                                 |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |        
|SELECTED BALANCE SHEET DATA:                                     |                                     |                          |         |        |          |   |        |          |        |   |          |        |         |          |         |        |         |   |         |       
|Cash and cash equivalents                                        |                                     | $                        | 12,191  |        |          | $ | 3,017  |          |        | $ | 9,833    |        |         | $        | 8,420   |        |         | $ | 16,320  |       
|Working capital                                                  |                                     |                          | 2,256   |        |          |   | 2,743  |          |        |   | 2,071    |        |         |          | 8,263   |        |         |   | 27,514  |       
|Total assets                                                     |                                     |                          | 62,866  |        |          |   | 46,612 |          |        |   | 44,556   |        |         |          | 61,698  |        |         |   | 128,960 |       
|Short-term debt                                                  |                                     |                          | 3,745   |        |          |   | 4,109  |          |        |   | 1,901    |        |         |          | 2,035   |        |         |   | 127     |       
|Long-term debt, less current maturities                          |                                     |                          |        |        |          |   | 95     |          |        |   | 286      |        |         |          | 461     |        |         |   | 621     |       
|Total stockholders equity                                       |                                     | $                        | 4,676   |        |          | $ | 7,141  |          |        | $ | 8,974    |        |         | $        | 20,113  |        |         | $ | 78,750  |       






|    |                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

9



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|    |                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes charges related to production and service inventory
    write-offs of $2,681, $1,469, $1,950, $8,850 and $2,825 for
    fiscal years 2005, 2004, 2003, 2002 and 2001, respectively.                                                                                                                                         
|   
|(3) | Includes $3,600 and $4,800 in fiscal years 2002 and 2001,
    respectively, 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 deferred tax asset valuation
    allowance adjustments of $24,300 and $9,000 for fiscal years
    2002 and 2001, respectively. 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.






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



OVERVIEW AND EXECUTIVE SUMMARY


tm




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have significantly increased product revenue in the past two
    years. We recorded product revenue of $93.7 million in
    fiscal 2005, a 102% increase from fiscal 2004 and significantly
    increased the number of new customers. In order to achieve this
    revenue growth, we invested heavily in sales and service
    resources which led to increased losses in fiscal 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Maintenance revenue has been negatively impacted due to the
    comprehensive warranty carried by EMC products. We resell EMC
    hardware products with up to a three year warranty with a seven
    day, twenty-four hour service level. In contrast, MTI
    proprietary products were generally sold with a one year
    warranty with 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. In fiscal 2005, we were successful in offsetting
    the decline in our legacy maintenance base with increased
    professional service revenue as well as software maintenance
    contracts on new technology installations.
|
| |  | We eliminated research and development costs and significantly
    reduced manufacturing and marketing expenses. These cost
    reductions were primarily the result of reductions in staff and
    the abandonment of underutilized facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | As a product reseller, we have experienced reduced product
    margins due to the reliance on EMC to develop and manufacture
    the products we resell.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             





10



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OUTLOOK






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We expect that service revenue will continue to increase during
    fiscal 2006 due to anticipated growth in our professional
    service business as well as continued sales of software and
    hardware maintenance contracts. We expect this growth to follow
    the integration of our newly hired personnel and the expiration
    of warranties on EMC products sold in fiscal 2004. In addition,
    if sales of EMC products increase, we would expect that sales of
    related software and back-up products, which typically carry
    shorter warranty periods, would also increase and provide an
    opportunity for increased maintenance contracts.
|
| |  | In fiscal 2006, we plan to moderate our headcount additions and
    focus on improving the efficiency and utilization of our
    professional services delivery.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | We expect that product revenue will continue to grow during
    fiscal 2006 as we strive to leverage the investment we have made
    in increased sales headcount. We expect that our total solutions
    provider strategy will allow us to further penetrate the
    mid-enterprise storage market and continue to add new-name
    accounts.                                                                                                                                                                                                                                                                                                                      
|
| |  | If we are able to successfully execute our strategy, we
    anticipate future net product margins to range between 20% and
    25%. This margin increase is expected to be driven primarily by
    the introduction of additional product offerings.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In fiscal 2006, we plan to leverage the investment we have made
    in our services business and expect service margin percentage to
    improve as a result of more efficient delivery of our
    professional service offerings, additional service offerings,
    and increased maintenance revenue from the sale of software and
    hardware contracts on EMC products.                                                                                                                                                                                                                                                                                         
|
| |  | We believe that as we continue to execute our strategy, we will
    see improved liquidity through cash generated by operating
    activities. We believe that our current working capital and
    availability under the Comerica credit facility is adequate to
    fund operations at least through fiscal 2006. However, if we are
    not successful in growing revenues and improving margins, it may
    be necessary to seek additional sources of financing.                                                                                                                                                                                                

CRITICAL ACCOUNTING POLICIES




Revenue recognition.


Hardware Revenue




11



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| |   |                                             
| | - | --------------------------------------------
| |  | persuasive evidence of an arrangement exists
|
| |  | delivery has occurred                       
|
| |  | fee is fixed or determinable                
|
| |  | collectibility is reasonably assured        





Software Revenue






12



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Service revenue








Multiple element
arrangements




Other




13



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Shipping






Product warranty.


Allowance for doubtful accounts.


Income taxes.


14



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Valuation of goodwill.


Inventories.


RESULTS OF OPERATIONS




15



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|                                      |                |                   |      |       |          |  |      |          |    |  |      |       |   
|------------------------------------- | -------------- | ----------------- | ---- | ----- | -------- |  | ---- | -------- | -- |  | ---- | ----- | --
|                                      |                | Fiscal Year Ended |     
|                                      |                |                   |     
|                                      |                | April 2,          |      |       | April 3, |  |      | April 5, |   
|                                      |                | 2005              |      |       | 2004     |  |      | 2003     |   
|                                      |                |                   |      |       |          |  |      |          |   
|Net product revenue                   |                |                   | 70.7 | %     |          |  | 55.8 | %        |    |  | 48.7 | %    
|Service revenue                       |                |                   | 29.3 |       |          |  | 44.2 |          |    |  | 51.3 |      
|                                      |                |                   |      |       |          |  |      |          |   
|                                      | Total revenue  |                   |      | 100.0 |          |  |      | 100.0    |    |  |      | 100.0 |   
|Product gross profit                  |                |                   | 21.1 |       |          |  | 24.7 |          |    |  | 17.8 |      
|Service gross profit                  |                |                   | 14.7 |       |          |  | 28.1 |          |    |  | 34.6 |      
|                                      |                |                   |      |       |          |  |      |          |   
|                                      | Gross profit   |                   |      | 19.2  |          |  |      | 26.2     |    |  |      | 26.5  |   
|Selling, general and administrative   |                |                   | 29.4 |       |          |  | 34.8 |          |    |  | 33.7 |      
|Research and development              |                |                   |     |       |          |  | 0.9  |          |    |  | 6.4  |      
|Restructuring charges                 |                |                   | 1.5  |       |          |  | (0.3 | )        |    |  | 1.8  |      
|                                      |                |                   |      |       |          |  |      |          |   
|                                      | Operating loss |                   |      | (11.7 | )        |  |      | (9.2     | )  |  |      | (15.4 | ) 
|Other income (expense), net           |                |                   | (0.4 | )     |          |  | 0.8  |          |    |  | 1.2  |      
|Gain on foreign currency transactions |                |                   | 0.2  |       |          |  |     |          |    |  | 0.8  |      
|Income tax (expense) benefit          |                |                   |     |       |          |  | 3.8  |          |    |  | (0.2 | )    
|                                      |                |                   |      |       |          |  |      |          |   
|                                      | Net loss       |                   |      | (11.9 | )%       |  |      | (4.6     | )% |  |      | (13.6 | )%
|                                      |                |                   |      |       |          |  |      |          |   



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

Net product revenue:


|       |                       |                   |      |      |          |   |      |        |  |   |      |      | 
|------ | --------------------- | ----------------- | ---- | ---- | -------- | - | ---- | ------ |  | - | ---- | ---- | 
|       |                       | Fiscal Year Ended |     
|       |                       |                   |     
|       |                       | April 2,          |      |      | April 3, |   |      |       
|       |                       | 2005              |      |      | 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 | 
|       |                       |                   |      |      |          |   |      |        | 



16



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##### Table of Contents



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 | 
|                              |                       |                  |      |      |                  |   |      |       |  |   |      |      |  |        |      |      |       |  







Product Gross Profit:


Service Gross Profit:


17



---



##### Table of Contents





Selling, General and Administrative:


Research and Development:


Restructuring:


Interest and Other Expense, Net:


Gain on Foreign Currency Transactions:


Income Tax Expense (Benefit):




| |                                              
| | ---------------------------------------------
| | Fiscal year 2004 compared to Fiscal year 2003

Net product revenue:


18



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##### Table of Contents







| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a Vice-President of U.S. sales, with 20 years of
    storage experience, responsible for North American
    sales; and                            
|
| |  | five additional veteran salespersons during fiscal 2004 who
    accounted for $5.2 million or 23% of total net product
    revenue in fiscal 2004.



Service revenue:


Product gross profit:


Service gross profit:




| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | effective October 1, 2003, we outsourced our domestic
    Customer Response Center operations to Directpointe, Inc., a
    related party, for a minimum monthly charge of
    $0.01 million; and
|
| |  | in the third quarter of fiscal year 2004, we eliminated eight
    full time positions in our field service operations.                                                                          

Selling, general and administrative expenses:


19



---



##### Table of Contents





Research and development expenses:


Restructuring Charges:


Other income, net:


Gain (loss) on foreign currency transactions:


Income taxes:


LIQUIDITY AND CAPITAL RESOURCES




20



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##### Table of Contents



















21



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##### Table of Contents









|                            |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            |  |   |     |  |  |   |     | 
|--------------------------- |  | ----------------------------- | ---- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ---- | - | --- | ---------- |  | - | --- |  |  | - | --- | 
|                            |  | Payments Due by Fiscal Period |     
|                            |  |                               |     
|                            |  | Total                         |      |  | 2006 |   |     | 2007 |  |   | 2008 |  |  | 2009 |     |  | 2010 |   |     | Thereafter | 
|                            |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            | 
|                            |  | (In millions)                 |     
|Line of Credit              |  | $                             | 3.7  |  |      | $ | 3.7 |      |  |   |     |  |  |      |    |  |      |   |    |            |  |   |    |  |  |   |    | 
|Operating Lease Obligations |  |                               | 7.7  |  |      |   | 3.0 |      |  |   | 2.0  |  |  |      | 1.2 |  |      |   | 0.4 |            |  |   | 0.4 |  |  |   | 0.7 | 
|Capital Lease Obligations   |  |                               | 0.1  |  |      |   | 0.1 |      |  |   |     |  |  |      |    |  |      |   |    |            |  |   |    |  |  |   |    | 
|                            |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            | 
|                            |  | $                             | 11.5 |  |      | $ | 6.8 |      |  | $ | 2.0  |  |  | $    | 1.2 |  |      | $ | 0.4 |            |  | $ | 0.4 |  |  | $ | 0.7 | 
|                            |  |                               |      |  |      |   |     |      |  |   |      |  |  |      |     |  |      |   |     |            | 

INFLATION AND FOREIGN CURRENCY EXCHANGE






22



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##### Table of Contents





FACTORS THAT MAY AFFECT FUTURE RESULTS






| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.







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



23



---



##### Table of Contents









| |   |                                           
| | - | ------------------------------------------
| |  | grow the business;                        
|
| |  | maintain or enhance our product 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.



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



24



---



##### Table of Contents





| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.     







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







25



---



##### Table of Contents







| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any amendment of the Companys charter or by-laws that
    adversely affects the holders of Series A;                                                                                                                                                                  
|
| |  | any authorization of a class of capital stock ranking senior to,
    or on parity with, the Series A;                                                                                                                                                                  
|
| |  | 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;                                                                                                      
|
| |  | 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 million; and                                                                                                                                                                    
|
| |  | any incurrence of additional debt for borrowed money in excess
    of $1 million.                                                                                                                                                                                      







| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Our future operating results may depend on the success of
    our cost reduction initiatives.



26



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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; and                                                    
|
| |  | decreases in our gross profit as a percentage of revenues for
    mature products.            



27



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##### Table of Contents





|               |       |         |        |         |        |   |       |           |  |   |          |         |   |   |        |         |  
|-------------- | ----- | ------- | ------ | ------- | ------ | - | ----- | --------- |  | - | -------- | ------- | - | - | ------ | ------- | -
|               |       | Total   |        |         | Gross  |   |       | Operating |  |   |         
|               |       | Revenue |        |         | Profit |   |       | Loss      |  |   | Net Loss |        
|               |       |         |        |         |        |   |       |           |  |   |          |        
|2005:          |       |         |        |         |        |   |       |           |  |   |          |         |   |   |        |        
|Fourth quarter |       | $       | 35,561 |         |        | $ | 4,487 |           |  | $ | (8,223   | )       |   | $ | (9,516 | )      
|Third quarter  |       |         | 39,516 |         |        |   | 7,772 |           |  |   | (3,255   | )       |   |   | (3,205 | )      
|Second quarter |       |         | 31,500 |         |        |   | 7,213 |           |  |   | (2,408   | )       |   |   | (2,981 | )      
|First quarter  |       |         | 26,036 |         |        |   | 6,047 |           |  |   | (1,697   | )       |   |   | (1,918 | )      
|               |       |         |        |         |        |   |       |           |  |   |          |        
|               | Total |         | $      | 132,613 |        |   | $     | 25,519    |  |   | $        | (15,583 | ) |   | $      | (17,620 | )
|               |       |         |        |         |        |   |       |           |  |   |          |        



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





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





| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | changes in a countrys economic or political conditions;                             
|
| |  | greater difficulties in accounts receivable collection and
    longer payment cycles;
|
| |  | fluctuating exchange rates, tariffs and other barriers;                              
|
| |  | difficulties in staffing and managing foreign subsidiary
    operations;             
|
| |  | unexpected changes in, or impositions of, legislative or
    regulatory requirements;
|
| |  | import or export restrictions;                                                       
|
| |  | potentially adverse tax consequences;                                                

28



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##### Table of Contents





| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | potential hostilities and changes in diplomatic and trade
    relationships; and
|
| |  | differing customer and/or technology standards requirements.                    





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









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





| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we and/or 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.



29



---



##### Table of Contents







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





| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | the timing and announcement of new products or services by us,
    our partners or by our competitors;      
|
| |  | failure of our results from operations to meet the expectations
    of public market analysts and investors;
|
| |  | 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.                    





| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our stockholders may be diluted by the conversion of
    outstanding Series A Convertible Preferred Stock and the
    exercise of warrants to purchase common stock issued in our June
    2004 private placement.









| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



30



---



##### Table of Contents







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





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








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










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








|        |                                                                                                                               
|------- | ------------------------------------------------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT REGISTERED
    PUBLIC ACCOUNTING FIRM ON ACCOUNTING AND FINANCIAL
    DISCLOSURE








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

Evaluation of Disclosure Controls and Procedures




31



---



##### Table of Contents





Changes in Internal Control Over Financial Reporting













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



|                |  |                                                 |  |             |                  |           |             |   |                  |         |  |  |                | 
|--------------- |  | ----------------------------------------------- |  | ----------- | ---------------- | --------- | ----------- | - | ---------------- | ------- |  |  | -------------- | 
|                |  |                                                 |  |             |                  | Annual    |             |   |                 
|                |  |                                                 |  |             |                  | Incentive |             |   | Options          |        
|Name            |  | Position                                        |  | Base Salary |                  |           | Opportunity |   |                  | Granted | 
|                |  |                                                 |  |             |                  |           |             |   |                  |         | 
|Thomas Raimondi |  | Chief Executive Officer                         |  | $           | 400,000 per year |           |             | $ | 120,000 per year |         |  |  | N/A            | 
|Scott Poteracki |  | Chief Financial Officer                         |  | $           | 270,000 per year |           |             | $ | 90,000 per year  |         |  |  | 350,000 shares | 
|John Caputo     |  | Executive Vice President  Worldwide Operations |  | $           | 240,000 per year |           |             | $ | 90,000 per year  |         |  |  | 275,000 shares | 





| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any incentive payments earned will be paid during the first
    quarter following the close of the current fiscal year;                                                        
|
| |  | annual operating profitability for the Company, as determined by
    the Compensation Committee in its discretion, is a prerequisite
    for any annual incentive payments; and
|
| |  | the specific incentive elements for each executive will be
    established by the Compensation Committee based on the approved
    annual financial plan.                      

32



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##### Table of Contents








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 STOCKHOLDERS MATTERS



SECURITIES AUTHORIZED FOR ISSUANCE




|                                                            |                                                                                |                         |            |           |                         |                      |                     |                             |  |  |           |           |    
|----------------------------------------------------------- | ------------------------------------------------------------------------------ | ----------------------- | ---------- | --------- | ----------------------- | -------------------- | ------------------- | --------------------------- |  |  | --------- | --------- | ---
|                                                            |                                                                                |                         |            |           |                         | Number of Securities |                    
|                                                            |                                                                                | Number of Securities    |            |           |                         |                      | Remaining Available |                            
|                                                            |                                                                                | to be Issued            |            |           | Weighted-Average        |                      |                     | for Future Issuance         | 
|                                                            |                                                                                | Upon the Exercise of    |            |           | Exercise Price of       |                      |                     | Under Equity Compensation   | 
|                                                            |                                                                                | Outstanding Options,    |            |           | Outstanding Options,    |                      |                     | Plans (Excluding Securities | 
|                                                            |                                                                                | Warrants and Rights (#) |            |           | Warrants and Rights ($) |                      |                     | Reflected in Column (a))    | 
|Plan Category                                               |                                                                                | (a)                     |            |           | (b)                     |                      |                     | (c)                         | 
|                                                            |                                                                                |                         |            |           |                         |                      |                     |                             | 
|Equity Compensation Plans Approved by Security Holders:     |                                                                                |                         |            |           |                         |                      |                     |                             |  |  |           |          
|                                                            | 1987 Stock Option Plan                                                         |                         |            | 13,000    |                         |                      |                     | 2.25                        |  |  |           |          |    
|                                                            | 1992 Stock Option Plan                                                         |                         |            | 255,625   |                         |                      |                     | 7.74                        |  |  |           |          |    
|                                                            | 1996 Stock Option Plan                                                         |                         |            | 3,572,983 |                         |                      |                     | 8.71                        |  |  |           |          |    
|                                                            | 1994 Directors Non-Qualified Stock Option Plan                                |                         |            | 40,000    |                         |                      |                     | 17.66                       |  |  |           |          |    
|                                                            | 2001 Stock Incentive Plan and 2001 Non-Employee Director Option
    Program(1) |                         |            | 7,516,244 | (2)                     |                      |                     | 1.81                        |  |  |           | 1,198,893 | (3)
|                                                            | 2001 Employee Stock Purchase Plan                                              |                         |            |          |                         |                      |                     |                            |  |  |           | 964,537   |    
|Warrants:                                                   |                                                                                |                         |            |           |                         |                      |                     |                             |  |  |           |          
|                                                            | Ralph Yarro                                                                    |                         |            | 150,000   |                         |                      |                     | 18.75                       |  |  |           |          |    
|                                                            |                                                                                |                         |            |           |                         |                      |                     |                             | 
|                                                            |                                                                                |                         | 11,547,852 |           |                         |                      |                     |                             |  |  | 2,163,430 |          
|                                                            |                                                                                |                         |            |           |                         |                      |                     |                             | 
|Equity Compensation Plans Not Approved by Security Holders: |                                                                                |                         |            |           |                         |                      |                     |                             |  |  |           |          
|                                                            | None                                                                           |                         |            |           |                         |                      |                     |                             |  |  |           |           |    

33



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##### Table of Contents








|    |                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2001 Non-Employee Director Option Program functions as part
    of the 2001 Stock Incentive Plan.                                                                                                                             
|   
|(2) | 7,049,574 shares and 466,670 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. 973,897 shares and 224,996 shares related to the
    SIP and the Program, respectively.






|         |                                               
|-------- | ----------------------------------------------
|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                                       
|
| | Report of Independent Registered Public Accounting
    Firm  KPMG LLP                  
|
| | Consolidated Balance Sheets as of April 2, 2005 and
    April 3, 2004                   
|
| | Consolidated Statements of Operations for the fiscal years ended
    2005, 2004 and 2003



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Consolidated Statements of Stockholders Equity (Deficit)
    for the fiscal years ended 2005, 2004 and 2003



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Consolidated Statements of Cash Flows for the fiscal years ended
    2005, 2004 and 2003
|
| | Notes to Consolidated Financial Statements                                              





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedule II  Valuation and Qualifying Accounts
    (See page 68)                                                                                                      
|
| | 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.

34



---



##### Table of Contents



SIGNATURES






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



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

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

POWER OF ATTORNEY






|                                                            |  |                                                                                   |  |               |  | 
|----------------------------------------------------------- |  | --------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                                   |  | Title                                                                             |  | Date         
|                                                            |  |                                                                                   |  |              
|                                                           
|/s/ THOMAS P.
    RAIMONDI, JR.(Thomas
    P. Raimondi, Jr. |  | Chairman, President and Chief Executive Officer (Principal
    Executive Officer) |  | July 15, 2005
|                                                           
|/s/ SCOTT POTERACKI(Scott
    Poteracki)                    |  | Chief Financial Officer and Secretary (Principal Financial
    Officer)           |  | July 15, 2005
|                                                           
|/s/ TODD WILLIAMS(Todd
    Williams)                        |  | Vice President and Corporate Controller (Principal Accounting
    Officer)        |  | July 15, 2005
|                                                           
|/s/ LAWRENCE P. BEGLEY(Lawrence
    P. Begley)              |  | Director                                                                          |  | July 15, 2005
|                                                           
|/s/ FRANZ L. CRISTIANI(Franz
    L. Cristiani)              |  | Director                                                                          |  | July 15, 2005
|                                                           
|/s/ WILLIAM MUSTARD(William
    Mustard)                    |  | Director                                                                          |  | July 15, 2005
|                                                           
|/s/ MICHAEL PEHL(Michael
    Pehl)                          |  | Director                                                                          |  | July 15, 2005
|                                                           
|/s/ JOHN REPP(John
    Repp)                                |  | Director                                                                          |  | July 15, 2005
|                                                           
|/s/ KENT D. SMITH(Kent
    D. Smith)                        |  | Director                                                                          |  | July 15, 2005

35



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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS


|                                                                                                                                            |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                            |  | Page |   
|                                                                                                                                            |  |      |   
|Report of Independent Registered Public Accounting
    Firm  Grant Thornton LLP                                                            |  |      | 37 | 
|Independent Auditors Report  BDO Simpson Xavier                                                                                           |  |      | 38 | 
|Report of Independent Registered Public Accounting
    Firm  KPMG LLP                                                                      |  |      | 39 | 
|Consolidated Balance Sheets as of April 2, 2005 and
    April 3, 2004                                                                       |  |      | 40 | 
|Consolidated Statements of Operations for the fiscal years ended
    April 2, 2005, April 3, 2004 and April 5, 2003                         |  |      | 41 | 
|Consolidated Statements of Stockholders Equity (Deficit)
    for the fiscal years ended April 2, 2005, April 3,
    2004 and April 5, 2003 |  |      | 42 | 
|Consolidated Statements of Cash Flows for the fiscal years ended
    April 2, 2005, April 3, 2004 and April 5, 2003                         |  |      | 43 | 
|Notes to Consolidated Financial Statements                                                                                                  |  |      | 44 | 
|FINANCIAL STATEMENT SCHEDULE                                                                                                                |  |      |    | 
|Schedule II  Valuation and Qualifying Accounts                                                                                             |  |      | 68 | 

36



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















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







37



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##### Table of Contents



INDEPENDENT AUDITORS REPORT














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





38



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |             
| | ------------
| | /s/ KPMG LLP





39



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MTI TECHNOLOGY CORPORATION


CONSOLIDATED BALANCE SHEETS


|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |        |        |        |          |        | 
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------ | -------- | ------ | ------ | ------ | -------- | ------ | 
|                                               |                                                                                                                                 | April 2,                                                                                                                                                                                                                  |                                      |        | April 3, |       
|                                               |                                                                                                                                 | 2005                                                                                                                                                                                                                      |                                      |        | 2004     |       
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               |                                                                                                                                 | (In thousands except per                                                                                                                                                                                                  |                                     
|                                               |                                                                                                                                 | share amounts)                                                                                                                                                                                                            |                                     
|ASSETS                                        
|Current assets:                                |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |        |        |       
|                                               | Cash and cash equivalents                                                                                                       |                                                                                                                                                                                                                           | $                                    | 12,191 |          |        | $      | 3,017  |         
|                                               | Accounts receivable, less allowance for doubtful accounts and
    sales returns of $451 and $437 in 2005 and 2004, respectively |                                                                                                                                                                                                                           |                                      | 33,866 |          |        |        | 22,734 |         
|                                               | Inventories, net                                                                                                                |                                                                                                                                                                                                                           |                                      | 3,723  |          |        |        | 6,186  |         
|                                               | Income tax refund and interest receivable                                                                                       |                                                                                                                                                                                                                           |                                      | 112    |          |        |        | 2,464  |         
|                                               | Prepaid expenses and other receivables                                                                                          |                                                                                                                                                                                                                           |                                      | 6,859  |          |        |        | 5,792  |         
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           | Total current assets                 |        |          | 56,751 |        |        |          | 40,193 | 
|                                               | Property, plant and equipment, net                                                                                              |                                                                                                                                                                                                                           |                                      | 708    |          |        |        | 1,401  |         
|                                               | Goodwill, net                                                                                                                   |                                                                                                                                                                                                                           |                                      | 5,184  |          |        |        | 5,184  |         
|                                               | Other                                                                                                                           |                                                                                                                                                                                                                           |                                      | 223    |          |        |        | 216    |         
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           | Total Assets                         |        | $        | 62,866 |        |        | $        | 46,994 | 
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities:                           |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |        |        |       
|                                               | Line of credit                                                                                                                  |                                                                                                                                                                                                                           | $                                    | 3,667  |          |        | $      | 3,933  |         
|                                               | Current portion of capital lease obligations                                                                                    |                                                                                                                                                                                                                           |                                      | 78     |          |        |        | 176    |         
|                                               | Accounts payable                                                                                                                |                                                                                                                                                                                                                           |                                      | 24,474 |          |        |        | 13,650 |         
|                                               | Accrued liabilities                                                                                                             |                                                                                                                                                                                                                           |                                      | 9,489  |          |        |        | 6,479  |         
|                                               | Accrued restructuring charges                                                                                                   |                                                                                                                                                                                                                           |                                      | 2,767  |          |        |        | 1,830  |         
|                                               | Deferred revenue                                                                                                                |                                                                                                                                                                                                                           |                                      | 14,020 |          |        |        | 11,382 |         
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           | Total current liabilities            |        |          | 54,495 |        |        |          | 37,450 | 
|                                               | Capital lease obligations, less current portion                                                                                 |                                                                                                                                                                                                                           |                                      |       |          |        |        | 95     |         
|                                               | Deferred revenue                                                                                                                |                                                                                                                                                                                                                           |                                      | 3,695  |          |        |        | 2,308  |         
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           | Total liabilities                    |        |          | 58,190 |        |        |          | 39,853 | 
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               | Redeemable convertible preferred stock, 567 shares issued
    and outstanding at April 2, 2005, net of discount of $7,955       |                                                                                                                                                                                                                           |                                      | 7,045  |          |        |        |       |         
|                                               | Commitments and contingencies                                                                                                   |                                                                                                                                                                                                                           |                                      |       |          |        |        |       |         
|                                               | Stockholders equity (deficit):                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |        |        |        |         
|                                               |                                                                                                                                 | Preferred stock, $.001 par value; authorized
    5,000 shares; issued and outstanding 567 and 0 shares
    at April 2, 2005 and April 3, 2004, respectively,
    included in redeemable convertible preferred stock above |                                      |        |         |        |        |        |         |       
|                                               |                                                                                                                                 | Common stock, $.001 par value; authorized
    80,000 shares; issued and outstanding 35,159 and
    34,473 shares in 2005 and 2004, respectively                                                                           |                                      |        | 35       |        |        |        | 34       |       
|                                               |                                                                                                                                 | Additional paid-in capital                                                                                                                                                                                                |                                      |        | 145,345  |        |        |        | 136,547  |       
|                                               |                                                                                                                                 | Deferred Compensation                                                                                                                                                                                                     |                                      |        | (605     | )      |        |        | (231     | )     
|                                               |                                                                                                                                 | Accumulated deficit                                                                                                                                                                                                       |                                      |        | (143,768 | )      |        |        | (126,149 | )     
|                                               |                                                                                                                                 | Accumulated other comprehensive loss                                                                                                                                                                                      |                                      |        | (3,376   | )      |        |        | (3,060   | )     
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           | Total stockholders equity (deficit) |        |          | (2,369 | )      |        |          | 7,141  | 
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       
|                                               |                                                                                                                                 | $                                                                                                                                                                                                                         | 62,866                               |        |          | $      | 46,994 |       
|                                               |                                                                                                                                 |                                                                                                                                                                                                                           |                                      |        |          |       



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MTI TECHNOLOGY CORPORATION


CONSOLIDATED STATEMENTS OF OPERATIONS


FISCAL YEARS ENDED APRIL 2, 2005, APRIL 3, 2004 AND
APRIL 5, 2003


|                                                        |                   |                                       |                          |        |         |         |        |        |        |        |         |        |        |         |  
|------------------------------------------------------- | ----------------- | ------------------------------------- | ------------------------ | ------ | ------- | ------- | ------ | ------ | ------ | ------ | ------- | ------ | ------ | ------- | -
|                                                        |                   | 2005                                  |                          |        | 2004    |         |        | 2003   |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|                                                        |                   | (In thousands, except per share data) |                         
|Net product revenue                                     |                   | $                                     | 93,703                   |        |         | $       | 46,442 |        |        | $      | 40,101  |       
|Service revenue                                         |                   |                                       | 38,910                   |        |         |         | 36,723 |        |        |        | 42,285  |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|                                                        |                   | Total revenue                         |                          |        | 132,613 |         |        |        | 83,165 |        |         |        | 82,386 |        
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|Product cost of revenue                                 |                   |                                       | 73,898                   |        |         |         | 34,969 |        |        |        | 32,948  |       
|Service cost of revenue                                 |                   |                                       | 33,196                   |        |         |         | 26,390 |        |        |        | 27,640  |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|                                                        |                   |                                       | Total cost of revenue    |        |         | 107,094 |        |        |        | 61,359 |         |        |        | 60,588  |  
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|                                                        |                   |                                       | Gross profit             |        |         | 25,519  |        |        |        | 21,806 |         |        |        | 21,798  |  
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|Operating expenses:                                     |                   |                                       |                          |        |         |         |        |        |        |        |         |       
|Selling, general and administrative                     |                   |                                       | 39,078                   |        |         |         | 28,935 |        |        |        | 27,754  |       
|Research and development                                |                   |                                       |                         |        |         |         | 776    |        |        |        | 5,238   |       
|Restructuring charges                                   |                   |                                       | 2,024                    |        |         |         | (211   | )      |        |        | 1,467   |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|                                                        |                   |                                       | Total operating expenses |        |         | 41,102  |        |        |        | 29,500 |         |        |        | 34,459  |  
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|                                                        |                   |                                       | Operating loss           |        |         | (15,583 | )      |        |        | (7,694 | )       |        |        | (12,661 | )
|Interest and other income (expense), net                |                   |                                       | (500                     | )      |         |         | 631    |        |        |        | 1,008   |       
|Gain on foreign currency transactions                   |                   |                                       | 318                      |        |         |         | 29     |        |        |        | 639     |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|Loss before income tax expense (benefit)                |                   |                                       | (15,765                  | )      |         |         | (7,034 | )      |        |        | (11,014 | )     
|Income tax expense (benefit)                            |                   |                                       | 22                       |        |         |         | (3,168 | )      |        |        | 205     |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|Net loss                                                |                   |                                       | (15,787                  | )      |         |         | (3,866 | )      |        |        | (11,219 | )     
|Amortization of preferred stock discount                |                   |                                       | (880                     | )      |         |         |       |        |        |        |        |       
|Dividend on preferred stock                             |                   |                                       | (953                     | )      |         |         |       |        |        |        |        |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|Net loss applicable to common shareholders              |                   | $                                     | (17,620                  | )      |         | $       | (3,866 | )      |        | $      | (11,219 | )     
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|Net loss per share:                                     |                   |                                       |                          |        |         |         |        |        |        |        |         |       
|                                                        | Basic and diluted |                                       | $                        | (0.51  | )       |         | $      | (0.12  | )      |        | $       | (0.34  | )     
|                                                        |                   |                                       |                          |        |         |         |        |        |       
|Weighted average shares used in per share computations: |                   |                                       |                          |        |         |         |        |        |        |        |         |       
|                                                        | Basic and diluted |                                       |                          | 34,746 |         |         |        | 33,482 |        |        |         | 32,852 |       
|                                                        |                   |                                       |                          |        |         |         |        |        |       



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MTI TECHNOLOGY CORPORATION


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


FISCAL YEARS ENDED APRIL 2, 2005, APRIL 3, 2004 AND
APRIL 5, 2003


|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------- |  | -------------- | ------ |  | ---------- | - | -- | -------- |  | ----------- | ------------ | ----- | ----- | ------------- | ------------- | ----- | ------ | ------------- | -------- | --------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                    |  |                |        |  |            |   |    |          |  | 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 6, 2002                            |  |                | 32,675 |  |            | $ | 33 |          |  | $           | 134,461      |       |       | $             |              |       |        | $             | (110,702 | )         |  | $ | (3,679 | ) |  | $ | 20,113  |   |  |   |         |  
|Net loss                                            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |               |       |        |               | (11,219  | )         |  |   |       |   |  |   | (11,219 | ) |  | $ | (11,219 | )
|Foreign currency translation adjustments            |  |                |       |  |            |   |   |          |  |             |             |       |       |               |              |       |        |               |         |           |  |   | (29    | ) |  |   | (29     | ) |  |   | (29     | )
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Comprehensive loss for the year ended April 5, 2003 |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |   |  |   |         |   |  |   | (11,248 | )
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|Shares issued under Employee Stock Purchase Plan    |  |                | 142    |  |            |   |   |          |  |             | 429          |       |       |               |              |       |        |               | (361     | )         |  |   |       |   |  |   | 68      |   |  |   |         |  
|Shares issued for employee compensation             |  |                | 152    |  |            |   |   |          |  |             | 41           |       |       |               |              |       |        |               |         |           |  |   |       |   |  |   | 41      |   |  |   |         |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|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 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    | ) |  |   |         |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  
|                                                    |  |                | 35,159 |  |            | $ | 35 |          |  | $           | 145,345      |       |       | $             | (605          | )     |        | $             | (143,768 | )         |  | $ | (3,376 | ) |  | $ | (2,369  | ) |  |   |         |  
|                                                    |  |                |        |  |            |   |    |          |  |             |              |       |       |               |               |       |        |               |          |           |  |   |        |  



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MTI TECHNOLOGY CORPORATION


CONSOLIDATED STATEMENTS OF CASH FLOWS


FISCAL YEARS ENDED APRIL 2, 2005, APRIL 3, 2004 AND
APRIL 5, 2003


|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |        |   |         |   |        |  
|--------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------------------------- | ------- | - | ------- | - | ------- | ---- | ------ | - | ------- | - | ------ | -
|                                                                                              |                                              | 2005                                                                            |         |   | 2004    |   |         | 2003 |       
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|                                                                                              |                                              | (In thousands)                                                                  |        
|Cash flows from operating activities:                                                         |                                              |                                                                                 |         |   |         |   |         |      |        |   |         |  
|Net loss                                                                                      |                                              | $                                                                               | (15,787 | ) |         | $ | (3,866  | )    |        | $ | (11,219 | )
|Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                              |                                                                                 |         |   |         |   |         |      |        |   |         |  
|                                                                                              |                                              | Depreciation and amortization                                                   |         |   | 1,282   |   |         |      | 1,419  |   |         |   | 3,460  |  
|                                                                                              |                                              | Provision for (recovery of) losses on accounts receivable, net                  |         |   | 14      |   |         |      | 25     |   |         |   | (602   | )
|                                                                                              |                                              | Provision for inventory obsolescence                                            |         |   | 2,681   |   |         |      | 1,469  |   |         |   | 1,950  |  
|                                                                                              |                                              | Loss on disposal of fixed assets                                                |         |   | 96      |   |         |      | 210    |   |         |   | 1,186  |  
|                                                                                              |                                              | Restructuring charges                                                           |         |   | 2,024   |   |         |      | (211   | ) |         |   | 1,467  |  
|                                                                                              |                                              | Non-cash compensation from issuance of restricted stock                         |         |   | 166     |   |         |      | 40     |   |         |   | 41     |  
|                                                                                              |                                              | Gain on sale of investment                                                      |         |   |        |   |         |      |       |   |         |   | (1,070 | )
|Changes in assets and liabilities:                                                            |                                              |                                                                                 |         |   |         |   |         |      |        |   |         |  
|                                                                                              |                                              | Accounts receivable                                                             |         |   | (11,323 | ) |         |      | (8,540 | ) |         |   | 4,680  |  
|                                                                                              |                                              | Inventories                                                                     |         |   | (233    | ) |         |      | 625    |   |         |   | 4,799  |  
|                                                                                              |                                              | Prepaid expenses, other receivables and other assets                            |         |   | 1,213   |   |         |      | (4,087 | ) |         |   | 2,678  |  
|                                                                                              |                                              | Accounts payable                                                                |         |   | 10,706  |   |         |      | 5,052  |   |         |   | (940   | )
|                                                                                              |                                              | Deferred revenue                                                                |         |   | 1,387   |   |         |      | (887   | ) |         |   | (1,315 | )
|                                                                                              |                                              | Accrued and other liabilities                                                   |         |   | 3,422   |   |         |      | (2,202 | ) |         |   | (4,710 | )
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Net cash provided by (used in) operating activities                                           |                                              |                                                                                 | (4,352  | ) |         |   | (10,953 | )    |        |   | 405     |  
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Cash flows from investing activities:                                                         |                                              |                                                                                 |         |   |         |   |         |      |        |   |         |  
|                                                                                              |                                              | Capital expenditures for property, plant and equipment                          |         |   | (661    | ) |         |      | (157   | ) |         |   | (378   | )
|                                                                                              |                                              | Proceeds from the sale of investment                                            |         |   |        |   |         |      |       |   |         |   | 1,070  |  
|                                                                                              |                                              | Proceeds from the sale of property, plant and equipment                         |         |   |        |   |         |      | 50     |   |         |   | 7      |  
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Net cash provided by (used in) investing activities                                           |                                              |                                                                                 | (661    | ) |         |   | (107    | )    |        |   | 699     |  
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Cash flows from financing activities:                                                         |                                              |                                                                                 |         |   |         |   |         |      |        |   |         |  
|                                                                                              |                                              | Net borrowings (payments) on line of credit                                     |         |   | (266    | ) |         |      | 2,193  |   |         |   | 1,740  |  
|                                                                                              |                                              | Proceeds from issuance of common stock and exercise of options
    and warrants |         |   | 860     |   |         |      | 1,346  |   |         |   | 68     |  
|                                                                                              |                                              | Proceeds from issuance of preferred stock, net                                  |         |   | 13,564  |   |         |      |       |   |         |   |       |  
|                                                                                              |                                              | Payment of capital lease obligations                                            |         |   | (193    | ) |         |      | (176   | ) |         |   | (149   | )
|                                                                                              |                                              | Repayment of notes payable                                                      |         |   |        |   |         |      |       |   |         |   | (1,900 | )
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Net cash provided by (used in) financing activities                                           |                                              |                                                                                 | 13,965  |   |         |   | 3,363   |      |        |   | (241    | )
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Effect of exchange rate changes on cash                                                       |                                              |                                                                                 | 222     |   |         |   | 881     |      |        |   | 550     |  
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Net increase (decrease) in cash and cash equivalents                                          |                                              |                                                                                 | 9,174   |   |         |   | (6,816  | )    |        |   | 1,413   |  
|Cash and cash equivalents at beginning of year                                                |                                              |                                                                                 | 3,017   |   |         |   | 9,833   |      |        |   | 8,420   |  
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Cash and cash equivalents at end of year                                                      |                                              | $                                                                               | 12,191  |   |         | $ | 3,017   |      |        | $ | 9,833   |  
|                                                                                              |                                              |                                                                                 |         |   |         |   |         |      |       
|Supplemental disclosures of cash flow information:                                            |                                              |                                                                                 |         |   |         |   |         |      |        |   |         |  
|                                                                                              | Cash paid during the year for:               |                                                                                 |         |   |         |   |         |      |        |   |         |   |       
|                                                                                              |                                              | Interest                                                                        |         | $ | 432     |   |         | $    | 241    |   |         | $ | 443    |  
|                                                                                              |                                              | Income taxes                                                                    |         |   | 7       |   |         |      | 166    |   |         |   | 105    |  
|                                                                                              | Non-cash investing and financing activities: |                                                                                 |         |   |         |   |         |      |        |   |         |   |       
|                                                                                              |                                              | Accrued dividends on preferred stock                                            |         | $ | 953     |   |         |      |       |   |         |   |       |  



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)




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



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



tm






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





| |                            
| | ---------------------------
| | Principles of Consolidation



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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



Revenue Recognition




Hardware Revenue






| |   |                                             
| | - | --------------------------------------------
| |  | persuasive evidence of an arrangement exists
|
| |  | delivery has occurred                       
|
| |  | fee is fixed or determinable                
|
| |  | collectibility is reasonably assured        





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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Software Revenue








46



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##### Table of Contents



MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Service revenue








Multiple element
arrangements




Other








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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Shipping






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





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





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





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





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



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                                                                                                  |                                |      |         |       |      |   |        |       |   |   |         |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---- | ------- | ----- | ---- | - | ------ | ----- | - | - | ------- | ----- | -
|                                                                                                                                                  |                                | 2005 |         |       | 2004 |   |        | 2003  |  
|                                                                                                                                                  |                                |      |         |       |      |   |        |       |  
|Net loss applicable to common shareholders, as reported                                                                                           |                                | $    | (17,620 | )     |      | $ | (3,866 | )     |   | $ | (11,219 | )    
|Add: Stock-based compensation expense included in reported net
    loss, net of related tax effects                                               |                                |      | 166     |       |      |   | 40     |       |   |   | 41      |      
|Deduct: Stock-based employee compensation expense determined
    under the fair value based method for all awards, net of related
    tax effects |                                |      | (2,779  | )     |      |   | (5,531 | )     |   |   | (9,413  | )    
|                                                                                                                                                  |                                |      |         |       |      |   |        |       |  
|Pro forma net loss                                                                                                                                |                                | $    | (20,233 | )     |      | $ | (9,357 | )     |   | $ | (20,591 | )    
|                                                                                                                                                  |                                |      |         |       |      |   |        |       |  
|Net loss per share:                                                                                                                               |                                |      |         |       |      |   |        |       |   |   |         |      
|                                                                                                                                                  | Basic and diluted, as reported |      | $       | (0.51 | )    |   | $      | (0.12 | ) |   | $       | (0.34 | )
|                                                                                                                                                  |                                |      |         |       |      |   |        |       |  
|                                                                                                                                                  | Basic and diluted, pro forma   |      | $       | (0.58 | )    |   | $      | (0.28 | ) |   | $       | (0.63 | )
|                                                                                                                                                  |                                |      |         |       |      |   |        |       |  



|                                               |  |      |      |   |      |   |      |      |  |   |      |  
|---------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                               |  | 2005 |      |   | 2004 |   |      | 2003 | 
|                                               |  |      |      |   |      |   |      |      | 
|Weighted-average fair value of options granted |  | $    | 1.54 |   |      | $ | 1.49 |      |  | $ | 0.49 |  
|Expected volatility                            |  |      | 0.7  |   |      |   | 0.9  |      |  |   | 1.5  |  
|Risk-free interest rate                        |  |      | 3.86 | % |      |   | 3.15 | %    |  |   | 2.78 | %
|Expected life (years)                          |  |      | 5.0  |   |      |   | 5.0  |      |  |   | 5.0  |  
|Dividend yield                                 |  |      |     |   |      |   |     |      |  |   |     |  





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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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





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





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







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



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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





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








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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





| |                        
| | -----------------------
| | 2005 Restructuring Plan





|                                                           |                             |                                             |       |     |       |  
|---------------------------------------------------------- | --------------------------- | ------------------------------------------- | ----- | --- | ----- | -
|Facilities Charges:                                        |                             |                                             |       |    
|                                                           | Balance as of April 3, 2004 |                                             | $     |    |      
|                                                           |                             | Add: fiscal year 2005 restructuring charges |       |     | 1,011 |  
|                                                           |                             | Less: fiscal year 2005 utilization          |       |     | (81   | )
|                                                           |                             |                                             |      
|                                                           | Balance as of April 2, 2005 |                                             |       | 930 |      
|                                                           |                             |                                             |      
|Workforce reduction:                                       |                             |                                             |       |    
|                                                           | Balance as of April 3, 2004 |                                             |       |    |      
|                                                           |                             | Add: fiscal year 2005 restructuring charges |       |     | 1,161 |  
|                                                           |                             | Less: fiscal year 2005 utilization          |       |     | (220  | )
|                                                           |                             |                                             |      
|                                                           | Balance as of April 2, 2005 |                                             |       | 941 |      
|                                                           |                             |                                             |      
|Total accrued 2005 restructuring plan, as of April 2, 2005 |                             | $                                           | 1,871 |    
|                                                           |                             |                                             |      









| |                        
| | -----------------------
| | 2002 Restructuring Plan



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                     |                             |                                                |   |       |        |  
|-------------------- | --------------------------- | ---------------------------------------------- | - | ----- | ------ | -
|Facilities Charges:  |                             |                                                |   |      
|                     | Balance as of April 6, 2002 |                                                | $ | 4,266 |       
|                     |                             | Add: fiscal year 2003 restructuring charges    |   |       | 421    |  
|                     |                             | Less: fiscal year 2003 utilization             |   |       | (1,756 | )
|                     |                             |                                                |  
|                     | Balance as of April 5, 2003 |                                                |   | 2,931 |       
|                     |                             | Add: fiscal year 2004 restructuring adjustment |   |       | (211   | )
|                     |                             | Less: fiscal year 2004 utilization             |   |       | (890   | )
|                     |                             |                                                |  
|                     | Balance as of April 3, 2004 |                                                |   | 1,830 |       
|                     |                             | Add: fiscal year 2005 restructuring adjustment |   |       | (148   | )
|                     |                             | Less: fiscal year 2005 utilization             |   |       | (786   | )
|                     |                             |                                                |  
|                     | Balance as of April 2, 2005 |                                                | $ | 896   |       
|                     |                             |                                                |  
|Workforce reduction: |                             |                                                |   |      
|                     | Balance as of April 6, 2002 |                                                | $ | 207   |       
|                     |                             | Add: fiscal year 2003 severance charges        |   |       | 545    |  
|                     |                             | Less: fiscal year 2003 severance payments      |   |       | (752   | )
|                     |                             |                                                |  
|                     | Balance as of April 5, 2003 |                                                |   |      |       
|                     |                             |                                                |  





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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                              |  |          |       |  |          |   |       | 
|----------------------------- |  | -------- | ----- |  | -------- | - | ----- | 
|                              |  | April 2, |       |  | April 3, |  
|                              |  | 2005     |       |  | 2004     |  
|                              |  |          |       |  |          |  
|Service spares and components |  | $        | 877   |  |          | $ | 3,147 | 
|Finished goods                |  |          | 2,846 |  |          |   | 3,039 | 
|                              |  |          |       |  |          |  
|                              |  | $        | 3,723 |  |          | $ | 6,186 | 
|                              |  |          |       |  |          |  











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



|                              |  |          |       |  |          |   |       | 
|----------------------------- |  | -------- | ----- |  | -------- | - | ----- | 
|                              |  | April 2, |       |  | April 3, |  
|                              |  | 2005     |       |  | 2004     |  
|                              |  |          |       |  |          |  
|Prepaid maintenance contracts |  | $        | 5,252 |  |          | $ | 4,455 | 
|Other                         |  |          | 1,607 |  |          |   | 1,337 | 
|                              |  |          |       |  |          |  
|                              |  | $        | 6,859 |  |          | $ | 5,792 | 
|                              |  |          |       |  |          |  



|                                               |  |          |         |   |          |   |         |  
|---------------------------------------------- |  | -------- | ------- | - | -------- | - | ------- | -
|                                               |  | April 2, |         |   | April 3, |  
|                                               |  | 2005     |         |   | 2004     |  
|                                               |  |          |         |   |          |  
|Office furniture and fixtures                  |  | $        | 9,820   |   |          | $ | 9,178   |  
|Machinery and equipment                        |  |          | 9,836   |   |          |   | 12,307  |  
|Leasehold improvements                         |  |          | 2,161   |   |          |   | 2,452   |  
|                                               |  |          |         |   |          |  
|                                               |  |          | 21,817  |   |          |   | 23,937  |  
|Less accumulated depreciation and amortization |  |          | (21,109 | ) |          |   | (22,536 | )
|                                               |  |          |         |   |          |  
|                                               |  | $        | 708     |   |          | $ | 1,401   |  
|                                               |  |          |         |   |          |  

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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                          |  |          |       |  |          |   |       | 
|------------------------- |  | -------- | ----- |  | -------- | - | ----- | 
|                          |  | April 2, |       |  | April 3, |  
|                          |  | 2005     |       |  | 2004     |  
|                          |  |          |       |  |          |  
|Salaries and benefits     |  | $        | 3,273 |  |          | $ | 2,546 | 
|Sales tax                 |  |          | 2,602 |  |          |   | 2,038 | 
|Customer deposits         |  |          | 990   |  |          |   | 382   | 
|Preferred stock dividends |  |          | 953   |  |          |   |      | 
|Commissions               |  |          | 694   |  |          |   | 478   | 
|Warranty costs            |  |          | 598   |  |          |   | 603   | 
|Other                     |  |          | 379   |  |          |   | 432   | 
|                          |  |          |       |  |          |  
|                          |  | $        | 9,489 |  |          | $ | 6,479 | 
|                          |  |          |       |  |          |  



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





|                                       |  |          |      |   |          |   |      |  
|-------------------------------------- |  | -------- | ---- | - | -------- | - | ---- | -
|                                       |  | April 2, |      |   | April 3, |  
|                                       |  | 2005     |      |   | 2004     |  
|                                       |  |          |      |   |          |  
|Balance at the beginning of the period |  | $        | 603  |   |          | $ | 876  |  
|Current year warranty charges          |  |          | 650  |   |          |   | 513  |  
|Utilization                            |  |          | (655 | ) |          |   | (786 | )
|                                       |  |          |      |   |          |  
|Balance at the end of the period       |  | $        | 598  |   |          | $ | 603  |  
|                                       |  |          |      |   |          |  



55



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



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













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



|        |  |                   |         |   |          |   |        |          |  |   |         |  
|------- |  | ----------------- | ------- | - | -------- | - | ------ | -------- |  | - | ------- | -
|        |  | Fiscal Year Ended |        
|        |  |                   |        
|        |  | April 2,          |         |   | April 3, |   |        | April 5, | 
|        |  | 2005              |         |   | 2004     |   |        | 2003     | 
|        |  |                   |         |   |          |   |        |          | 
|U.S.    |  | $                 | (8,948  | ) |          | $ | (5,554 | )        |  | $ | (11,062 | )
|Foreign |  |                   | (6,817  | ) |          |   | (1,480 | )        |  |   | 48      |  
|        |  |                   |         |   |          |   |        |          | 
|        |  | $                 | (15,765 | ) |          | $ | (7,034 | )        |  | $ | (11,014 | )
|        |  |                   |         |   |          |   |        |          | 

56



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|      |         |         |        |        |          |   |       |   |  |   |        |        |  
|----- | ------- | ------- | ------ | ------ | -------- | - | ----- | - |  | - | ------ | ------ | -
|      |         | Current |        |        | Deferred |   | Total |  
|      |         |         |        |        |          |   |       |  
|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 | )     
|      |         |         |        |        |          |   |       |   | 
|2003: |         |         |        |        |          |   |       |   |  |   |        |       
|      | Federal |         | $      |       |          |   | $     |  |  |   | $      |       |  
|      | State   |         |        | 68     |          |   |       |  |  |   |        | 68     |  
|      | Foreign |         |        | 137    |          |   |       |  |  |   |        | 137    |  
|      |         |         |        |        |          |   |       |   | 
|      |         | $       | 205    |        |          | $ |      |   |  | $ | 205    |       
|      |         |         |        |        |          |   |       |   | 



|                                     |  |                   |       |    |          |  |       |          |  |  |       |   
|------------------------------------ |  | ----------------- | ----- | -- | -------- |  | ----- | -------- |  |  | ----- | --
|                                     |  | Fiscal Year Ended |      
|                                     |  |                   |      
|                                     |  | April 2,          |       |    | April 3, |  |       | April 5, | 
|                                     |  | 2005              |       |    | 2004     |  |       | 2003     | 
|                                     |  |                   |       |    |          |  |       |          | 
|Federal statutory rate               |  |                   | (35.0 | )% |          |  | (35.0 | )%       |  |  | (35.0 | )%
|Effect of foreign operations         |  |                   | 3.2   |    |          |  | 4.8   |          |  |  | 1.2   |   
|State taxes, net of federal benefit  |  |                   | (3.3  | )  |          |  | (4.7  | )        |  |  | (5.8  | ) 
|Change in valuation allowance        |  |                   | 13.6  |    |          |  | (47.0 | )        |  |  | 37.0  |   
|Elimination of reserve for tax audit |  |                   |      |    |          |  | (20.8 | )        |  |  |      |   
|Tax benefit from NOL carry-back      |  |                   |      |    |          |  | (23.7 | )        |  |  |      |   
|Non-deductible expenses              |  |                   | 0.7   |    |          |  | 2.9   |          |  |  | 0.1   |   
|Expiration of NOL carryforwards      |  |                   | 23.4  |    |          |  | 76.2  |          |  |  |      |   
|Other                                |  |                   | (2.5  | )  |          |  | 2.3   |          |  |  | 4.3   |   
|                                     |  |                   |       |    |          |  |       |          | 
|                                     |  |                   | 0.1   | %  |          |  | (45.0 | )%       |  |  | 1.8   | % 
|                                     |  |                   |       |    |          |  |       |          | 

57



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |  |      |        |  |      |   |        |      |  |   |        | 
|-------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                 |  | 2005 |        |  | 2004 |   |        | 2003 | 
|                                 |  |      |        |  |      |   |        |      | 
|Tax operating loss carryforwards |  | $    | 49,665 |  |      | $ | 46,691 |      |  | $ | 48,348 | 
|Intangible assets                |  |      | 2,304  |  |      |   | 2,707  |      |  |   | 3,109  | 
|Accrued expenses                 |  |      | 2,389  |  |      |   | 2,174  |      |  |   | 3,674  | 
|Inventory reserves               |  |      | 378    |  |      |   | 130    |      |  |   | 2,185  | 
|Depreciation                     |  |      | 643    |  |      |   | 1,306  |      |  |   | 2,791  | 
|Deferred income                  |  |      | 559    |  |      |   | 403    |      |  |   | 361    | 
|Other                            |  |      | 3,617  |  |      |   | 4,007  |      |  |   | 253    | 
|                                 |  |      |        |  |      |   |        |      | 
|                                 |  |      | 59,555 |  |      |   | 57,418 |      |  |   | 60,721 | 
|Less valuation allowance         |  |      | 59,555 |  |      |   | 57,418 |      |  |   | 60,721 | 
|                                 |  |      |        |  |      |   |        |      | 
|                                 |  | $    |       |  |      | $ |       |      |  | $ |       | 
|                                 |  |      |        |  |      |   |        |      | 











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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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



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



|                                      |                                                                                               |      |       |         |      |   |       |        |   |   |       |         |  
|------------------------------------- | --------------------------------------------------------------------------------------------- | ---- | ----- | ------- | ---- | - | ----- | ------ | - | - | ----- | ------- | -
|                                      |                                                                                               | 2005 |       |         | 2004 |   |       | 2003   |  
|                                      |                                                                                               |      |       |         |      |   |       |        |  
|Numerator:                            |                                                                                               |      |       |         |      |   |       |        |   |   |       |        
|                                      | Net loss                                                                                      |      | $     | (15,787 | )    |   | $     | (3,866 | ) |   | $     | (11,219 | )
|                                      | Accretion of preferred stock discount                                                         |      |       | (880    | )    |   |       |       |   |   |       |        |  
|                                      | Dividend on preferred stock                                                                   |      |       | (953    | )    |   |       |       |   |   |       |        |  
|                                      |                                                                                               |      |       |         |      |   |       |        |  
|                                      | Net loss applicable to common shareholders                                                    |      | $     | (17,620 | )    |   | $     | (3,866 | ) |   | $     | (11,219 | )
|                                      |                                                                                               |      |       |         |      |   |       |        |  
|Denominator:                          |                                                                                               |      |       |         |      |   |       |        |   |   |       |        
|                                      | Denominator for net loss per share, basic and diluted
    weighted-average shares outstanding |      |       | 34,476  |      |   |       | 33,482 |   |   |       | 32,852  |  
|                                      |                                                                                               |      |       |         |      |   |       |        |  
|Net loss per share, basic and diluted |                                                                                               | $    | (0.51 | )       |      | $ | (0.12 | )      |   | $ | (0.34 | )      
|                                      |                                                                                               |      |       |         |      |   |       |        |  





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



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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



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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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







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





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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |  |        |        |          |                |   |      | 
|------------------------------------ |  | ------ | ------ | -------- | -------------- | - | ---- | 
|                                     |  |        |        | 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                            |  |        | (1,331 | )        |                |   | 0.96 | 
|Forfeited                            |  |        | (1,373 | )        |                |   | 4.97 | 
|                                     |  |        |        |          |                |  
|Options outstanding at April 3, 2004 |  |        | 10,914 |          |                |   | 4.97 | 
|Granted                              |  |        | 2,331  |          |                |   | 2.46 | 
|Exercised                            |  |        | (582   | )        |                |   | 1.33 | 
|Forfeited                            |  |        | (1,132 | )        |                |   | 6.34 | 
|                                     |  |        |        |          |                |  
|Options outstanding at April 2, 2005 |  |        | 11,531 |          |                | $ | 4.12 | 
|                                     |  |        |        |          |                |  





|                        |  |             |        |          |             |  |          |                |  |   |           |          |         |          |       |  |  |   |       | 
|----------------------- |  | ----------- | ------ | -------- | ----------- |  | -------- | -------------- |  | - | --------- | -------- | ------- | -------- | ----- |  |  | - | ----- | 
|                        |  |             |        |          |             |  |          | 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         |  |             | 222    |          |             |  | 7.57     |                |  | $ | 0.32      |          |         |          | 188   |  |  | $ | 0.33  | 
|0.55 -   0.55           |  |             | 1,496  |          |             |  | 7.25     |                |  |   | 0.55      |          |         |          | 1,496 |  |  |   | 0.55  | 
|0.57 -   1.70           |  |             | 1,167  |          |             |  | 7.05     |                |  |   | 1.26      |          |         |          | 992   |  |  |   | 1.23  | 
|1.74 -   2.08           |  |             | 1,213  |          |             |  | 8.57     |                |  |   | 1.79      |          |         |          | 507   |  |  |   | 1.79  | 
|2.09 -   2.12           |  |             | 748    |          |             |  | 6.59     |                |  |   | 2.12      |          |         |          | 616   |  |  |   | 2.12  | 
|2.20 -   2.20           |  |             | 2,156  |          |             |  | 8.63     |                |  |   | 2.20      |          |         |          | 966   |  |  |   | 2.20  | 
|2.25 -   2.72           |  |             | 1,189  |          |             |  | 9.27     |                |  |   | 2.66      |          |         |          | 93    |  |  |   | 2.28  | 
|2.80 -   4.12           |  |             | 1,451  |          |             |  | 6.50     |                |  |   | 3.67      |          |         |          | 1,158 |  |  |   | 3.82  | 
|4.31 -   9.37           |  |             | 1,182  |          |             |  | 4.08     |                |  |   | 6.81      |          |         |          | 1,182 |  |  |   | 6.81  | 
|12.87 -  45.87          |  |             | 707    |          |             |  | 4.41     |                |  |   | 28.42     |          |         |          | 707   |  |  |   | 28.42 | 
|                        |  |             |        |          |             |  |          |                |  |   |           |          |         |          |      
|                        |  |             | 11,531 |          |             |  | 7.20     |                |  | $ | 4.12      |          |         |          | 7,905 |  |  | $ | 4.96  | 
|                        |  |             |        |          |             |  |          |                |  |   |           |          |         |          |      

Note




|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Options exercisable at April 2, 2005, April 3, 2004
    and April 5, 2003, were 7,905, 6,903 and 5,834,
    respectively.

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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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







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



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





|           |  |   |       | 
|---------- |  | - | ----- | 
|2006       |  | $ | 3,051 | 
|2007       |  |   | 1,967 | 
|2008       |  |   | 1,158 | 
|2009       |  |   | 382   | 
|2010       |  |   | 380   | 
|Thereafter |  |   | 721   | 
|           |  |   |      
|           |  | $ | 7,659 | 
|           |  |   |      

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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





| |                      
| | ---------------------
| | Employment Agreements







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





|         |                |               |   |        |         |  |   |        |        |  |   |        |        | 
|-------- | -------------- | ------------- | - | ------ | ------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|         |                | 2005          |   |        | 2004    |  |   | 2003   |       
|         |                |               |   |        |         |  |   |        |       
|Revenue: |                |               |   |        |         |  |   |        |        |  |   |       
|         | United States  |               | $ | 76,646 |         |  | $ | 41,408 |        |  | $ | 43,525 |       
|         | Germany        |               |   | 23,383 |         |  |   | 15,430 |        |  |   | 16,596 |       
|         | France         |               |   | 21,803 |         |  |   | 13,248 |        |  |   | 9,363  |       
|         | United Kingdom |               |   | 9,706  |         |  |   | 12,625 |        |  |   | 12,100 |       
|         | Ireland        |               |   | 1,075  |         |  |   | 454    |        |  |   | 802    |       
|         |                |               |   |        |         |  |   |        |       
|         |                | Total revenue |   | $      | 132,613 |  |   | $      | 83,165 |  |   | $      | 82,386 | 
|         |                |               |   |        |         |  |   |        |       

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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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



|               |  |      |         |  |      |   |        |      |  |   |        | 
|-------------- |  | ---- | ------- |  | ---- | - | ------ | ---- |  | - | ------ | 
|               |  | 2005 |         |  | 2004 |   |        | 2003 | 
|               |  |      |         |  |      |   |        |      | 
|Server         |  | $    | 68,847  |  |      | $ | 28,716 |      |  | $ | 22,535 | 
|Tape libraries |  |      | 9,446   |  |      |   | 12,024 |      |  |   | 14,251 | 
|Software       |  |      | 15,410  |  |      |   | 5,702  |      |  |   | 3,315  | 
|Service        |  |      | 38,910  |  |      |   | 36,723 |      |  |   | 42,285 | 
|               |  |      |         |  |      |   |        |      | 
|               |  | $    | 132,613 |  |      | $ | 83,165 |      |  | $ | 82,386 | 
|               |  |      |         |  |      |   |        |      | 





|     |                
|---- | ---------------
|(10) | SALE OF PATENTS





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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|     |                           
|---- | --------------------------
|(11) | RELATED-PARTY TRANSACTIONS







|     |                  
|---- | -----------------
|(12) | EMPLOYEE BENEFITS





|     |                                     
|---- | ------------------------------------
|(13) | QUARTERLY FINANCIAL DATA (UNAUDITED)



|      |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |   |        |         |   |   |       |   | 
|----- | -------------- | ------- | - | ------ | ------- |  | - | --------------- | ------ | ------------- | --------------- | ------ | ------- | ------------ | - | ------ | ------- | - | - | ----- | - | 
|      |                |         |   |        |         |  |   |                 |        | Income (Loss) |                
|      |                |         |   |        |         |  |   | Income (Loss)   |        |               | per Share       |       
|      |                |         |   |        |         |  |   | Attributable to |        |               | Attributable to |       
|      |                | Total   |   |        | Gross   |  |   | Net             |        |               | Common          |        |         | Common       |  
|      |                | Revenue |   |        | Profit  |  |   | Income (Loss)   |        |               | Shareholders    |        |         | Shareholders |  
|      |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |  
|2005: |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |   |        |         |   |   |      
|      | Fourth quarter |         | $ | 35,561 |         |  | $ | 4,487           |        |               | $               | (8,908 | )       |              | $ | (9,516 | )       |   | $ | (0.27 | )
|      | Third quarter  |         |   | 39,516 |         |  |   | 7,772           |        |               |                 | (2,612 | )       |              |   | (3,205 | )       |   |   | (0.09 | )
|      | Second quarter |         |   | 31,500 |         |  |   | 7,213           |        |               |                 | (2,478 | )       |              |   | (2,981 | )       |   |   | (0.09 | )
|      | First quarter  |         |   | 26,036 |         |  |   | 6,047           |        |               |                 | (1,789 | )       |              |   | (1,918 | )       |   |   | (0.06 | )
|      |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |  
|      |                | Total   |   | $      | 132,613 |  |   | $               | 25,519 |               |                 | $      | (15,787 | )            |   | $      | (17,620 | ) |   |       |   | 
|      |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |  
|2004: |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |   |        |         |   |   |      
|      | Fourth quarter |         | $ | 23,651 |         |  | $ | 5,977           |        |               | $               | (742   | )       |              | $ | (742   | )       |   | $ | (0.02 | )
|      | Third quarter  |         |   | 21,210 |         |  |   | 5,283           |        |               |                 | 1,458  |         |              |   | 1,458  |         |   |   | 0.04  |  
|      | Second quarter |         |   | 20,526 |         |  |   | 5,135           |        |               |                 | (1,725 | )       |              |   | (1,725 | )       |   |   | (0.05 | )
|      | First quarter  |         |   | 17,778 |         |  |   | 5,411           |        |               |                 | (2,857 | )       |              |   | (2,857 | )       |   |   | (0.09 | )
|      |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |  
|      |                | Total   |   | $      | 83,165  |  |   | $               | 21,806 |               |                 | $      | (3,866  | )            |   | $      | (3,866  | ) |   |       |   | 
|      |                |         |   |        |         |  |   |                 |        |               |                 |        |         |              |  

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MTI TECHNOLOGY CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|     |                 
|---- | ----------------
|(14) | SUBSEQUENT EVENT



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SCHEDULE II


MTI TECHNOLOGY CORPORATION


VALUATION AND QUALIFYING ACCOUNTS


FOR THE FISCAL YEARS ENDED APRIL 2, 2005, APRIL 3,
2004 AND APRIL 5, 2003


|                         |                                 |                |       |     |                   |   |      |             |   |   |            |      |   |   |     |     | 
|------------------------ | ------------------------------- | -------------- | ----- | --- | ----------------- | - | ---- | ----------- | - | - | ---------- | ---- | - | - | --- | --- | 
|                         |                                 | Balance at     |       |     | Allowance for Bad |   |      | Write-Offs  |   |   | Balance at |     
|                         |                                 | Beginning of   |       |     | Debts and Sales   |   |      | and         |   |   | End of     |     
|                         |                                 | Period         |       |     | Returns           |   |      | Adjustments |   |   | Period     |     
|                         |                                 |                |       |     |                   |   |      |             |   |   |            |     
|                         |                                 | (In thousands) |      
|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 |    
|                         |                                 |                |       |     |                   |   |      |             |   |   |            |     
|Year ended April 5, 2003 |                                 |                |       |     |                   |   |      |             |   |   |            |      |   |   |     |    
|                         | Allowance for doubtful accounts |                | $     | 960 |                   |   | $    | (602        | ) |   | $          | (82  | ) |   | $   | 276 | 
|                         | Allowance for sales returns     |                |       | 489 |                   |   |      |            |   |   |            | (289 | ) |   |     | 200 | 
|                         |                                 |                |       |     |                   |   |      |             |   |   |            |     
|                         |                                 | $              | 1,449 |     |                   | $ | (602 | )           |   | $ | (371       | )    |   | $ | 476 |    
|                         |                                 |                |       |     |                   |   |      |             |   |   |            |     

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EXHIBIT INDEX


|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | --- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 3   | .1          |  | Restated Certificate of Incorporation of the Company,
    incorporated by reference to Exhibit 3.1 of the
    Companys Registration Statement on Form S-1 (No.
    33-75180).                                                                                                                                                                                                                                                                                                 
|       
|        | 3   | .2          |  | Certificate of Amendment of Restated Certificate of
    Incorporation of the Company, incorporated by reference to
    Exhibit A of the Companys Information Statement on
    Schedule 14C filed on April 3, 2000.                                                                                                                                                                                                                                                            
|       
|        | 3   | .3          |  | Amended and Restated Bylaws of the Company, dated
    January 18, 2002, incorporated by reference to
    Exhibit 3.3 of the Companys Quarterly Report on Form
    10-Q for the quarterly period ended January 5, 2002.                                                                                                                                                                                                                                                        
|       
|        | 4   | .1          |  | Amended and Restated Registration Rights Agreement between the
    Company and Silicon Valley Bank, dated January 11, 2002,
    incorporated by reference to Exhibit 4.8 of the
    Companys Quarterly Report on Form 10-Q for the
    quarterly period ended January 5, 2002.                                                                                                                                                                                                
|       
|        | 4   | .2          |  | Specimen of Amended Stock Certificate, incorporated by reference
    to Exhibit 4.2 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 5, 2003.                                                                                                                                                                                                                                                                                               
|       
|        | *10 | .1          |  | Form of Nonqualified Stock Option Agreement under the Stock
    Incentive Plan, incorporated by reference to Exhibit 10.14
    of the Companys Registration Statement on Form S-1
    (No. 33-75180).                                                                                                                                                                                                                                                                         
|       
|        | *10 | .2          |  | Form of Indemnification Agreement for Executive Officers of the
    Company, incorporated by reference to Exhibit 10.2 of the
    Companys Annual Report on the Form 10-K for the
    fiscal year ended April 5, 2003.                                                                                                                                                                                                                                                        
|       
|        | *10 | .3          |  | Form of Indemnification Agreement for Directors of the Company,
    incorporated by reference to Exhibit 10.3 of the
    Companys Annual Report on the Form 10-K for the
    fiscal year ended April 5, 2003.                                                                                                                                                                                                                                                                 
|       
|        | *10 | .4          |  | Form of Change of Control Agreement, incorporated by reference
    to Exhibit 10.4 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 5, 2003.                                                                                                                                                                                                                                                                                                
|       
|        | *10 | .5          |  | 1987 Incentive Stock Option and Nonqualified Stock Option Plan
    of the Company, incorporated by reference to Exhibit 10.21
    of the Companys Registration Statement on Form S-1
    (No. 33-75180).                                                                                                                                                                                                                                                                      
|       
|        | *10 | .6          |  | Form of Incentive Common Stock Option Agreement under the 1987
    Stock Option Plan, incorporated by reference to
    Exhibit 10.22 of the Companys Registration Statement
    on Form S-1 (No. 33-75180).                                                                                                                                                                                                                                                                   
|       
|        | *10 | .7          |  | Form of Nonqualified Common Stock Option Agreement under the
    1987 Stock Option Plan, incorporated by reference to
    Exhibit 10.23 of the Companys Registration Statement
    on Form S-1 (No. 33-75180).                                                                                                                                                                                                                                                                
|       
|        | *10 | .8          |  | Stock Incentive Plan of the Company, incorporated by reference
    to Exhibit 10.24 of the Companys Registration
    Statement on Form S-1 (No. 33-75180).                                                                                                                                                                                                                                                                                                                    
|       
|        | *10 | .9          |  | Form of Independent Contractor Agreement, incorporated by
    reference to Exhibit 10.9 of the Companys Annual
    Report on the Form 10-K for the fiscal year ended
    April 5, 2003.                                                                                                                                                                                                                                                                                       
|       
|        | *10 | .10         |  | Form of Confidentiality and Nondisclosure Agreement,
    incorporated by reference to Exhibit 10.10 of the
    Companys Annual Report on the Form 10-K for the
    fiscal year ended April 5, 2003.                                                                                                                                                                                                                                                                           
|       
|        | *10 | .11         |  | Form of Incentive Stock Option Agreement under the Stock
    Incentive Plan, incorporated by reference to Exhibit 10.30
    of the Companys Registration Statement on Form S-1
    (No. 33-75180).                                                                                                                                                                                                                                                                            
|       
|        | 10  | .12         |  | MTI Technology Corporation Directors Non-Qualified Stock
    Option Plan, incorporated by reference to Exhibit 10.32 of
    the Companys Registration Statement on Form S-1 (No.
    33-75180).                                                                                                                                                                                                                                                                              
|       
|        | 10  | .13         |  | Asset Purchase Agreement, dated February 9, 1995, between
    EMC Corporation and the Company, incorporated by reference to
    Exhibit 10.36 of the Companys Quarterly Report on
    Form 10-Q for the quarterly period ended December 30, 1995.
    (Portions of this exhibit are omitted and were filed separately
    with the Secretary of the SEC pursuant to the Companys
    application requesting confidential treatment under Rule 406 of
    the Securities Act.)
|       
|        | 10  | .14         |  | Loan and Security Agreement dated November 13, 2002,
    between Comerica Bank  California and the Company,
    incorporated by reference to Exhibit 10.70 of the
    Companys Quarterly Report on Form 10-Q for the quarterly
    period ended October 5, 2002.                                                                                                                                                                                                             

69



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##### Table of Contents



|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|       
|        | 10  | .15         |  | Amendment to the 1996 Stock Incentive Plan, incorporated by
    reference to Exhibit 10.29 of the Companys Quarterly
    Report on Form 10-Q for the quarterly period ended
    October 2, 1999.                                                                                                                                                                                                                                                                       
|       
|        | *10 | .16         |  | Severance Agreement dated as of July 15, 1998, between
    Thomas P. Raimondi, Jr. and the Company, incorporated by
    reference to Exhibit 10.30 of the Companys Annual
    Report on Form 10-K, as amended on August 2, 1999, for
    the fiscal year ended April 3, 1999.                                                                                                                                                                                          
|       
|        | *10 | .20         |  | Severance Agreement dated as of February 7, 2001, between
    Keith Clark and the Company, incorporated by reference to
    Exhibit 10.24 of the Companys Annual Report on Form
    10-K for the fiscal year ended April 7, 2001.                                                                                                                                                                                                                                      
|       
|        | *10 | .23         |  | MTI Technology Corporation 2001 Stock Incentive Plan,
    incorporated by reference to Exhibit 10.30 of the
    Companys Annual Report on Form 10-K for the fiscal year
    ended April 7, 2001.                                                                                                                                                                                                                                                                       
|       
|        | *10 | .24         |  | MTI Technology Corporation 2001 Non-Employee Director Option
    Program, incorporated by reference to Exhibit 10.31 of the
    Companys Annual Report on Form 10-K for the fiscal year
    ended April 7, 2001.                                                                                                                                                                                                                                                       
|       
|        | *10 | .25         |  | MTI Technology Corporation 2001 Employee Stock Purchase Plan,
    incorporated by reference to Exhibit 10.32 of the
    Companys Annual Report on Form 10-K for the fiscal year
    ended April 7, 2001.                                                                                                                                                                                                                                                               
|       
|        | 10  | .54         |  | Standard Sublease dated November 21, 2002, between
    Safeguard Business Systems and the Company, incorporated by
    reference to Exhibit 10.71 of the Companys Quarterly
    Report on Form 10-Q for the quarterly period ended
    January 4, 2003.                                                                                                                                                                                                                
|       
|        | 10  | .61         |  | Reseller Agreement effective as of March 31, 2003, between
    EMC Corporation and the Company, incorporated by reference to
    Exhibit 10.61 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 5, 2003.
    (Portions of this exhibit are omitted and were filed separately
    with the Secretary of the SEC pursuant to the Companys
    application requesting confidential treatment under Rule 406 of
    the Securities Act.)
|       
|        | 10  | .62         |  | Professional Services Provider Agreement dated October 22,
    2002, between Brocade communications Systems, Inc. and the
    Company, incorporated by reference to Exhibit 10.62 of the
    Companys Annual Report on the Form 10-K for the fiscal
    year ended April 5, 2003.                                                                                                                                                                                      
|       
|        | 10  | .63         |  | Qualified Support Partner Program Agreement dated
    October 22, 2002, between Brocade communications Systems,
    Inc. and the Company, incorporated by reference to
    Exhibit 10.63 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 5, 2003.                                                                                                                                                                                   
|       
|        | 10  | .65         |  | Reseller Agreement dated December 23, 2002, between Legato
    System, Inc. and the Company, incorporated by reference to
    Exhibit 10.65 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 5, 2003.                                                                                                                                                                                                                                
|       
|        | 10  | .66         |  | Technical Support Provider Agreement dated September 1,
    2002, between Legato System, Inc. and the Company, incorporated
    by reference to Exhibit 10.66 of the Companys Annual
    Report on the Form 10-K for the fiscal year ended April 5,
    2003.                                                                                                                                                                                                          
|       
|        | 10  | .67         |  | Consulting Services Agreement dated March 31, 2003, between
    Legato System, Inc. and the Company, incorporated by reference
    to Exhibit 10.67 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 5, 2003.                                                                                                                                                                                                                        
|       
|        | 10  | .68         |  | Amendment to the Asset Purchase Agreement dated April 1,
    2003, between EMC Corporation and the Company, incorporated by
    reference to Exhibit 10.68 of the Companys Annual
    Report on the Form 10-K for the fiscal year ended April 5,
    2003.                                                                                                                                                                                                             
|       
|        | 10  | .73         |  | First Amendment to Loan and Security Agreement dated
    June 30, 2003, between Comerica Bank and the Company,
    incorporated by reference to Exhibit 10.73 of the
    Companys Annual Report on the Form 10-K for the fiscal
    year ended April 5, 2003.                                                                                                                                                                                                          
|       
|        | 10  | .74         |  | Irrevocable Standby Letter of Credit dated October 24,
    2002, issued by Bank of America, N.A., incorporated by reference
    to Exhibit 10.74 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 5, 2003.                                                                                                                                                                                                                           
|       
|        | 10  | .87         |  | Amendment 1 to Reseller Agreement, dated February 1, 2004,
    between EMC Corporation and the Company, incorporated by
    reference to Exhibit 10.87 of the Companys Annual
    Report on the Form 10-K for the fiscal year ended
    April 3, 2004.                                                                                                                                                                                                                 

70



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .88         |  | Assignment Agreement, dated June 1, 2004, between EMC
    Corporation and the Company, incorporated by reference to
    Exhibit 10.88 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 3, 2004.                                
|       
|        | 10 | .89         |  | Virtual Partner Reseller Network Agreement, dated June 14,
    2004, between VMware, Inc. and the Company, incorporated by
    reference to Exhibit 10.89 of the Companys Annual
    Report on the Form 10-K for the fiscal year ended
    April 3, 2004.        
|       
|        | 10 | .90         |  | 2ndAmendment
    to Loan and Security Agreement, dated June 18, 2004 between
    Comerica Bank and the Company, incorporated by reference to
    Exhibit 10.90 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 3, 2004.       
|       
|        | 10 | .91         |  | Irrevocable Standby Letter of Credit dated June 18, 2004,
    issued by Bank of America, incorporated by reference to
    Exhibit 10.91 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 3, 2004.                              
|       
|        | 10 | .92         |  | Amendment #1 to Reseller Agreement, dated December 23,
    2003 between Legato Software and the Company, incorporated by
    reference to Exhibit 10.92 of the Companys Annual
    Report on the Form 10-K for the fiscal year ended
    April 3, 2004.          
|       
|        | 10 | .93         |  | US Value Added Reseller Agreement dated March 4, 2002,
    between Storage Technology Corporation and the Company,
    incorporated by reference to Exhibit 10.93 of the
    Companys Annual Report on the Form 10-K for the
    fiscal year ended April 3, 2004.
|       
|        | 10 | .94         |  | Amendment One to the US Value Added Reseller Agreement dated
    November 20, 2003, incorporated by reference to
    Exhibit 10.94 of the Companys Annual Report on the
    Form 10-K for the fiscal year ended April 3, 2004.                                   
|       
|        | 10 | .95         |  | 3rdAmendment to Loan and Security Agreement dated
    June 15, 2005, between Comerica Bank and the Company.                                                                                                                                                       
|       
|        | 10 | .96*        |  | Summary of Executive Compensation and Bonus Arrangements.                                                                                                                                                                                                         
|       
|        | 10 | .97*        |  | Summary of Director Compensation Arrangements.                                                                                                                                                                                                                    
|       
|        | 21 |             |  | Subsidiaries of the Company.                                                                                                                                                                                                                                      
|       
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting
    Firm  Grant Thorton LLP                                                                                                                                                                                  
|       
|        | 23 | .2          |  | Consent of Independent Registered Public Accounting
    Firm  KPMG LLP                                                                                                                                                                                           
|       
|        | 24 |             |  | Power of Attorney (included on the signature page hereto).                                                                                                                                                                                                        
|       
|        | 31 | .1          |  | Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a)/15d-14(a), as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|       
|        | 31 | .2          |  | Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a)/15d-14(a), as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|       
|        | 32 | .1          |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                        
|       
|        | 32 | .2          |  | Certification of Chief Financial Officer 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.

71