UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


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

                  FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1999


                         COMMISSION FILE NUMBER 1-12333



                               Iomega Corporation
             (Exact name of registrant as specified in its charter)

            Delaware                                 86-0385884
  (State or other jurisdiction            (IRS employer identification number)
of incorporation or organization)

                       1821 West Iomega Way, Roy, UT 84067
                    (Address of principal executive offices)

                                 (801) 332-1000
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes X   No

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 26, 1999.

Common Stock, par value $.03 1/3                            269,784,162
     (Title of each class)                              (Number of shares)
<PAGE>
                              IOMEGA CORPORATION
                              TABLE OF CONTENTS
                                                                            Page
                        PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements

        Condensed consolidated balance sheets at September 26, 1999
           and December 31, 1998..........................................    3

        Condensed consolidated statements of operations for the quarter
           ended September 26, 1999 and September 27, 1998................    5

        Condensed consolidated statements of operations for the nine months
           ended September 26, 1999 and September 27, 1998................    6

        Condensed consolidated statements of cash flows for the nine months
           ended September 26, 1999 and September 27, 1998................    7

        Notes to condensed consolidated financial statements..............    9

Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations.............................    22

Item 3. Quantitative and Qualitative Disclosures About Market Risk........    40


                         PART II - OTHER INFORMATION
Item 1  Legal Proceedings ................................................    41

Item 2  Changes in Securities and Use of Proceeds ........................    42

Item 6  Exhibits and Reports on Form 8-K .................................    42

Signatures................................................................    43

Exhibit Index.............................................................    44

This  Quarterly  Report  on Form  10-Q  contains  a  number  of  forward-looking
statements,  including,  without limitation,  statements referring to: achieving
profitability in the fourth quarter;  the expected  sufficiency of cash and cash
equivalent  balances and available sources of financing;  expected positive cash
flow for 1999; the impact on gross margins of the sales volumes of disks,  sales
mix between disks and drives,  the mix between OEM sales and sales through other
channels and the sales mix between the Company's products;  the impact of Clik!,
Zip 250,  ZipCD and other new products  introduced  or expected to be introduced
during 1998 or 1999;  resolution of the ASIC chip shortage affecting Zip drives;
the impact of new accounting  pronouncements;  the impact of the Euro conversion
on the  Company's  business  or  financial  condition;  the timing and impact of
restructuring activities and other organizational changes; expected cost savings
resulting from the Company's restructuring actions; expected sales levels due to
seasonal  demand;  anticipated  hedging  strategies;  the possible effects of an
adverse outcome in legal  proceedings  described in Item 1 of Part II; estimated
additional  expenditures  associated with the Company's  efforts to address Year
2000 issues;  and the anticipated Year 2000 compliance of the Company's computer

                                       1
<PAGE>


systems and hardware and utility  software  products and third-party  suppliers.
Any statements  contained  herein that are not statements of historical fact may
be deemed to be forward-looking statements.  Without limiting the foregoing, the
words  "believes,"  "anticipates,"  "plans,"  "expects,"  "intends"  and similar
expressions are intended to identify  forward-looking  statements,  although not
all  forward-looking  statements  contain  these  words.  There  are a number of
important factors that could cause actual events or the Company's actual results
to differ  materially from those indicated by such  forward-looking  statements.
These factors include,  without  limitation,  those set forth under the captions
"Liquidity and Capital Resources," "Factors Affecting Future Operating Results,"
"Disclosures  About  Market  Risk"  and "Year  2000  Readiness"  included  under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in Item 2 of Part I of this Quarterly Report on Form 10-Q, and those
set  forth  in Item 1 of Part II of this  Quarterly  Report  on Form  10-Q.  The
factors  discussed  below do not  reflect  the  potential  future  impact of any
mergers,  acquisitions  or  dispositions.   The  Company  does  not  assume  any
obligation to update any forward-looking statements made herein.

                                       2
<PAGE>



                              IOMEGA CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                    ASSETS

                                (In thousands)

                                            September 26,       December 31,
                                                     1999               1998
                                            -------------      -------------
                                              (Unaudited)

CURRENT ASSETS:
     Cash and cash equivalents              $     118,106      $      90,273
     Temporary investments                         14,695                  -
     Trade receivables, net                       187,975            233,662
     Inventories (Note 1)                         132,136            165,132
     Income taxes receivable                       21,992             24,974
     Deferred income taxes                              -             49,827
     Other current assets                          23,234             20,246
                                            -------------      -------------
        Total current assets                      498,138            584,114
                                            -------------      -------------

PROPERTY, PLANT AND EQUIPMENT, at cost            387,565            373,227
     Less:  Accumulated depreciation
        and amortization                         (228,494)          (165,112)
                                            -------------      -------------
     Net property, plant and equipment            159,071            208,115
                                            -------------      -------------

INTANGIBLES, NET                                   34,542             33,580

OTHER ASSETS                                        6,087              4,350
                                            -------------      -------------

                                            $     697,838      $     830,159
                                            =============      =============


           The accompanying notes to condensed consolidated financial
            statements are an integral part of these balance sheets.





                                       3
<PAGE>



                              IOMEGA CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                     LIABILITIES AND STOCKHOLDERS' EQUITY

                      (In thousands, except share data)

                                            September 26,       December 31,
                                                     1999               1998
                                            -------------      -------------
                                             (Unaudited)
CURRENT LIABILITIES:
   Related party notes payable              $           -      $      40,000
   Accounts payable                               162,351            160,977
   Other current liabilities (Note 1)             183,950            152,843
   Current portion of capitalized
     lease obligations and notes payable            4,463              4,408
                                            -------------      -------------
      Total current liabilities                   350,764            358,228
                                            -------------      -------------

CAPITALIZED LEASE OBLIGATIONS AND
   NOTES PAYABLE, net of current portion            3,735              4,607
                                            -------------      -------------

DEFERRED INCOME TAXES                                   -              4,903
                                            -------------      -------------

CONVERTIBLE SUBORDINATED NOTES,
   6.75%, due 2001                                 45,505             45,655
                                            -------------      -------------

STOCKHOLDERS' EQUITY:
   Preferred Stock, $0.01 par value;
     authorized 4,350,000 shares,
     none issued                                        -                  -
   Series C Junior Participating
     Preferred Stock, $0.01 par value;
     authorized 250,000 shares,
     none issued                                        -                  -
   Series A Junior Participating
     Preferred Stock, $0.01 par value;
     authorized 400,000 shares,
     none issued                                        -                  -
   Common Stock, $.03 1/3 par value;
     authorized 400,000,000 shares, issued
     270,593,704 and 268,186,096 shares at
     September 26, 1999 and
     December 31, 1998, respectively                9,019              8,937
   Additional paid-in capital                     292,022            286,206
   Less:  809,542 Common Stock
          treasury shares, at cost                 (6,088)            (6,088)
   Retained earnings                                2,881            127,711
                                            -------------      -------------
      Total stockholders' equity                  297,834            416,766
                                            -------------      -------------

                                            $     697,838      $     830,159
                                            =============      =============



           The accompanying notes to condensed consolidated financial
            statements are an integral part of these balance sheets.


                                       4
<PAGE>


                              IOMEGA CORPORATION
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In thousands, except per share data)


                                                  For the Quarter Ended
                                            --------------------------------
                                            September 26,      September 27,
                                                     1999               1998
                                            -------------      -------------
                                                       (Unaudited)

SALES                                       $     356,625      $     391,766

COST OF SALES                                     269,976            304,119
                                            -------------      -------------
   Gross margin                                    86,649             87,647
                                            -------------      -------------

OPERATING EXPENSES:
   Selling, general and administrative             71,773             72,587
   Research and development                        17,813             23,741
   Restructuring charge                            20,457                  -
   Purchased in-process technology                      -             11,100
                                            -------------      -------------
      Total operating expenses                    110,043            107,428
                                            -------------      -------------

OPERATING LOSS                                    (23,394)           (19,781)
   Interest and other expense, net                 (2,601)            (2,877)
                                            -------------      -------------

LOSS BEFORE INCOME TAXES                          (25,995)           (22,658)
   Benefit (provision) for income taxes           (52,351)             7,881
                                            -------------      -------------
NET LOSS                                    $     (78,346)     $     (14,777)
                                            =============      =============

NET LOSS PER COMMON SHARE
   (Basic and Diluted)                      $       (0.29)     $       (0.06)
                                            =============      =============

WEIGHTED AVERAGE COMMON
      SHARES OUTSTANDING
   (Basic and Diluted)                            269,715            266,920
                                            =============      =============






           The accompanying notes to condensed consolidated financial
              statements are an integral part of these statements.



                                       5
<PAGE>



                              IOMEGA CORPORATION
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In thousands, except per share data)


                                               For the Nine Months Ended
                                            --------------------------------
                                            September 26,      September 27,
                                                     1999               1998
                                            -------------      -------------
                                                       (Unaudited)

SALES                                       $   1,091,618      $   1,193,097

COST OF SALES                                     835,472            909,090
                                            -------------      -------------
   Gross margin                                   256,146            284,007
                                            -------------      -------------

OPERATING EXPENSES:
   Selling, general and administrative            224,542            304,928
   Research and development                        61,611             77,177
   Restructuring charges                           62,366                  -
   Purchased in-process technology                      -             11,100
                                            -------------      -------------
      Total operating expenses                    348,519            393,205
                                            -------------      -------------

OPERATING LOSS                                    (92,373)          (109,198)
   Interest and other expense, net                 (5,134)            (3,358)
                                            -------------      -------------
LOSS BEFORE INCOME TAXES                          (97,507)          (112,556)
   Benefit (provision) for income taxes           (27,323)            39,293
                                            -------------      -------------
NET LOSS                                    $    (124,830)     $     (73,263)
                                            =============      =============

NET LOSS PER COMMON SHARE
   (Basic and Diluted)                      $       (0.46)     $       (0.28)
                                            =============      =============

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING
   (Basic and Diluted)                            269,073            265,032
                                            =============      =============





           The accompanying notes to condensed consolidated financial
              statements are an integral part of these statements.




                                       6
<PAGE>




                              IOMEGA CORPORATION
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                               For the Nine Months Ended
                                            --------------------------------
                                            September 26,      September 27,
                                                     1999               1998
                                            -------------      -------------
                                                      (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Loss                                 $    (124,830)     $     (73,263)
   Non-Cash Revenue and Expense Adjustments:
      Depreciation and amortization                70,928             48,379
      Purchased in-process technology                   -             11,100
      Deferred income taxes                        38,213             (3,276)
      Tax benefit from dispositions of
        employee stock                              1,113              6,462
      Restructuring reserves                       30,795                  -
      Bad debt provision                            4,562             (2,057)
      Other                                         2,124              5,583
                                            -------------      -------------
                                                   22,905             (7,072)
   Changes in Assets and Liabilities:
      Trade receivables, net                       46,348             64,932
      Inventories                                  25,032             53,896
      Other current assets                          1,605             (6,677)
      Accounts payable                             (3,849)          (135,503)
      Other current liabilities                    31,107            (36,823)
      Income taxes                                  9,693            (69,976)
                                            -------------      -------------
         Net cash provided by (used in)
           operating activities                   132,841           (137,223)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property, plant
     and equipment                                (38,709)           (67,617)
   Purchase of Nomai S. A., net of
     cash acquired                                      -            (41,579)
   Acquisition of SyQuest assets                  (12,093)                 -
   Purchase of temporary investments              (14,695)                 -
   Sale of temporary investments                        -             36,319
   Net increase in other assets                    (3,329)            (3,410)
                                            -------------      -------------
      Net cash used in investing activities       (68,826)           (76,287)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of Common Stock               4,635              4,758
   Proceeds from issuance of notes
     payable and capital leases                     3,532            120,000
   Payments on notes payable and
     capitalized lease obligations                (44,349)           (25,148)
   Purchase of Common Stock                             -               (465)
                                            -------------      -------------
      Net cash provided by (used in)
        financing activities                      (36,182)            99,145
                                            -------------      -------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                             27,833           (114,365)
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF PERIOD                              90,273            159,922
                                            -------------      -------------
CASH AND CASH EQUIVALENTS AT
  END OF PERIOD                             $     118,106      $      45,557
                                            =============      =============


           The accompanying notes to condensed consolidated financial
              statements are an integral part of these statements.





                                       7
<PAGE>







                              IOMEGA CORPORATION
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)


                                                For the Nine Months Ended
                                            September 26,      September 27,
                                                     1999               1998
                                            -------------      -------------

SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:

Property, plant and equipment financed under
   capitalized lease obligations$                       -      $       1,223
                                            =============      =============



















           The accompanying notes to condensed consolidated financial
              statements are an integral part of these statements.





                                       8
<PAGE>


                                 IOMEGA CORPORATION

          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                 (UNAUDITED)




(1)   SIGNIFICANT ACCOUNTING POLICIES

     In the opinion of the Company's  management,  the  accompanying  unaudited,
     condensed,   consolidated  financial  statements  reflect  all  adjustments
     (consisting  only of normal recurring  adjustments)  which are necessary to
     present  fairly the  financial  position of the Company as of September 26,
     1999 and December 31, 1998,  the results of  operations  for the three- and
     nine-month periods ended September 26, 1999 and September 27, 1998 and cash
     flows for the nine-month periods ended September 26, 1999 and September 27,
     1998. The results of operations for the three- and nine-month periods ended
     September  26,  1999 are not  necessarily  indicative  of the results to be
     expected for the entire year or for any future period.

     These unaudited,  condensed,  consolidated  financial  statements should be
     read in conjunction  with the consolidated  financial  statements and notes
     included in or incorporated into the Company's latest Annual Report on Form
     10-K.

     PERVASIVENESS  OF ESTIMATES - The  preparation  of financial  statements in
     conformity  with  generally   accepted   accounting   principles   requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities and disclosures of contingent  assets and
     liabilities  at the  date of the  financial  statements  and  the  reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from these estimates.

     PRINCIPLES OF  CONSOLIDATION  - These  unaudited,  condensed,  consolidated
     financial  statements  include the accounts of Iomega  Corporation  and its
     majority-owned  subsidiaries after elimination of all material intercompany
     accounts and transactions.

     REVENUE  RECOGNITION - The Company's  customers include original  equipment
     manufacturers ("OEMs"), end users, retailers,  distributors and value-added
     manufacturers.  Some  retail  and  distribution  customer  agreements  have
     provisions  which  allow the  customer  to  return  product  under  certain
     conditions  within  specified  time  periods.  Revenue,  less  reserves for
     returns, is generally recognized upon shipment to the customer.

     In addition to reserves  for returns,  the Company  defers  recognition  of
     revenue  on  estimated  excess  inventory  in the  distribution  and retail
     channels.  For this  purpose,  excess  inventory is the amount of inventory
     which exceeds the channels' 30-day requirements as estimated by management.
     The gross  margin  associated  with  deferral  of revenue  for  returns and
     estimated excess channel  inventory totaled $22.1 million and $33.1 million
     at September 26, 1999 and December 31, 1998, respectively,  and is included
     in "Other current liabilities" in the accompanying  condensed  consolidated
     balance sheets.

     PRICE  PROTECTION  AND VOLUME  REBATES - The  Company has  agreements  with
     certain of its customers  which,  in the event of a price  decrease,  allow
     those  customers  (subject  to  certain  limitations)  credit  equal to the
     difference between the price originally paid and the reduced price on units
     in the  customers'  inventories at the date of the price  decrease.  When a
     price decrease is anticipated,  the Company  establishes  reserves  against
     gross  accounts  receivable  for amounts  estimated to be reimbursed to the
     qualifying customers.

                                       9
<PAGE>


     In  addition,  the Company  records  reserves  at the time of shipment  for
     estimated  volume  rebates.  These  reserves  for volume  rebates and price
     protection credits totaled $34.0 million and $42.4 million at September 26,
     1999 and December 31, 1998,  respectively,  and are netted against accounts
     receivable in the accompanying condensed consolidated balance sheets.

     FOREIGN  CURRENCY  TRANSLATION  - For  purposes of  consolidating  non-U.S.
     operations,  the Company has  determined  the  functional  currency for its
     non-U.S. operations to be the U.S. dollar. Therefore, translation gains and
     losses are included in the determination of income.

     CASH EQUIVALENTS AND TEMPORARY INVESTMENTS - For purposes of the statements
     of cash flows,  the Company  considers all highly  liquid debt  instruments
     purchased with maturities of three or fewer months to be cash  equivalents.
     Cash  equivalents  primarily  consist of investments in money market mutual
     funds,  commercial  paper,  auction  rate,  money  market  preferred  stock
     investments and taxable and  non-taxable  municipal bonds and notes and are
     recorded at cost, which approximates market.

     Instruments  with  maturities  in excess of three months are  classified as
     temporary  investments.  The Company has classified its entire portfolio of
     temporary  investments  at  September  26,  1999 as  held-to-maturity.  The
     temporary investments consisted primarily of commercial paper. At September
     26, 1999, all temporary investments had maturities of less than six months.
     There were no temporary investments at December 31, 1998.

     INVENTORIES  -  Inventories  include  direct  materials,  direct  labor and
     manufacturing  overhead  costs  and  are  recorded  at the  lower  of  cost
     (first-in,   first-out)   or  market  and  consist  of  the  following  (in
     thousands):
<TABLE>

                                            September 26,       December 31,
                                                     1999               1998
                                            -------------      -------------
          <S>                               <C>                <C>
          Raw materials                     $      31,985      $      62,613
          Work-in-process                          13,975              8,482
          Finished goods                           86,176             94,037
                                            -------------      -------------

                                            $     132,136      $     165,132
                                            =============      =============

</TABLE>




                                       10
<PAGE>



      OTHER CURRENT LIABILITIES - Other current liabilities consist of the
      following (in thousands):
<TABLE>

                                            September 26,       December 31,

                                                     1999               1998
                                            -------------      -------------
          <S>                               <C>                <C>
          Accrued payroll, vacation
            and bonus                              18,803             21,048
          Deferred revenue                         22,083             33,114
          Accrued advertising                      40,889             30,226
          Accrued restructuring                    23,840                  -
          Other accrued liabilities                78,335             68,455
                                            -------------      -------------
                                            $     183,950      $     152,843
                                            =============      =============
</TABLE>

     RECLASSIFICATIONS - Certain  reclassifications  were made to both the prior
     periods' unaudited, condensed,  consolidated financial statements and notes
     to condensed, consolidated financial statements to conform with the current
     period presentation.

     NET INCOME  (LOSS) PER  COMMON  SHARE - Basic net income  (loss) per common
     share  ("Basic  EPS")  excludes  dilution  and is computed by dividing  net
     income (loss) by the weighted  average number of common shares  outstanding
     during the period.  Diluted  net income per common  share  ("Diluted  EPS")
     reflects the potential  dilution that could occur if stock options or other
     contracts  to issue common  stock were  exercised or converted  into common
     stock.  The  computation  of  Diluted  EPS  does  not  assume  exercise  or
     conversion  of  securities  that would have an  antidilutive  effect on net
     income per common share. In periods where losses are recorded, common stock
     equivalents  would  decrease the loss per share and therefore are not added
     to the weighted average shares  outstanding.  For the three- and nine-month
     periods ended September 26, 1999 and September 27, 1998,  basic and diluted
     net loss per common share were the same due to the  antidilutive  effect of
     recording net losses during the respective periods.

     RECENT ACCOUNTING  PRONOUNCEMENTS - In June 1998, the Financial  Accounting
     Standards Board ("FASB") issued Statement of Financial Accounting Standards
     No. 133,  "Accounting for Derivative  Instruments  and Hedging  Activities"
     ("SFAS 133").  SFAS 133 establishes new accounting and reporting  standards
     for companies to report information about derivative instruments, including
     certain derivative  instruments  embedded in other contracts  (collectively
     referred to as "derivatives") and for hedging activities. In June 1999, the
     FASB  issued   Statement  of  Financial   Accounting   Standards  No.  137,
     "Accounting for Derivative Instruments and Hedging Activities - Deferral of
     the Effective Date of FASB  Statement No. 133." This statement  amended the
     effective  date of SFAS 133.  SFAS 133 will now be effective  for financial
     statements  issued for all fiscal  quarters of fiscal years beginning after
     June 15,  2000.  The  Company  does not expect  SFAS 133 to have a material
     impact on the  Company's  results  of  operations,  financial  position  or
     liquidity.




                                       11
<PAGE>





(2)   ACQUISITIONS

     NOMAI S.A.  - During  the third  quarter  of 1998,  the  Company  purchased
     approximately  54% of  the  capital  stock  of  Nomai,  S.A.  ("Nomai"),  a
     France-based  manufacturer  of  removable  storage  systems,  from  Nomai's
     principal  and other major  shareholders.  As  required by French law,  the
     Company   subsequently   offered  all  other   shareholders  of  Nomai  the
     opportunity to sell their shares to the Company pursuant to a public tender
     offer. The tender offer was undertaken at the same price per share that was
     paid to the principal and other major  shareholders.  The initial  purchase
     and the tender offer  resulted in the Company owning  substantially  all of
     Nomai's  outstanding  shares.  The Company  completed  the  purchase of all
     remaining  shares  during the third  quarter  of 1999,  thus  resulting  in
     ownership of all of Nomai's outstanding shares. The total purchase price of
     the acquisition  was  approximately  $45 million ($42 million,  net of cash
     acquired).

     The  transaction  was accounted  for as a purchase and, on this basis,  the
     excess  purchase price over the estimated fair value of net tangible assets
     has been allocated,  based upon an independent  third-party  valuation,  to
     intangibles   and   purchased   in-process   technology.   Intangibles   of
     approximately  $36 million arising from the acquisition are being amortized
     on a straight-line  basis over seven years. The Company recorded a non-cash
     pre-tax charge of $11.1 million related to purchased in-process technology,
     representing  the appraised  value of technology  still in the  development
     stage that was not considered to have reached technological feasibility and
     had  no  alternative  future  use.  At  the  acquisition  date,   purchased
     in-process   technology  projects  and  their  respective  assigned  values
     consisted of the following:  a 2GB design drive and cartridge project ($9.3
     million), a DVD and CD-RW interface technology project ($1.3 million) and a
     servo writer technology  project ($0.5 million).  During the second quarter
     of 1999,  the Company  recorded a  restructuring  charge that  included the
     discontinuance of a drive development  project that included the 2GB design
     drive and  cartridge  development  project that was acquired as a purchased
     in-process  technology  project in the  acquisition  of Nomai  during 1998.
     During the third  quarter of 1999,  the  Company  recorded a  restructuring
     charge that included both costs to cease  operations of the Company's Nomai
     manufacturing  facility and the write-off of impaired  intangibles directly
     assigned to this facility.

     The following  unaudited  pro forma  combined  financial  data for the nine
     months ended  September  27, 1998 presents the results of operations of the
     Company as if the Nomai  acquisition had been effective at the beginning of
     the period presented (in millions, except per share data):

                                September 27, 1998
                                ------------------
                                     (Unaudited)

                Revenue                 $    1,209
                Net loss                       (80)
                Diluted EPS             $    (0.30)


                                       12
<PAGE>

     These pro forma  results of operations  have been prepared for  comparative
     purposes  only  and do not  purport  to be  indicative  of the  results  of
     operations  which  actually  would have resulted had the Nomai  acquisition
     occurred on the date indicated, or which may result in the future.

     SYQUEST - In April 1999,  the  Company  completed  the  purchase of certain
     assets  of  SyQuest  Technology,  Inc.  and its  subsidiaries  ("SyQuest"),
     including  intellectual  property,  inventory and fixed assets in the U.S.,
     Europe and Malaysia.  The total purchase price of the asset purchase in the
     U.S. and Europe was $9.2 million and the  purchase  price of the  Malaysian
     assets was $2.9 million. Intellectual property of $7.5 million arising from
     the purchase is being amortized on a straight-line  basis over three years.
     No material  obligations  or  liabilities  of SyQuest  were  assumed by the
     Company. As part of the purchase,  the Company released SyQuest and SyQuest
     released  the  Company  from all  claims  in  connection  with  patent  and
     trademark  infringement  litigation pending between the parties in Delaware
     and in Paris, France.

(3)   INCOME TAXES

     For the three  and nine  months  ended  September  26,  1999,  the  Company
     recorded an income tax provision of $52.4 and $27.3 million,  respectively.
     The  provisions  differ from the benefits  computed by applying the Federal
     statutory rate of 35% to the pre-tax losses incurred for the three and nine
     months ended September 26, 1999 by $61.4 million,  for each of the periods,
     primarily due to an increase in the deferred tax asset valuation  allowance
     and  permanent  items which are not  deductible  for Federal  income taxes,
     which were partially  offset by earnings  permanently  invested in non-U.S.
     operations and state income taxes.

     U.S.  taxes have not been  provided  for  unremitted  foreign  earnings  of
     approximately $112 million, which are considered to be permanently invested
     in non-U.S.  operations.  The residual U.S. tax liability,  if such amounts
     were remitted,  would be approximately $44 million.  There is a possibility
     that future foreign income generated by the Company may result in a current
     tax provision even though the Company is incurring losses on a consolidated
     basis.

     As of September  26,  1999,  the Company had  approximately  $18 million of
     deferred tax assets related to foreign net operating loss carryovers, which
     reflected  the  benefit  of   approximately   $43  million  in  future  tax
     deductions,  for which the Company had  established a valuation  allowance.
     These carryovers expire at various dates beginning in 2004.

     Additionally,  as of September 26, 1999, the Company had  approximately $72
     million of domestic  deferred tax assets net of deferred  tax  liabilities,
     which  reflected  the  benefit  of  approximately  $185  million  in future
     domestic tax  deductions.  In light of the net operating  loss in the third
     quarter of 1999 and the cumulative net operating  losses for 1999 and 1998,
     in the third quarter of 1999,  the Company fully  reserved its net deferred
     tax assets  which  previously  existed at the end of the second  quarter of
     1999 and those deferred tax assets  recognized  during the third quarter of
     1999.  These net deferred tax assets relate to temporary  differences,  tax
     credit carry forwards and net operating loss carry forwards. This valuation
     allowance was recorded in accordance  with SFAS 109,  which requires that a
     valuation allowance be established when there is significant uncertainty as
     to the realizability of the deferred tax assets.

                                       13
<PAGE>

     During the third  quarter of 1999,  the Company  increased its deferred tax
     asset  valuation  allowance  by  approximately  $76  million.  The  Company
     evaluates  the  realizability  of its  deferred  tax assets on a  quarterly
     basis.  If the  deferred  tax assets are  realized in the  future,  or if a
     portion  or  all of the  valuation  allowance  is no  longer  deemed  to be
     necessary,   the  related  tax  benefits  will  reduce  future  income  tax
     provisions.

     Cash paid for income  taxes was $4.8  million  for the first nine months of
     1999 and $28.3 million for the  corresponding  period in 1998.  The Company
     received an income tax refund of $20.4 million during the second quarter of
     1999.

 (4)  DEBT

     NOTES PAYABLE - On March 11, 1997, the Company  entered into a $200 million
     Senior  Secured Credit  Facility with Morgan  Guaranty Trust Company of New
     York,  Citibank,  N.A.  and a syndicate of other  lenders.  During 1998 and
     1999,  the  Company  and the lenders  agreed to several  amendments  to and
     waivers under the Senior Secured Credit Facility,  the most recent of which
     was entered into on October 14, 1999, (the "Credit Facility").  As a result
     of the most  recent  amendment,  the  Credit  Facility  was  reduced to $75
     million and certain  financial  covenants  were amended to be effective for
     the period ended  September 26, 1999. The Credit  Facility  expires on July
     14,  2000  and is  secured  by  accounts  receivable,  domestic  inventory,
     domestic intellectual property,  general intangibles,  equipment,  personal
     property,  investment  property and a pledge of 65% of the stock of certain
     of the Company's  subsidiaries.  Under the Credit Facility, the Company may
     borrow  at a base  rate,  which  is the  higher  of prime or the sum of the
     Federal  funds  rate plus  2.75%,  or at LIBOR  plus  3.25%.  There were no
     borrowings  outstanding  on the Credit  Facility  at  September  26,  1999.
     Borrowing availability under the Credit Facility is based on an agreed upon
     advance rate on receivables and inventory not to exceed $75 million.  Total
     availability under the Credit Facility at October 14, 1999 was $75 million.
     Among other  restrictions,  the Credit  Facility treats a change of control
     (as defined) as an event of default and requires the maintenance of minimum
     levels of  consolidated  tangible  net  worth,  EBITDA  and  certain  other
     covenants.  Depending on its financial performance in future quarters,  the
     Company may be required to seek  further  covenant  waivers and  amendments
     under the Credit Facility.  There can be no assurance that the Company will
     be able to obtain any such waivers or amendments on terms acceptable to the
     Company,  if at all. Loss of the Credit Facility may require the Company to
     find an alternative source of funding,  which could have a material adverse
     effect on the Company's business and financial results.

     CAPITAL LEASES - The Company has entered into various  agreements to obtain
     capital  lease   financing  for  the  purchase  of  certain   manufacturing
     equipment,  software, office furniture and other equipment. The leases have
     terms  ranging  from 36 to 60 months  and  mature  at  various  dates  from
     December  1999 to April 2002.  Principal  and interest  payments  under the
     various  agreements  are payable  monthly or quarterly.  Interest rates are
     fixed  and  range  from  7.1% to  10.2%.  The  leases  are  secured  by the
     underlying leased equipment, software and furniture.

                                       14
<PAGE>

     Cash paid for interest was $9.6 million and $6.5 million, respectively, for
     the first  nine  months of 1999 and 1998,  including  interest  on  capital
     leases.  Included in interest expense for the first nine months of 1999 and
     1998,  respectively,  was $1.2 million and $0.7 million of  amortization of
     deferred charges associated with obtaining the debt.

(5)   BUSINESS SEGMENT INFORMATION

     The accounting  policies of the segments are the same as those described in
     Note 1 "Significant Accounting Policies." Intersegment sales, eliminated in
     consolidation, are not material. The Company evaluates performance based on
     product profit margin for each segment. Product profit margin is defined as
     sales and other income  directly  related to a segment's  operations,  less
     both fixed and  variable  manufacturing  costs,  research  and  development
     expenses and selling,  general and administrative expenses directly related
     to a segment's  operations.  When such costs and expenses  exceed sales and
     other income,  product  profit  margin is referred to as product loss.  The
     expenses  attributable  to  corporate  activity  are not  allocated  to the
     operating  segments.   The  Company  has  five  reportable  segments  based
     primarily on the nature of the Company's customers and products:  Zip, Jaz,
     Clik!,  ZipCD  and  Ditto.  The Zip  segment  includes  Zip disk and  drive
     systems.  The Jaz segment  includes Jaz disk and drive  systems and the Buz
     multimedia  producer.  The  Company's  restructuring  charge in the  second
     quarter of 1999 included reserves for assets related to the  discontinuance
     of certain Jaz segment  products and projects  including the Buz multimedia
     producer and a drive development  project. The Clik! segment includes Clik!
     Mobile,  Clik! PC Card and OEM drives and Clik! disks. Clik! products began
     shipping  in limited  quantities  during the  fourth  quarter of 1998.  The
     Company's  restructuring  charge  in the  third  quarter  of 1999  included
     charges  relating to refocusing the Clik!  product  platform from the Clik!
     Mobile  Drive to the  newer  Clik!  PC Card  and OEM  drives  and  included
     reserves for fixed assets and inventory  related to the Clik! Mobile Drive.
     The Company's  ZipCD segment  includes ZipCD disc and drive systems,  which
     began  shipping in limited  quantities  in August 1999.  The Ditto  segment
     includes the Ditto  family of tape backup  drives and tape  cartridges.  In
     March 1999, the Company agreed to sell certain assets  associated  with its
     Ditto segment,  including  intellectual property,  exclusive  manufacturing
     rights, certain software and intellectual property rights, equipment, brand
     names and product logos.  The Company  continued to sell its Ditto finished
     goods  inventory  through  June  1999,  after  which the buyer of the Ditto
     assets agreed to purchase the Company's remaining finished goods inventory.
     The Company plans to continue to sell Ditto cartridges for a period of time
     ending on or before July 1, 2001. The "Other"  category  includes  products
     such as  Bernoulli,  floppy  disks  and  other  Nomai  products  and  other
     miscellaneous  items.  The  information  in the following  table is derived
     directly  from  the  segments'  internal  financial  information  used  for
     corporate management purposes.





                                       15
<PAGE>




      Reportable Operating Segment Information (in millions)
<TABLE>

                                      For the Three Months Ended           For the Nine Months Ended
                                    -------------------------------     -------------------------------
                                    September 26,     September 27,     September 26,     September 27,
                                             1999              1998              1999              1998
                                    -------------     -------------     -------------     -------------
<S>                            <C>               <C>               <C>               <C>

Sales:
   Zip                              $         274     $         279     $         850     $         830
   Jaz                                         66                94               195               291
   Clik!                                        6                 -                12                 -
   ZipCD                                        9                 -                 9                 -
   Ditto                                        2                14                18                65
   Other                                        -                 5                 8                 7
                                    -------------     -------------     -------------     -------------

Total sales                         $         357     $         392     $       1,092     $       1,193
                                    =============     =============     =============     =============
</TABLE>




                                       16
<PAGE>



<TABLE>

                                      For the Three Months Ended          For the Nine Months Ended
                                    -------------------------------     -------------------------------
                                    September 26,     September 27,     September 26,     September 27,
                                             1999              1998              1999              1998
                                    -------------     -------------     -------------     -------------
                                              (In millions)                      (In millions)
Product profit margin
  (product loss) before
  restructuring charge(s):
<S>                                 <C>               <C>               <C>               <C>
   Zip                              $          48     $          29     $         132     $          96
   Jaz                                         11                 6                 3               (18)
   Clik!                                      (20)               (8)              (49)              (27)
   ZipCD                                       (3)                -                (5)                -
   Ditto                                       (7)               (3)              (11)              (10)
   Other                                       (5)               (2)              (16)               (4)
                                    -------------     -------------     -------------     -------------

Total product profit
  margin                                       24                22                54                37
                                    -------------     -------------     -------------     -------------

Product profit margin
 (product loss) including
 restructuring charge(s):
   Zip                              $          48     $          29     $         132     $          96
   Jaz                                         11                 6               (24)              (18)
   Clik!                                      (31)               (8)              (61)              (27)
   ZipCD                                       (3)                -                (6)                -
   Ditto                                       (7)               (3)              (17)              (10)
   Other                                      (14)               (2)              (28)               (4)
                                    -------------     -------------     -------------     -------------
Total product profit
  margin                                        4                22                (4)               37
                                    -------------     -------------     -------------     -------------


   Corporate restructuring
     charge                                     -                 -                (4)                -
   General corporate
     expenses                                 (27)              (42)              (85)             (146)
   Interest income                              1                 1                 4                 3
   Interest expense                            (1)               (4)               (6)               (7)
   Other expense                               (3)                -                (3)                -
                                    -------------     -------------     -------------     -------------

Loss before income taxes            $         (26)    $         (23)    $         (98)    $        (113)
                                    =============     =============     =============     =============
</TABLE>


(6)   RESTRUCTURING COSTS

     During the three and nine months  ended  September  26,  1999,  the Company
     recorded  pre-tax   restructuring  charges  of  $20.5  and  $62.4  million,
     respectively,  as a result of steps the Company is taking to organize along
     functional   lines,   consolidate   manufacturing   and  other  facilities,
     discontinue  certain products and refocus the Clik! product platform on the
     newer Clik! PC Card and OEM drives.

                                       17
<PAGE>

     During the quarter ended September 26, 1999, the Company recorded a pre-tax
     restructuring charge of $20.5 million as a result of restructuring  actions
     initiated to consolidate  worldwide disk  manufacturing,  refocus the Clik!
     product  platform on the newer Clik! PC Card and OEM drives and consolidate
     leasehold  facilities.  The total restructuring  charges in connection with
     these  actions are expected to be  approximately  $28 million.  However,  a
     portion of these  charges  will not be  recorded  until the fourth  quarter
     because  employee  notifications  had not taken place by September 26, 1999
     and certain specific plans associated with leasehold consolidations had not
     been  finalized  as required by Emerging  Issues Task Force Issue No. 94-3,
     "Liability  Recognition for Certain Employee Termination Benefits and Other
     Costs to Exit an Activity." This restructuring  charge included reserves of
     $6.3 million relating to certain assets and exit costs such as cancellation
     fees associated with the cessation of manufacturing  in Avranches,  France;
     $11.5 million of inventory  and fixed asset  reserves  associated  with the
     older Clik!  products;  and $2.7 million for write-offs of intangibles  and
     other miscellaneous  charges.  This restructuring  charge consisted of cash
     and  non-cash   charges  of  approximately  $6  million  and  $15  million,
     respectively.

     In connection with the Company's third quarter  restructuring  actions, the
     Company  expects a workforce  reduction  of  approximately  140 regular and
     temporary  employees,  consisting  primarily  of  operations  employees  in
     Avranches, France and product development employees in Longmont,  Colorado.
     None of these  employees  had been  notified or terminated at September 26,
     1999. The Company  anticipates that the implementation of the restructuring
     charge will be  substantially  complete by the end of March 2000,  with the
     remainder  being  completed in the second and third  quarters of 2000.  The
     restructuring   charge  was   included  in  the   accompanying   condensed,
     consolidated  statements  of  operations  under the caption  "Restructuring
     charge(s)" for the three- and nine-month  periods ended September 26, 1999.
     There were not any indications of permanent  impairment of the assets prior
     to the restructuring actions.




                                       18
<PAGE>




     Restructuring   reserves  are  included  in  the  Company's  other  current
     liabilities,  inventory and  property,  plant and equipment as of September
     26, 1999.  Changes in the third quarter  restructuring  reserves during the
     quarter ended September 26, 1999 are summarized below (in thousands):
<TABLE>

                                    Third Quarter 1999                           Balance
                                   Restructuring Charge         Utilized      September 26, 1999
                                   --------------------      -----------      ------------------
<S>                                <C>                       <C>              <C>

Third Quarter 1999
Restructuring Actions:

Clik! streamlining (a)                     $     11,492      $         -             $    11,492

Manufacturing cessation (b)                       6,300                -                   6,300

Severance and benefits (b)(c)                         -                -                       -

Other fixed asset charges (a)(c)                      -                -                       -

Lease terminations (b)(c)                             -                -                       -

Other exit costs (a)                              2,665            2,665                       -
                                           ------------     ------------             -----------

                                           $     20,457            2,665             $    17,792
                                           ============     ============             ===========

</TABLE>


(a) Amounts represent primarily non-cash charges.
(b) Amounts represent primarily cash charges.
(c) Charges for these actions will be recorded in the fourth quarter of 1999 as
    required by EITF Issue No. 94-3.

     During the quarter  ended June 27,  1999,  the  Company  recorded a pre-tax
     restructuring  charge of $41.9 million as a result of steps the Company was
     taking to organize along functional lines.  These actions included the exit
     of facilities, headcount reductions, the discontinuance of certain products
     and  development  projects  and  consolidation  of the  Company's  magnetic
     technology  expertise  at its  headquarters  in Roy,  Utah.  These  actions
     included closing the Company's  facilities in Milpitas,  California and San
     Diego, California.  The restructuring charge was comprised of $20.2 million
     for fixed assets and  inventory  related to the  discontinuance  of certain
     products and  development  projects;  $9.7 million for work force reduction
     costs;  $4.3  million  for excess  leasehold  improvements,  furniture  and
     fixtures formerly  utilized in the Milpitas and San Diego facilities;  $3.0
     million for lease termination costs for facilities  located in Milpitas and
     San Diego;  and $4.7  million  for work  force  reduction  costs,  contract
     cancellation  costs and  other  exit  costs to  consolidate  the  Company's
     operations in France and Scotland.  This restructuring  charge consisted of
     cash and  non-cash  charges of  approximately  $18 million and $24 million,
     respectively.  The  restructuring  charge was included in the  accompanying
     condensed,   consolidated   statements  of  operations  under  the  caption
     "Restructuring charges" for the nine-month period ended September 26, 1999.
     There were not any indications of permanent  impairment of the assets prior
     to the restructuring actions.

                                       19
<PAGE>

     In connection with the Company's second quarter restructuring  actions, the
     Company has  terminated  466 regular and  temporary  employees,  consisting
     primarily  of  operations  and  product  development  employees  located in
     Milpitas, San Diego and Roy. The Company expects that the implementation of
     the second quarter restructuring plan will be substantially complete by the
     end of December 1999, with the remainder of the plan to be completed by the
     end of June 2000.

      Restructuring reserves are included in the Company's other current
      liabilities, inventory and property, plant and equipment as of September
      26, 1999. Changes in the second quarter restructuring reserves during the
      quarter ended September 26, 1999 are summarized below (in thousands):
<TABLE>

                                          Balance                                           Balance
                                       June 27, 1999      Additions    Utilized     September 26, 1999
                                       -------------      ---------    ---------    ------------------
Second Quarter 1999
Restructuring Actions:

<S>                                     <C>               <C>          <C>          <C>
Discontinued products/projects (a)      $ 20,210          $       -    $   7,906         $      12,304

Severance and benefits (b)                 9,700                  -        4,637                 5,063

Other fixed asset charges (a)              4,300                  -           46                 4,254

Lease terminations (b)                     3,000                  -          311                 2,689

Other exit costs (b)                       4,699                  -        2,222                 2,477
                                      ----------          ---------    ---------         -------------

                                      $   41,909          $       -    $  15,122         $      26,787
                                      ==========          =========    =========         =============
</TABLE>


(a)  Amounts represent primarily non-cash charges.
(b)  Amounts represent primarily cash charges.


(7)   OTHER MATTERS

     SIGNIFICANT  CUSTOMERS - During the three and nine months  ended  September
     26, 1999, sales to Ingram Micro, Inc. accounted for approximately 17.0% and
     14.0%,  respectively,  of consolidated  sales.  During the three months and
     nine months ended September 27, 1998, sales to Ingram Micro, Inc. accounted
     for 19.0% and 14.8%,  respectively,  of consolidated sales. No other single
     customer  accounted  for more  than 10% of the  Company's  sales  for these
     periods.

                                       20
<PAGE>

     FORWARD  EXCHANGE  CONTRACTS  - The  Company  has  commitments  to sell and
     purchase foreign currencies relating to forward exchange contracts in order
     to hedge against future currency fluctuations.

     At September  26,  1999,  outstanding  forward  exchange  sales  (purchase)
     contracts, which all mature in December 1999, were as follows:
<TABLE>

                                                        Contracted       Spot
            Currency                          Amount   Forward Rate      Rate
            ------------------          ------------   ------------   -------
            <S>                         <C>                 <C>       <C>
            Australian Dollar              (290,000)           0.65      0.65
            British Pound                   100,000            0.61      0.61
            European Euro                10,420,000            0.94      0.95
            Japanese Yen                590,000,000          102.57    104.02
            Singapore Dollar             (1,120,000)           1.70      1.71
            Swiss Franc                    (500,000)           1.51      1.52

</TABLE>

     The contracts are revalued at the month-end spot rate.  Gains and losses on
     foreign  currency   contracts  intended  to  be  used  to  hedge  operating
     requirements are reported currently in income.  Gains and losses on foreign
     currency  contracts  intended to meet firm commitments are deferred and are
     recognized as part of the cost of the underlying  transaction being hedged.
     At September 26, 1999, all of the Company's foreign currency contracts were
     being used to hedge operating requirements.  The Company's theoretical risk
     in these  transactions  is the cost of replacing,  at current market rates,
     these contracts in the event of default by the counterparty.



                                       21
<PAGE>




                              IOMEGA CORPORATION

                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

The Company reported sales of $356.6 million and a net loss of $78.3 million, or
$(0.29) per diluted share, for the third quarter of 1999, which included a $20.5
million  restructuring charge, $51.3 million related to a deferred tax valuation
allowance  and  $12.7  million  of  other  charges  that  were  not  part of the
restructuring  charge,  reflecting current estimates of the net realizable value
of  inventory,  equipment  and other  assets.  This  compares to sales of $391.8
million and a net loss of $14.8 million,  or $(0.06) per diluted  share,  in the
third  quarter of 1998.  In the third  quarter of 1998,  the  Company's net loss
included  a  pre-tax,  non-cash  special  charge of $11.1  million,  related  to
purchased in-process technology, as part of its acquisition of Nomai S.A. In the
third quarter of 1999, the Company  recorded a pre-tax  restructuring  charge of
$20.5 million,  consisting of costs to consolidate worldwide disk manufacturing,
refocus the Clik! product platform on the newer Clik! PC Card and OEM drives and
consolidate leasehold facilities.

For the first nine months of 1999,  sales were $1.1  billion  with a net loss of
$124.8  million,  or $(0.46) per diluted share,  which included $62.4 million of
restructuring  charges  taken in the second and third  quarters  of 1999,  $51.3
million related to a deferred tax valuation allowance and $19.7 million of other
charges  in the  second  and  third  quarters  of 1999 that were not part of the
restructuring  charge.  This compared to sales of $1.2 billion and a net loss of
$73.3 million,  or $(0.28) per diluted share, for the first nine months of 1998.
The net loss for the nine months ended  September  27, 1998  included a pre-tax,
non-cash  special  charge of $11.1  million,  related  to  purchased  in-process
technology, as part of its acquisition of Nomai S.A.

The Company is optimistic about achieving profitability in the fourth quarter of
1999; however, financial results in the fourth quarter will be heavily dependent
on the success of recently introduced  products,  recurrence of typically strong
fourth  quarter  sales  and  on  the  Company's  ability  to  resolve  component
constraints.

SALES

Sales for the quarter ended  September 26, 1999 decreased by $35.1  million,  or
9.0%, when compared to the corresponding  period of 1998,  primarily as a result
of discontinued Ditto drive sales,  reduced Jaz sales volumes and an increase in
the  percentage of Zip drives  shipped to the OEM channel,  which  generally has
lower average selling prices than sales through other  channels,  offset in part
by sales of recently  introduced Clik! and ZipCD products.  Total drive sales of
$202.5 million decreased by 6.8% as compared to the third quarter of 1998. Total
unit drive  shipments  for the quarter ended  September  26, 1999,  increased by
19.1% as  compared  to the third  quarter  of 1998.  Total  disk sales of $145.5
million  decreased by 10.6% as compared to the third quarter of 1998. Total unit
disk  shipments  for the quarter ended  September 26, 1999  decreased by 7.3% as
compared to the third quarter of 1998.

Sales of Zip  products  in the third  quarter of 1999  totaled  $274.1  million,
representing  a decrease  of 1.8% from the third  quarter of 1998.  Sales of Zip
products represented 76.9% of total sales for the third quarter of 1999 compared
to  71.3%  in the  corresponding  period  of 1998.  Zip  unit  drive  shipments,
including  shipments by licensees,  increased by 22.9% from the third quarter of
1998,  while the Company's Zip unit disk  shipments  decreased by 5.8%. Zip unit
drive shipments  increased as a result of increased demand for Zip 250 drives in
both the OEM and aftermarket  channels and an increase in licensee  shipments of
Zip 100  drives,  offset in part by a  decrease  in Zip 100  drives  shipped  to
aftermarket channels. Sales of Zip OEM drives accounted for approximately 63% of


                                       22
<PAGE>


total Zip drive  shipments in the third quarter of 1999,  compared to 53% in the
third  quarter of 1998.  Sales of Zip drives were  adversely  impacted by supply
constraints  during the third  quarter  of 1999  relating  to a  shortage  of an
Application  Specific  Integrated  Circuit  ("ASIC") chip,  which is a component
included  in  certain  models  of the  Company's  Zip  drives.  The ASIC chip is
supplied by a sole source supplier.  The Company is working with the supplier to
establish  additional  capacity  to help in the  short-term  and is  working  on
establishing  another  supplier for the long-term.  The Company expects the chip
shortage  to be  resolved  in the  fourth  quarter  of 1999.  The  impact of the
component  constraints  on  the  fourth  quarter  of  1999  will  depend  on the
supplier's success in establishing  additional  capacity combined with the level
of demand for the affected  Zip drives  during the fourth  quarter of 1999.  The
decrease in Zip disk  shipments  was due primarily to a decrease in shipments of
Zip 100 disks to private label and OEM customers that was partially offset by an
increase in Zip 250 disk shipments.

Jaz product sales in the third quarter of 1999 were $66.5 million,  representing
a  decrease  of  29.9%  from  the  third  quarter  of 1998.  Jaz  product  sales
represented  18.6% of total sales in the third quarter of 1999 compared to 24.4%
in the corresponding period of 1998. Jaz unit drive shipments decreased by 22.8%
as  compared  to the  third  quarter  of 1998,  while  Jaz unit  disk  shipments
decreased  by 30.7%.  These  decreases  are a result of the  maturing of the Jaz
product platform.

Clik!  product sales in the third quarter of 1999 were $5.9 million,  or 1.7% of
total sales. The Company began shipping Clik!  products in limited quantities in
December 1998.  The Clik! PC Card drive began shipping in limited  quantities in
June 1999.

ZipCD product  sales in the third quarter of 1999 were $8.8 million,  or 2.5% of
total sales. The Company began shipping ZipCD products in limited  quantities in
August 1999.

Ditto product sales in the third quarter of 1999 were $2.0 million, representing
a  decrease  of 85.5%  from the  third  quarter  of 1998.  Ditto  product  sales
represented 0.6% of total sales in the third quarter of 1999 compared to 3.4% of
total sales in the corresponding period of 1998. In March 1999, the Company sold
certain  assets and rights  associated  with its Ditto product line. The Company
continued to sell its Ditto finished goods  inventory  through June 1999,  after
which, the buyer of the Ditto assets agreed to purchase the Company's  remaining
finished goods inventory. The Company plans to continue to sell Ditto cartridges
for a period of time ending on or before July 1, 2001.

Sales for the nine months ended  September 26, 1999 decreased by $101.5 million,
or 8.5%,  when  compared  to the  corresponding  period  of  1998.  Sales of Zip
products  totaled $850.0 million,  or 77.9% of total sales,  representing a 2.4%
increase in sales  dollars from the  corresponding  period of 1998.  Jaz product
sales totaled  $194.2  million,  or 17.8% of total sales,  representing  a 33.6%
decrease in sales dollars from the corresponding  period of 1998. Sales of Clik!
products totaled $11.7 million,  or 1.1% of total sales. Sales of ZipCD products
totaled $8.8 million,  or 0.8% of total sales. Ditto product sales totaled $18.2
million, or 1.7% of total sales,  representing a 72.2% decrease in sales dollars
from the corresponding period of 1998.

Geographically,  sales in the Americas  were $238.1  million,  or 66.8% of total
sales, in the third quarter of 1999, as compared to $268.2 million,  or 68.5% of
total sales,  in the third quarter of 1998.  Sales in Europe were $86.5 million,
or 24.2% of total  sales,  in the third  quarter of 1999,  as  compared to $90.6
million,  or 23.1% of total sales,  in the third quarter of 1998.  Sales in Asia
were $32.0  million,  or 9.0% of total sales,  in the third  quarter of 1999, as
compared to $33.0 million, or 8.4% of total sales, in the third quarter of 1998.

                                       23
<PAGE>

For the first nine months of 1999, sales in the Americas were $720.2 million, or
66.0% of total sales,  as compared to $823.8  million,  or 69.0% of total sales,
for the first nine months of 1998. Sales in Europe were $271.0 million, or 24.8%
of total sales, in the first nine months of 1999, as compared to $273.1 million,
or 22.9% of total sales,  for the first nine months of 1998.  Sales in Asia were
$100.4  million,  or 9.2% of total sales,  in the first nine months of 1999,  as
compared to $96.2 million,  or 8.1% of total sales,  in the first nine months of
1998.

GROSS MARGIN

The Company's  overall gross margin percentage was 24.3% in the third quarter of
1999,  as compared to 22.4% in the third  quarter of 1998.  Overall gross margin
percentage for the first nine months of 1999 was 23.5%, as compared to 23.8% for
the first nine months of 1998.  The increase in gross margin  percentage for the
third quarter of 1999,  when compared to the  corresponding  period of 1998, was
due to increased  Zip and Jaz gross  margins as a result of an increased  mix of
higher  margin  Zip 250 and Jaz 2GB  products  and lower  overall  material  and
variable  overhead  costs during the third quarter of 1999.  These  improvements
were partially offset by increased Clik! manufacturing costs during start up, an
increase in the  percentage of Zip drives  shipped to the OEM channel during the
third quarter of 1999,  which generally  provides lower gross margins than sales
through other  channels.  Additionally,  during the third  quarter of 1999,  the
Company  recorded  reserves for Ditto,  Clik! and other products  totaling $11.0
million.

Future gross margin  percentage will be impacted by the mix between retail sales
and OEM drive sales,  as OEM sales  generally  provide  lower gross margins than
sales  through  other  channels,  and by the  sales  mix of Zip  100 and Zip 250
product.  Gross  margins  for the  remainder  of 1999 will also  depend on sales
volumes of Zip and Jaz disks, which generate  significantly higher gross margins
than the  corresponding  drives  and on the mix  between  disks and  drives  and
between Zip, Jaz, Clik! and ZipCD products.

SEGMENT PRODUCT PROFIT MARGIN (Including Restructuring Charges)

Zip segment product profit margin  increased by $19.0 million,  or 65.5%, in the
third  quarter  of  1999  when  compared  to the  corresponding  period  of 1998
primarily  due to an increased  mix of higher  margin Zip 250 products and lower
overall material and variable overhead costs.  These third quarter  improvements
were partially  offset by a decrease in shipments of higher margin Zip disks and
an increase in sales of lower margin Zip OEM drives.  Jaz segment product profit
margin  increased by $4.1 million,  or 64.7%,  in the third quarter of 1999 when
compared  to  the  corresponding  period  of  1998  due to  decreased  material,
manufacturing  and operating costs and an increased mix of higher margin Jaz 2GB
products.  Clik!  segment  product loss  increased to $31.2 million in the third
quarter of 1999 from a product loss of $8.4 million in the corresponding  period
of 1998 due to a combination of a restructuring  charge of $11.5 million,  sales
and marketing product launch costs, manufacturing startup costs and reserves for
the valuation of Clik!  excess fixed asset  capacity  recorded  during the third
quarter of 1999.  The ZipCD  segment had a product  loss of $3.3 million for the
third quarter of 1999 due primarily to a $0.6 million restructuring charge taken
in the third quarter and product  development  and launch costs  incurred as the
Company began shipping ZipCD products in limited  quantities in August 1999. The
Ditto  segment  product loss  increased to $7.3 million in the third  quarter of
1999 from a product loss of $2.7 million in the corresponding period of 1998 due
to a decrease in volumes of Ditto products sold in the third quarter of 1999 and
inventory valuation reserves recorded in the quarter.

                                       24
<PAGE>

For the first nine months of 1999, Zip segment  product profit margin  increased
by $35.6 million,  or 36.9%, when compared to the  corresponding  period of 1998
due to a  combination  of an increase in volumes of Zip drives and disks,  lower
overall  material and  variable  overhead  costs and an increased  mix of higher
margin Zip 250 products that were partially  offset by price  reductions  during
the second half of 1998 and an increase in sales of lower margin Zip OEM drives.
Jaz segment  product loss increased to $24.3 million in the first nine months of
1999 from a product loss of $17.6  million in the  corresponding  period of 1998
due primarily to a second quarter 1999 restructuring charge of $27.0 million and
a decrease in volumes of Jaz disk and drive  products  shipped  during the first
nine months of 1999,  offset in part by  decreased  material  and  manufacturing
costs and an increased  mix of higher  margin Jaz 2GB  products.  Clik!  segment
product loss increased to $61.0 million for the first nine months of 1999 from a
product loss of $26.6 million in the corresponding  period of 1998 due primarily
to a third quarter  restructuring  charge of $11.5 million,  sales and marketing
product launch costs,  manufacturing  startup costs and reserves recorded during
1999 for the valuation of Clik!  excess fixed asset capacity.  The ZipCD segment
had a  product  loss of $6.1  million  for the  first  nine  months  of 1999 due
primarily to product  development and launch costs incurred as the Company began
shipping  ZipCD  products in limited  quantities  in August 1999.  Ditto segment
product loss  increased to $17.2 million in the first nine months of 1999 from a
product loss of $9.7 million in the corresponding period of 1998 due to a second
quarter 1999  restructuring  charge of $5.6 million and a decrease in volumes of
Ditto  drive  products  shipped in the first nine  months of 1999 and  inventory
valuation reserves recorded in the third quarter.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling,  general and  administrative  expenses decreased by $0.8 million in the
third quarter of 1999 when  compared to the  corresponding  period of 1998,  and
increased as a percentage of sales to 20.1% for the third quarter, from 18.5% in
the corresponding  period of 1998,  primarily as a result of a decrease in sales
during the third quarter of 1999.

Selling,  general and administrative  expenses decreased by $80.4 million in the
first nine months of 1999 and decreased as a percentage of sales to 20.6%,  from
25.6% in the  corresponding  period in 1998.  Included in  selling,  general and
administrative  expenses in 1998 was a special  pre-tax  charge of $9.4  million
representing  expenses  associated with cost reduction  measures and substantial
marketing and advertising program expenditures which were reduced in 1999.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses for the third quarter and first nine months of
1999  decreased  by $5.9  million,  or  25.0%,  and  $15.6  million,  or  20.2%,
respectively,  when compared to the third quarter and first nine months of 1998,
and  decreased as a percentage of sales to 5.0% and 5.6%,  respectively,  in the
third quarter and first nine months of 1999,  from 6.1% and 6.5%,  respectively,
in the third quarter and first nine months of 1998. The decrease in research and
development expenses for the third quarter and first nine months of 1999 was due
primarily to decreased  spending for development of Jaz and recently  introduced
Clik!  products,  which was partially  offset by increased  spending for Zip and
ZipCD and other new  product  development  in the third  quarter  and first nine
months of 1999.


                                       25
<PAGE>


RESTRUCTURING CHARGES

During the third and nine months ended September 26, 1999, the Company  recorded
pre-tax  restructuring  charges of $20.5 and $62.4 million,  respectively,  as a
result  of steps the  Company  is taking to  organize  along  functional  lines,
consolidate manufacturing and other facilities, discontinue certain products and
refocus the Clik! product platform on the newer Clik! PC Card and OEM drives.

During the quarter  ended  September  26, 1999,  the Company  recorded a pre-tax
restructuring  charge  of $20.5  million  as a result of  restructuring  actions
initiated to consolidate worldwide disk manufacturing, refocus the Clik! product
platform on the newer  Clik!  PC Card and OEM drives and  consolidate  leasehold
facilities. The total restructuring charges in connection with these actions are
expected to be approximately  $28 million.  However,  a portion of these charges
will not be recorded until the fourth quarter because employee notifications had
not taken place by September 26, 1999,  and certain  specific  plans  associated
with  leasehold  consolidations  had not been  finalized as required by Emerging
Issues Task Force Issue No. 94-3,  "Liability  Recognition for Certain  Employee
Termination  Benefits and Other Costs to Exit an Activity."  This  restructuring
charge  included  reserves of $6.3 million  relating to certain  assets and exit
costs such as cancellation  fees associated with the cessation of  manufacturing
in  Avranches,  France;  $11.5  million of  inventory  and fixed asset  reserves
associated  with the older Clik!  products;  and $2.7 million for  write-offs of
intangibles and other miscellaneous charges. This restructuring charge consisted
of cash and  non-cash  charges  of  approximately  $6 million  and $15  million,
respectively.

In  connection  with the  Company's  third quarter  restructuring  actions,  the
Company expects a workforce reduction of approximately 140 regular and temporary
employees, consisting primarily of operations employees in Avranches, France and
product development employees in Longmont, Colorado. None of these employees had
been notified or terminated at September 26, 1999. The Company  anticipates that
the implementation of the restructuring charge will be substantially complete by
the end of March 2000,  with the  remainder  being  completed  in the second and
third quarters of 2000. The restructuring  charge was included in the condensed,
consolidated   statements  of  operations   under  the  caption   "Restructuring
charge(s)" for the three- and nine-month periods ended September 26, 1999. There
were not any  indications  of  permanent  impairment  of the assets prior to the
restructuring actions.

During  the  quarter  ended  June 27,  1999,  the  Company  recorded  a  pre-tax
restructuring  charge of $41.9  million  as a result of steps  the  Company  was
taking to organize along  functional  lines.  These actions included the exit of
facilities,  headcount  reductions,  the  discontinuance of certain products and
development  projects and  consolidation  of the Company's  magnetic  technology
expertise at its  headquarters  in Roy, Utah. The actions  included  closing the
Company's  facilities in Milpitas,  California  and San Diego,  California.  The
restructuring  charge  was  comprised  of $20.2  million  for fixed  assets  and
inventory  related to the  discontinuance  of certain  products and  development
projects;  $9.7 million for work force reduction costs;  $4.3 million for excess
leasehold improvements, furniture and fixtures formerly utilized in the Milpitas
and  San  Diego  facilities;  $3.0  million  for  lease  termination  costs  for
facilities  located in Milpitas  and San Diego;  and $4.7 million for work force
reduction costs, contract cancellation costs and other exit costs to consolidate
the  Company's  operations  in France and Scotland.  This  restructuring  charge
consisted  of cash and  non-cash  charges of  approximately  $18 million and $24
million,  respectively.  The restructuring charge was included in the condensed,
consolidated  statements of operations under the caption "Restructuring charges"
for  the  nine-month  period  ended  September  26,  1999.  There  were  not any
indications  of permanent  impairment  of the assets prior to the  restructuring
actions.

                                       26
<PAGE>

In connection  with the Company's  second  quarter  restructuring  actions,  the
Company has terminated 466 regular and temporary employees, consisting primarily
of operations and product development  employees located in Milpitas,  San Diego
and Roy.  The Company  expects  that the  implementation  of the second  quarter
restructuring  plan will be substantially  complete by the end of December 1999,
with the remainder of the plan to be completed by the end of June 2000.

OTHER INCOME AND EXPENSE

Interest  income of $1.4 million and $3.7 million in the third quarter and first
nine months of 1999, respectively,  increased from $0.8 million and $3.4 million
in the third quarter and first nine months of 1998, respectively. Higher average
cash balances during the third quarter and first nine months of 1999 resulted in
an increase in interest  income when  compared to the  corresponding  periods of
1998.

Interest expense of $1.5 million and $5.8 million in the third quarter and first
nine months of 1999, respectively,  decreased from $3.6 million and $7.0 million
in the third quarter and first nine months of 1998, respectively.  In July 1998,
the Company entered into a debt agreement with Idanta Partners, Ltd. and another
entity  affiliated  with  David J.  Dunn,  Chairman  of the  Company's  Board of
Directors,  under which the Company borrowed $40 million pursuant to a series of
three notes. The Company repaid the principal and interest associated with these
notes upon their maturity on March 31, 1999. As a consequence,  interest expense
decreased in 1999 when compared with the corresponding periods of 1998.

Also  included in other  income and  expense  were bank  charges,  miscellaneous
royalty  income,  gains and losses on disposal  of assets and  foreign  currency
gains and losses.

INCOME TAXES

For the three and nine months ended September 26, 1999, the Company  recorded an
income tax provision of $52.4 and $27.3  million,  respectively.  The provisions
differ from the benefits  computed by applying the Federal statutory rate of 35%
to the pre-tax losses incurred for the three and nine months ended September 26,
1999 by $61.4 million, for each of the periods,  primarily due to an increase in
the deferred tax asset  valuation  allowance and  permanent  items which are not
deductible  for Federal income taxes,  which were  partially  offset by earnings
permanently invested in non-U.S. operations and state income taxes.

As of September 26, 1999, the Company had  approximately $18 million of deferred
tax assets related to foreign net operating loss carryovers, which reflected the
benefit of  approximately  $43 million in future tax  deductions,  for which the
Company  had  established  a valuation  allowance.  These  carryovers  expire at
various dates beginning in 2004.

                                       27
<PAGE>

Additionally,  as of  September  26,  1999,  the Company had  approximately  $72
million of deferred tax assets net of deferred tax liabilities,  which reflected
the benefit of approximately $185 million in future domestic tax deductions.  In
light of the net operating  loss in the third quarter of 1999 and the cumulative
net  operating  losses  for 1999 and 1998,  in the third  quarter  of 1999,  the
Company fully reserved its net deferred tax assets previously  recognized at the
end of the second quarter of 1999 and those recognized  during the third quarter
of 1999.  These net deferred tax assets  relate to  temporary  differences,  tax
credit carry  forwards and net operating  loss carry  forwards.  This  valuation
allowance  was  recorded in  accordance  with SFAS 109,  which  requires  that a
valuation  allowance be established when there is significant  uncertainty as to
the realizability of the deferred tax assets.

During the third quarter of 1999,  the Company  increased its deferred tax asset
valuation  allowance by  approximately  $81 million.  The Company  evaluates the
realizability  of its deferred tax assets on a quarterly  basis. If the deferred
tax assets are realized in the future,  or if a portion or all of the  valuation
allowance is no longer  deemed to be  necessary,  the related tax benefits  will
reduce future income tax provisions.

SEASONALITY

The  Company's  Zip and ZipCD  products are  targeted  primarily to the personal
computer  OEM and retail  consumer  markets.  The  Company's  Jaz  products  are
targeted primarily to the distribution and retail consumer market. The Company's
Clik!  products  are  targeted  to the retail  consumer  market and to  consumer
products OEMs.  Management  believes the markets for the Company's  products are
generally seasonal, with a higher proportional share of total sales occurring in
the fourth  quarter  and sales  slowdowns  commonly  occurring  during the first
quarter and summer months. Accordingly,  revenues and growth rates for any prior
quarter are not  necessarily  indicative  of the  revenues or growth rates to be
expected in any future quarter.

LIQUIDITY AND CAPITAL RESOURCES

At  September  26,  1999,  the Company had cash and cash  equivalents  of $118.1
million,  temporary  investments  of $14.7  million,  working  capital of $147.4
million and a ratio of current assets to current liabilities of 1.4 to 1. During
the first nine months of 1999, the Company generated a total of $27.8 million of
cash and cash equivalents. Operating activities generated $132.8 million in cash
for the first nine months of 1999 compared with using $137.2  million in cash in
the first nine months of 1998. The cash  generated from  operations in the first
nine months of 1999 was primarily due to a combination of non-cash  adjustments,
a reduction in inventory, accounts receivable and income taxes receivable and an
increase in other current liabilities. The primary uses of cash during the first
nine  months of 1999 were the  repayment  upon  maturity  of the  Idanta  senior
subordinated  notes,  payments on capitalized lease obligations and the purchase
of property, plant and equipment.

Net accounts receivable  decreased by $46.3 million, due primarily to the timing
of sales and  collections  during the  respective  periods The increase of $31.1
million  in  other  current  liabilities  was due to a  combination  of  accrued
restructuring  reserves as a result of  restructuring  charges  taken during the
second and third  quarters  of 1999,  an  increase  in accrued  advertising  and
various other accrued  liabilities  that were partially  offset by a decrease in
deferred  revenue and accrued payroll and related  liabilities.  The decrease of
$25.0  million in inventory was due to a  combination  of improved  supply chain
management and changes to the Company's procurement and manufacturing  processes
to a demand  pull  model  initiated  during  1998 and the  write-down  of excess
inventory  during the second and third  quarters of 1999.  The  decrease of $9.7
million in income taxes  receivable  was due primarily to the Company  receiving
income tax refunds of $32.0 million  during the second quarter of 1999 that were
partially  offset by the creation of an  additional  receivable of $22.3 million
comprised  primarily  of the tax  benefit  of the  Company's  current  year  net
operating loss carryback.  These sources of cash were partially offset by a $3.9
million  decrease in accounts  payable,  due  primarily  to timing of  inventory
receipts and related payments to vendors.

                                       28
<PAGE>

The Company used $68.8 million of cash in investing  activities during the first
nine months of 1999, primarily in the purchase of property,  plant and equipment
and  temporary  investments  and the  purchase of certain  assets from  SyQuest,
including  intellectual  property,  inventory  and  fixed  assets.  Cash used by
financing  activities totaled $36.2 million during the first nine months of 1999
and included  $44.3  million in  repayment  upon  maturity of the Idanta  senior
subordinated  notes and  payments on  capitalized  lease  obligations  that were
partially  offset by $4.6  million  of  proceeds  from the sale of common  stock
pursuant to stock  options and $3.5  million of  proceeds  from the  issuance of
notes payable and capitalized lease obligations  during the first nine months of
1999.

On March 11, 1997, the Company entered into a $200 million Senior Secured Credit
Facility with Morgan  Guaranty Trust Company of New York,  Citibank,  N.A. and a
syndicate of other  lenders.  During 1998 and 1999,  the Company and the lenders
agreed to several  amendments  to and waivers  under the Senior  Secured  Credit
Facility,  the most recent of which was entered into on October 14,  1999,  (the
"Credit  Facility").  As a  result  of the most  recent  amendment,  the  Credit
Facility was reduced to $75 million and certain financial covenants were amended
to be effective  for the period ended  September 26, 1999.  The Credit  Facility
expires  on July 14,  2000  and is  secured  by  accounts  receivable,  domestic
inventory,  domestic  intellectual  property,  general  intangibles,  equipment,
personal  property,  investment  property  and a pledge  of 65% of the  stock of
certain of the Company's  subsidiaries.  Under the Credit Facility,  the Company
may  borrow  at a base  rate,  which  is the  higher  of prime or the sum of the
Federal funds rate plus 2.75%, or at LIBOR plus 3.25%.  There were no borrowings
outstanding on the Credit Facility at September 26, 1999. Borrowing availability
under the Credit Facility is based on an agreed upon advance rate on receivables
and inventory  not to exceed $75 million.  Total  availability  under the Credit
Facility at October  14, 1999 was $75  million.  Among other  restrictions,  the
Credit  Facility  treats a change of control (as defined) as an event of default
and requires the  maintenance  of minimum  levels of  consolidated  tangible net
worth,   EBITDA  and  certain  other  covenants.   Depending  on  its  financial
performance  in future  quarters,  the Company  may be required to seek  further
covenant  waivers  and  amendments  under the Credit  Facility.  There can be no
assurance that the Company will be able to obtain any such waivers or amendments
on terms  acceptable to the Company,  if at all. Loss of the Credit Facility may
require the Company to find an alternative source of funding, which could have a
material adverse effect on the Company's business and financial results.

The current and long-term  portions of capitalized  lease  obligations and notes
payable at September 26, 1999 were $4.5 million and $3.7 million,  respectively.
In July 1998, the Company  borrowed a total of $40 million from Idanta  Partners
Ltd. and another entity affiliated with David J. Dunn, Chairman of the Company's
Board of Directors, pursuant to a series of three senior subordinated notes. The
initial interest rate was 8.7% per annum,  increasing through January 1, 1999 to
12.7% per annum.  The proceeds of these notes were used for the cash purchase of
Nomai.  The Company used  internally  generated funds to repay the principal and
interest associated with the notes upon their maturity on March 31, 1999.

                                       29
<PAGE>

The Company had $45.5 million of convertible  subordinated  notes outstanding at
September  26, 1999,  which bear  interest at 6.75% per year and mature on March
15, 2001.

In April 1999,  the Company  completed the purchase of certain assets of SyQuest
Technology,   Inc.  and  its  subsidiaries,   including  intellectual  property,
inventory and fixed assets in the U.S., Europe and Malaysia.  The total purchase
price of the asset  purchase  in the U.S.  and Europe was $9.2  million  and the
purchase price of the Malaysian assets was $2.9 million. No material obligations
or  liabilities  were  assumed by the  Company.  As part of the  agreement,  the
Company  released  SyQuest and SyQuest  released  the Company from all claims in
connection with the patent and trademark infringement litigation pending between
the parties in Delaware and in Paris, France.

The Company expects to generate positive cash flow for 1999. The Company expects
that its balance of cash and cash  equivalents,  together  with future cash flow
from operations and current and future sources of available  financing,  will be
sufficient  to fund the  Company's  operations  during the next  twelve  months.
However, whether the Company will achieve a positive cash flow for 1999, and the
precise amount and timing of the Company's  future  financing  needs,  cannot be
determined at this time and will depend on a number of factors,  including  cash
flow  from   operations,   which   depends  on  the  success  of  the  Company's
restructuring  actions,  the  market  demand  for the  Company's  products,  the
availability  of critical  components,  the  progress of the  Company's  product
development  efforts and the success of the Company in managing  its  inventory,
accounts receivable and accounts payable.

OTHER MATTERS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments  and Hedging  Activities"  ("SFAS 133").  SFAS 133  establishes  new
accounting  and reporting  standards for companies to report  information  about
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts  (collectively  referred  to as  derivatives)  and for  hedging
activities.  In June 1999,  the FASB issued  Statement of  Financial  Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the  Effective  Date of FASB  Statement  No. 133." This  statement
amended  the  effective  date of SFAS 133.  SFAS 133 will now be  effective  for
financial  statements  issued for all fiscal  quarters of fiscal years beginning
after June 15,  2000.  The  Company  does not expect SFAS 133 to have a material
impact on the Company's results of operations, financial position or liquidity.

FACTORS AFFECTING FUTURE OPERATING RESULTS

The Company's future operating  results will depend in large part on the success
of its Zip, Jaz, Clik!  and ZipCD  products in the market.  Although the Company
believes  there is market  demand  for  removable  data  storage  solutions  for
personal computers and other devices, there can be no assurance that the Company
will be successful in establishing  its products as the preferred  solutions for
those market needs.  The extent to which Zip, Jaz,  Clik!  and ZipCD achieve and
maintain a  significant  market  presence  will depend upon a number of factors,
including:  the price,  performance,  quality and other  characteristics  of the
Company's  products  and  of  competing   solutions   (existing,   announced  or
unannounced)  introduced by other vendors,  including,  without limitation,  the
LS-120  (or  SuperDisk)  (product  co-developed  by  the  consortium  of  Compaq
Computer,  Imation,  O.R. Technology and MKE), the HiFD (product co-developed by
Sony  Corporation  and Fuji Photo Film Co.,  Ltd.),  the "it" drive  (product in
development  by Caleb  Technology  Corporation),  the Orb (product  developed by
Castlewood  Systems,  Inc.),  the  Pro-FD  (product  in  development  by Samsung
Electro-Mechanics  Co., Ltd.),  the Microdrive  (product  developed by IBM), the
Memorystick  (product developed by Sony  Corporation),  various formats of flash
memory, CD-R and CD-RW drives,  announced  developments of rewritable DVD drives


                                       30
<PAGE>

and media, and announced  products in development by Terastor  Corporation;  the
success of any third party in creating and marketing media intended for use with
the Company's  drive  products;  the success of the Company in meeting  targeted
availability dates for new and enhanced products;  the success of the Company in
establishing and maintaining OEM  arrangements  and meeting OEM quality,  supply
and other  requirements;  the willingness of OEMs to promote  computer and other
products  containing the Company's drives;  the ability of the Company to create
demand for Zip, Jaz, Clik!  and ZipCD,  including  demand from leading  personal
computer  and other  manufacturers;  the  success of the  Company  in  educating
consumers  about the existence and possible  uses of Zip, Jaz,  Clik!  and ZipCD
storage  solutions;  the  success of the  Company's  efforts  to make  continued
improvements to customer service and satisfaction;  the public perception of the
Company and its  products,  including  statements  made by industry  analysts or
consumers  and  adverse  publicity   resulting  from  such  statements  or  from
litigation filed against the Company; and the overall market demand for personal
computers and other products with which the Company's products can be used.

The Company's  business strategy is substantially  dependent on maximizing sales
of its  proprietary  Zip and Jaz  disks,  which  generate  significantly  higher
margins than the related  drives.  If this  strategy is not  successful,  either
because the Company does not establish a  sufficiently  large  installed base of
Zip and Jaz  drives,  because  the sales mix  between  disks and drives is below
levels  anticipated by the Company,  because another party succeeds in producing
or marketing  disks that are compatible with any of the Company's drive products
without infringing the Company's proprietary rights or for any other reason, the
Company's sales would be adversely affected, and its results of operations would
also be adversely affected.

Sales of Zip products in 1998 and the first nine months of 1999  accounted for a
significant majority of the Company's revenues.  However, these sales may not be
indicative of the  long-term  demand for Zip  products.  Accordingly,  the sales
levels  experienced  by the  Company in 1998 and the first  nine  months of 1999
should not be assumed to be an indication of future sales levels.  In the fourth
quarter  of  1998,  the  Company  introduced  the Zip 250  product.  The  market
acceptance  of the Zip 250 product and its impact on other Zip  products has not
yet been determined and, therefore, may have an adverse impact on future sales.

The Company's Jaz products are a maturing  product platform and the Company does
not anticipate  sales growth in the future for this product platform as a result
of replacement  products entering the market,  including products  introduced by
the  Company,  and  changing  customer  requirements.  The Company  took actions
earlier  in the year to better  position  the Jaz  product  platform  for future
profitability,  including  the  cancellation  of a Jaz  development  project and
downsizing of Jaz facilities and workforce.  The Company anticipates introducing
additional Jaz product  interfaces and  enhancements to support the needs of its
customers.  The  process  of  managing  a  mature  product  and  maximizing  its
profitability is different than managing a growing product platform.  Managing a
maturing  product  platform  includes  maintaining  the  size  of the  product's
infrastructure and monitoring vendor commitments and inventory levels to prevent
inventory  write-offs and cancellation costs. There can be no assurance that the
Company will be successful in managing the maturing Jaz product  platform and in
maximizing its profitability in the future.

                                       31
<PAGE>

The Company's Clik! products are miniaturized  removable-media storage solutions
for use in a variety of portable and handheld  electronic  devices and represent
the  Company's  first  products  which are targeted to digital  camera and other
portable consumer electronics manufacturers in addition to the personal computer
markets.  The Company  does not have prior  experience  in  consumer  electronic
channels and,  accordingly,  there are additional risks that the Clik!  products
will not achieve  significant  market  presence or otherwise be successful.  The
Company has introduced four different models of the Clik! drive in addition to a
Clik!  OEM drive,  which  will  first be shipped in the fourth  quarter of 1999.
Three of these models, the Clik! Drive for Digital Cameras, the Clik! Drive Plus
and the Clik!  Drive for  Mobile  Computers,  which  began  shipping  in limited
quantities  in December  1998,  were  marketed as add-on  storage  solutions  to
digital  cameras that use various  formats of flash  memory.  The Company  began
shipping the fourth  model,  the Clik! PC Card drive,  in limited  quantities in
June 1999, and is currently  marketing this product to notebook and sub-notebook
computer  users.  The impact of the Clik! PC Card drive on the  Company's  other
storage  solutions has not yet been determined and may have an adverse impact on
future  sales.  During  the  third  quarter  of 1999,  the  Company  recorded  a
restructuring  charge that included costs to refocus the Clik!  product platform
on the newer Clik! PC Card and OEM drives.  Market acceptance of Clik!  products
as a storage  solution  for  digital  cameras  is  dependent  upon  obtaining  a
significant  market presence and  establishing  OEM  relationships  with digital
camera manufacturers,  who produce digital cameras incorporating  built-in Clik!
drives,  and other  portable  consumer  electronic  manufacturers.  To date,  no
digital camera or other consumer  electronic  product  incorporating  Clik! as a
built-in  drive,  which we  refer to as an OEM  drive,  has been  introduced  or
marketed; however, the Agfa Gevaert Group, a manufacturer of digital cameras and
other  digital  imaging  products  and systems has begun  taking  orders for its
digital camera with a Clik! built-in drive.

ZipCD, a CD-ReWritable  ("CD-RW")  drive designed for use as a storage  solution
for personal computers, represents the Company's first CD-RW product and initial
entry into the optical storage market.  Market  acceptance of the ZipCD product,
which began shipping in limited  quantities in August 1999, is not yet known. In
addition,  the impact of ZipCD on the Company's other storage  solutions has not
yet been  determined and may have an adverse  impact on future sales.  Moreover,
the Company's current business strategy for ZipCD is different from its strategy
for its other products because ZipCD does not include proprietary media and thus
has lower overall gross margins.  Therefore, the success of ZipCD will depend on
margin  contributions  from the drive  products.  The CD-RW drive market is very
competitive  and  includes a number of  established  participants.  Accordingly,
there are additional  risks that the ZipCD product will not achieve  significant
market acceptance or otherwise be successful.

Management of the Company's  inventory levels has become  increasingly  complex.
The Company's customers frequently adjust their ordering patterns in response to
various factors,  including: the Company's perceived ability to meet demand, the
Company's  and  competitors'  inventory  supply in the retail  and  distribution
channel, timing of new product introductions, seasonal fluctuations, Company and
customer promotions, the consolidation of customer distribution centers, pricing
considerations  and the  attractiveness of the Company's products as compared to
competing  products.  Customers  may increase  orders during times of shortages,
cancel  orders if the channel is filled  with  currently  available  products or
delay orders in anticipation of new products.  Any excess supply could result in
price reductions and inventory writedowns,  which in turn could adversely affect
the Company's results of operations.

The Company has evolved from an aftermarket business to a business that includes
a  significant  volume of OEM sales.  In an OEM business,  a high  proportion of
sales are concentrated  among a small number of customers.  Although the Company
believes  its  relationships  with OEM  customers  are  generally  good,  as the
concentration of sales to OEM customers  continues to evolve, a relatively small
number of major  customers  will  represent a business  risk that loss of one or
more  accounts  could  adversely  affect the  Company's  financial  condition or
operating  results.  The  Company's  customers  are  generally  not obligated to
purchase  any  minimum  volume  and  are  generally  able  to  terminate   their
relationship with the Company at will. If changes in purchase volume or customer
relationships  resulted in decreased demand for the Company's drives, whether by
loss of or delays in orders,  the  Company's  financial  condition  or operating
results could be adversely affected.

                                       32
<PAGE>

The  Company  continues  to refine  the design of its  products  in an effort to
improve product  performance and reduce  manufacturing  costs. In addition,  the
Company depends on independent parties for the supply of critical components for
its products.  Certain of these  suppliers are or may become  competitors of the
Company.  As a result of these and other  factors,  the Company  may  experience
problems relating to the quality,  reliability and/or availability of certain of
its  products.  For  example,  the Company has  recalled  certain  products  and
experienced  manufacturing  interruptions due to supplier quality problems.  Any
product  availability,  quality  or  reliability  problems  experienced  by  the
Company,  or claims  filed  against the  Company as a result of these  problems,
could have an adverse  effect on the Company's  sales and net income,  result in
damage to the Company's reputation in the marketplace and/or subject the Company
to damage claims from its customers. In addition, component problems, shortages,
quality issues or other factors  affecting the supply of the Company's  products
could provide an  opportunity  for competing  products to increase  their market
share.

All of the factors  described  above for Zip, Jaz, Clik! and ZipCD products are,
or will be, relevant to any other products  currently sold by the Company or new
products introduced by the Company in the future. In addition, the Company faces
development,  manufacturing,  demand and market  acceptance risks with regard to
recently introduced and future products.  The Company's future operating results
will depend in part on its success in introducing enhanced and new products in a
timely and competitively  effective  manner.  Future operating results will also
depend  on the  Company's  ability  to  effectively  manage  obsolescence  risks
associated  with  products  that are  phased  out and its  success in ramping to
volume  production of new or enhanced  products.  Future operating  results will
also depend on  intellectual  property  and  antitrust  matters,  including  the
possibility  that  infringement  claims  asserted  from time to time against the
Company  could require the Company to pay royalties to a third party in order to
continue to market and distribute one or more of the Company's current or future
products and also include the possibility  that the Company would be required to
devote  unplanned  resources  to  developing  modifications  to its  products or
marketing programs.

Many  components  incorporated  or  used  in the  manufacture  of the  Company's
products are currently  available only from single or sole source suppliers.  In
particular,  certain  integrated  circuits  used in certain  drives are obtained
exclusively from LSI Logic Corporation.  The Company has experienced  difficulty
in the past,  and may  experience  difficulty  in the  future,  in  obtaining  a
sufficient  supply  of many  key  components  on a  timely  basis.  The  Company
continues to develop relationships with qualified manufacturers with the goal of
securing  high-volume  manufacturing  capabilities  and  controlling the cost of
current and future models of the Company's  products;  however,  there can be no
assurance  that the  Company  will be able to  obtain  a  sufficient  supply  of
components  on a timely basis or realize any future cost  savings.  Sales may be
adversely affected for these or similar reasons in the future.

                                       33
<PAGE>

The  Company  purchases  a  portion  of its  single,  sole  and  limited  source
components  pursuant to purchase orders without guaranteed supply  arrangements.
The  inability  to obtain  sufficient  components  and  equipment,  to obtain or
develop  alternative  sources of supply at competitive  prices and quality or to
avoid manufacturing  delays could prevent the Company from producing  sufficient
quantities  of its  products  to satisfy  market  demand  (or,  in the case of a
component  purchased  exclusively  from  one  supplier,  the  Company  could  be
prevented  from  producing  any quantity of the affected  product(s)  until such
component  becomes  available  from  an  alternative   source),   delay  product
shipments,  increase the Company's  material or manufacturing  costs or cause an
imbalance  in the  inventory  levels of certain  components.  For  example,  the
Company's  Zip  drive  shipments,  revenue  and  profitability  were  negatively
impacted by an ASIC chip shortage  during the second and third quarters of 1999.
The ASIC chip is supplied by a sole source supplier.  Moreover,  difficulties in
obtaining  sufficient  components  may cause the Company to modify the design of
its  products  to  use a more  readily  available  component,  and  such  design
modifications may result in product  performance  problems.  Any or all of these
problems  could in turn result in the loss of customers,  provide an opportunity
for competing  products to achieve  market  acceptance  and otherwise  adversely
affect the Company's business and financial results.

The Company is experiencing increased difficulties in retaining employees due in
part to the Company's financial  performance and recent  restructuring  actions.
The Company's success depends in large part upon the services of a number of key
employees  and the loss of the  services  of one or more of these key  employees
could  have a  material  adverse  effect on the  Company.  Many  members  of the
Company's  senior  management team have been serving in their current  positions
for only a short  period of time,  including  Philip G.  Husby,  who  joined the
Company as Chief Financial Officer in August 1999, and John L. Conley,  Sr., who
was  promoted to  Executive  Vice  President,  Global  Operations  in June 1999.
Effective  August 31,  1999,  Jodie K. Glore  resigned  as  President  and Chief
Executive  Officer.  David J.  Dunn,  Chairman  of the Board of  Directors,  has
assumed the role of Chief Executive  Officer while the Company conducts a search
for a Chief  Executive  Officer.  In  addition,  a number of  senior  management
positions,  including  Executive  Vice  President,  Global  Product,  Sales  and
Marketing,  Chief Technology  Officer and General  Counsel,  are currently being
filled on an interim  basis.  The  Company's  success will depend in part on its
ability to attract highly skilled personnel to fill vacancies in a timely manner
and on the success of the Company's  senior  management team in learning to work
effectively as a team. In addition, the Company's success will depend in part on
its ability to successfully  transition to a functional organization which began
in early 1999.  There can be no assurance that the Company will be successful in
attracting  and/or retaining key employees,  that the transition to a functional
organization  will not result in short-term  disruptions  or that the transition
will eventually produce the desired results.

During the second and third  quarters of 1999,  the Company  announced  plans to
consolidate manufacturing and other facilities, discontinue certain products and
development  projects,  organize along functional lines and to refocus the Clik!
product  platform  on the newer  Clik!  PC Card and OEM  drives.  These  actions
specifically  included closing the Company's facilities in Milpitas,  California
and San Diego,  California  and ceasing  manufacturing  operations in Avranches,
France. There can be no assurance that the Company will be successful in closing
the  facilities  in the U.S.  and  ceasing  manufacturing  operations  in France
without  incurring  significant  legal  costs or other  costs that have not been
accrued  for  in  the  restructuring  charges.  Management  expects  that  these
restructuring  actions will reduce future operating and manufacturing  expenses.
However,  there can be no assurance  that the Company will be  successful in its
efforts to reduce expenses in future periods.

The Company  has  implemented  Six Sigma  quality  initiatives  intended to make
substantial product and process quality improvements and reduce costs.  However,
there  can be no  assurance  that  the  Company's  quality  initiatives  will be
successful  in providing  substantial  product and process  improvements  and in
reducing costs.

                                       34
<PAGE>

The  Company  has  experienced,  and may in the future  experience,  significant
fluctuations in its quarterly operating results. Moreover, because the Company's
expense levels  (including  budgeted  selling,  general and  administrative  and
research and  development  expenses) are based in part on expectations of future
sales levels,  a shortfall in expected sales could result in a  disproportionate
adverse  effect  on the  Company's  results  of  operations  and cash  flow.  In
addition, the Company's stock price, like other high-technology companies' stock
prices,  could be subject to  fluctuations  in response to actual or anticipated
variations  in  operating  results,  as well as  changes in  analysts'  earnings
estimates,  announcements  of new products or developments by the Company or its
competitors, market conditions in the information technology industry as well as
general economic conditions and other factors external to the Company.

A  significant  portion of the  Company's  revenues are  generated in Europe and
Asia. The Company's existing infrastructure outside of the United States is less
mature and developed than in the United States.  Consequently,  future sales and
operating  income  from these  regions are less  predictable  than in the United
States. In addition,  operating expenses may increase as those operations mature
or  increase  in  size.  The  Company's  international  sales  transactions  are
generally  denominated  in U.S.  dollars.  Fluctuation  in the value of  foreign
currencies  relative  to the U.S.  dollar  that are not  sufficiently  hedged by
foreign  customers  could  result in lower  sales and have an adverse  effect on
future  operating  results (see  "Disclosures  About Market  Risk"  below).  For
example, management believes that sales in Asia were adversely affected from the
fourth quarter of 1997 through the third quarter of 1999 and will continue to be
adversely  affected due to a regional  economic  downturn and the devaluation of
certain Asian currencies  vis-a-vis the U.S. dollar.  The Company cannot predict
with any  certainty the impact that these or other such events could have on its
foreign operations.

On January 1, 1999,  eleven  countries of the European Union  established  fixed
conversion rates between their existing currencies and adopted the Euro as their
new common  legal  currency.  As of that date,  the Euro has traded on  currency
exchanges,  with  the  legacy  currencies  remaining  as  legal  tender  in  the
participating  countries  for a transition  period  between  January 1, 1999 and
January 1, 2002.  During the  transition  period,  parties  can elect to pay for
goods and  services  and  transact  business  using  either the Euro or a legacy
currency.  Between January 1, 2002 and July 1, 2002, the participating countries
will introduce  Euro bills and coins and withdraw all legacy  currencies so that
they will no longer be available.  The Euro  conversion may affect  cross-border
competition  by  creating  cross-border  price  transparency.   The  Company  is
assessing the  competitiveness  of its  pricing/marketing  strategy in a broader
European  market.  The  Company  is  also  assessing  whether  certain  existing
contracts  may require  modification  in addition to assessing  its  information
technology  systems to allow for  transactions  to take place in both the legacy
currencies and the Euro and the eventual  elimination of the legacy  currencies.
The Company's  currency risk and risk management for operations in participating
countries may be reduced as the legacy currencies are converted to the Euro. The
Company will continue to evaluate issues involving the introduction of the Euro.
Based on the Company's assessment from current information, the Company does not
expect the Euro  conversion to have a material  adverse  effect on the Company's
business or financial condition.  There can be no assurance,  however,  that the
Euro  conversion  will not  have a  material  adverse  effect  on the  Company's
European sales or otherwise adversely affect the Company's business,  results of
operations or financial condition.

Factors  other than those  discussed  above that could  cause  actual  events or
actual results to differ materially from those indicated by any  forward-looking
statements  include the ability of  management to manage  increasing  volumes of
production and an increasingly complex business,  transportation issues, product
and component pricing, competition, technological changes and advances, adoption
of  technology or  communications  standards  affecting the Company's  products,
intellectual property rights, litigation,  general economic conditions,  changes
or slowdowns in overall  market  demand for personal  computer  products and any
difficulties  experienced by the Company as a result of the Year 2000 issue (see
"Year 2000 Readiness" below).

                                       35
<PAGE>

DISCLOSURES ABOUT MARKET RISK

The Company is exposed to various  interest rate and foreign  currency  exchange
rate risks  that  arise in the  normal  course of  business.  The  Company  uses
borrowings  comprised primarily of variable rate debt to finance its operations.
The Company has international  operations  resulting in receipts and payments in
currencies  that  differ  from  the  functional  currency  of the  Company.  The
Company's functional currency is the U.S. dollar.

The Company attempts to reduce foreign currency exchange rate risks by utilizing
financial  instruments,  including derivative  transactions  pursuant to Company
policies.  The  Company  uses  forward  contracts  to  hedge  those  assets  and
liabilities  that, when remeasured  according to generally  accepted  accounting
principles,  impact  the  consolidated  statement  of  operations.  All  forward
contracts entered into by the Company are components of hedging programs and are
entered into for the sole purpose of hedging an existing or anticipated currency
exposure,  not for speculation or trading purposes.  The contracts are primarily
in European currencies, the Singapore dollar and the Japanese yen. The contracts
have maturities  that do not exceed three months.  The Company has a substantial
presence in Malaysia.  In September  1998,  the Malaysian  government  fixed the
Malaysian Ringgit to the U.S. dollar. The Company  experienced a loss related to
the fixing of the currency.  The Company  recognized  this loss in other expense
for the year ended  December  31,  1998.  The  Company has  material  amounts of
accounts payable denominated in Ringgit. Currently, the foreign currency markets
are closed to hedging alternatives in Ringgit. When the foreign currency markets
re-open for the Ringgit,  the Company plans to re-institute its hedging strategy
for Ringgit exposure.

When  hedging  balance  sheet  exposure,  realized  gains and  losses on forward
contracts  are  recognized in other income and expense in the same period as the
realized gains and losses on remeasurement  of the foreign currency  denominated
assets and liabilities  occur.  All gains and losses related to foreign exchange
contracts are included in cash flows from operating activities in the unaudited,
condensed, consolidated statement of cash flows.

The fair value of the  Corporation's  long-term  debt and forward  contracts are
subject to change as a result of  potential  changes in market rates and prices.
The Company has performed a sensitivity  analysis  assuming a  hypothetical  10%
adverse  movement in foreign  exchange  rates and interest  rates applied to the
forward contracts and underlying  exposures described above. As of September 26,
1999,  the  analysis  indicated  that  such  market  movements  would not have a
material effect on the Company's  consolidated  financial  position,  results of
operations  or cash flows.  Factors that could impact the  effectiveness  of the
Company's   hedging  programs  include   volatility  of  the  currency  markets,
availability  of hedging  instruments  and the  Company's  ability to accurately
project net asset or liability positions.  Actual gains and losses in the future
may differ  materially from the Company's  analysis  depending on changes in the
timing and amount of interest rate and foreign  exchange rate  movements and the
Company's actual exposure and hedges.





                                       36
<PAGE>




YEAR 2000 READINESS

The information  provided below  constitutes a "Year 2000 Readiness  Disclosure"
under the Year 2000 Information and Readiness Disclosure Act of 1998.

OVERVIEW. In general, the Year 2000 issue relates to computers and other systems
being unable to distinguish between the years 1900 and 2000 because they use two
digits,  rather  than  four,  to define  the  applicable  year.  The  Company is
addressing the Year 2000 issue in the following areas: (i) hardware and software
products sold by the Company; (ii) the Company's  information  technology ("IT")
systems;  (iii) the Company's  non-IT  systems (i.e.,  machinery,  equipment and
devices that utilize  "built-in"  technology such as embedded  microcontrollers)
and (iv)  third-party  suppliers and customers.  The Company is undertaking  its
Year 2000 review in the following phases:  Awareness  (education and sensitivity
to the Year 2000 issue),  Inventory  (identifying  the  equipment,  processes or
systems which are susceptible to the Year 2000 issue),  Assessment  (determining
the  potential  impact  of Year 2000 on the  equipment,  processes  and  systems
identified  during the  Inventory  phase and  assessing the need for testing and
remediation), Testing/Verification (testing to determine if an item is Year 2000
ready or the degree to which it is deficient) and  Implementation  (carrying out
necessary remedial efforts to address Year 2000 readiness,  including validation
of upgrades,  patches or other Year 2000  fixes).  The Company has formed a Year
2000  Committee  that meets  regularly  and has  responsibility  to oversee  the
implementation  of Year  2000  initiatives.  The  Year  2000  Committee  reports
regularly to an executive management  committee.  As more fully discussed below,
the  Company  believes  it is now  substantially  complete  with its  Year  2000
efforts. Follow-up testing and implementation of contingency plans will continue
through year end.

PRODUCTS.  The Company  has  completed  the review and  testing of its  hardware
products.  Hardware  testing was  conducted  by the  National  Software  Testing
Laboratories  ("NSTL") according to NSTL developed standards or guidelines (NSTL
YMark 2000,  Version  97.08.15).  NSTL has verified  that the Zip,  Jaz,  Ditto,
Bernoulli,  Buz and Clik! hardware products tested are Year 2000 ready when used
in an operating  system and with other products  which  themselves are Year 2000
ready.  Some Bernoulli  drive products were reviewed,  and determined to be Year
2000 ready,  by a Company  engineer and were not tested by NSTL. The Company has
recently  introduced  ZipCD, an optical CD-RW drive.  This drive is manufactured
for the  Company by a third party who has  reported  that the drive is Year 2000
ready.

The  Company  has  completed  the review and  testing of the  software  products
developed  by the  Company.  Software  utility  tools and  drivers  were  tested
internally  by the  Company.  When used in an  operating  system  and with other
products which  themselves are Year 2000 ready,  the Company's  tested  software
utility tools and drivers have been found to be Year 2000 ready,  except for the
Ditto 16-bit  software  applications  intended for DOS and Windows 3.1 users. No
solution is presently  available  for the 16-bit  software  version of the Ditto
software applications.  The 16-bit version of the Ditto software was provided by
a third party who no longer  supports  the  software.  The Company  continues to
investigate  the  possibility of providing a Year 2000 upgrade for this software
application,  but has not determined  whether an upgrade will be made available.
The CopyMachine and Findit software  applications have now been determined to be
Year 2000 ready for Windows 3.x and higher,  so long as the  underlying  default
setting in the Windows  operating  system is set to a four digit date field. The
Company is providing instructions on its Year 2000 web site as to the procedures
to follow to re-set the date field in the Windows operating  system.  Due to the
legacy  nature of the  Bernoulli  product,  the Company  will not test  software
provided with the Bernoulli drive;  however, the Company did internally test the
latest software and drivers released with the Bernoulli drive, Iomega Tools ver.
3.1, which has been determined to be Year 2000 ready. For software  developed by
third parties which was bundled or sold with Bernoulli drive products, the third
party provider of such software  should be contacted for the Year 2000 readiness
of such software products.

                                       37
<PAGE>

The Company has completed its review of Nomai branded  hardware drive  products.
Nomai  marketed a rigid  magnetic  media drive and an optical  CD-RW drive.  The
rigid  magnetic  media drive was  manufactured  by Nomai.  A Nomai  engineer has
reviewed and determined  that the rigid magnetic media drive is Year 2000 ready.
The optical CD-RW drive sold by Nomai was  manufactured  by third parties.  NSTL
tested one version of the Nomai branded optical CD-RW drive and determined it to
be Year 2000 ready. Software provided with Nomai branded optical CD-RW drive was
developed  by a third  party,  who  indicated  that such  software  is Year 2000
compliant.

The  specific  results of hardware  and  software  testing  are  provided on the
Company's  Year 2000 web  pages on its web site  (www.iomega.com).  The  Company
plans to use its web site to  communicate  Year 2000 product  issues that may be
identified in the future.  Notwithstanding  the results of the Company's testing
and remediation efforts, actual backup, restore and rollover results in specific
operating  system  environments  may  vary  depending  on a number  of  factors,
including,  without limitation,  other hardware utilized, the specific operating
system  utilized,  other  software  applications  utilized  and  the  Year  2000
readiness of each. Statements concerning, or references made to, a third party's
Year 2000 statements or claims constitute  "Republications"  of such information
for purposes of the Year 2000 Information and Readiness Disclosure Act, and such
statements or republications  have not be reviewed or verified by the Company as
to their accuracy,  correctness or content. Such information was supplied by the
person or entity  identified in such Year 2000 statement or  republication,  and
the Company is not the source of such  statement or  republication.  The Company
has not tested,  and is not  responsible  for, third party hardware and software
products which may have been released or bundled with Company products.

INTERNAL IT  SYSTEMS.  During  1998,  the  Company  implemented  new HP computer
hardware and Oracle software for its financial,  accounting,  inventory control,
order  processing,  supply chain  management  and other  management  information
systems. According to the respective vendors, the hardware operating systems and
software  currently  in use by the  Company  are in various  stages of Year 2000
readiness. The respective vendors are providing Year 2000 software upgrades when
Year 2000  deficiencies  are  identified.  In January  1999,  the Company  began
testing the hardware  operating systems and software  applications in use by the
Company to  confirm  Year 2000  readiness.  The  Company  has  identified  other
hardware and applications  software used in its IT systems and has obtained Year
2000 compliance  information or, where applicable,  upgrades/solutions  from the
providers of such hardware and applications  software. The Company will continue
to assess and remedy, as deemed appropriate, Year 2000 issues it identifies with
respect to critical IT systems  utilized by the  Company.  The Company  does not
anticipate any  significant  Year 2000 issues with respect to its IT systems and
therefore does not contemplate any significant  contingency  planning for its IT
systems.

INTERNAL NON-IT SYSTEMS. The Company has substantially  completed  inventorying,
assessing  and testing its major non-IT  systems,  as well as  implementing  any
remedial  actions to the extent  deemed  appropriate.  The  Company  anticipates
certain follow-up testing and implementation efforts through the end of the year
as deemed appropriate. The Company does not anticipate any significant Year 2000
issues with respect to its non-IT systems and therefore does not contemplate any
significant contingency planning for its non-IT systems.

                                       38
<PAGE>

MATERIAL THIRD-PARTY  RELATIONSHIPS.  The Company has significant  relationships
with various third parties (many located outside of the U.S.) and the failure of
any of these third parties to achieve Year 2000 compliance could have a material
impact on the Company's  business,  operating  results and financial  condition.
These  third   parties   include   energy  and  utility   suppliers,   financial
institutions,   material  and  product  suppliers,   transportation   providers,
communications vendors,  including value added network vendors and the Company's
significant customers. While the Company received Year 2000 readiness statements
from its  major  third-party  suppliers  which in  general  indicate  Year  2000
readiness, the Company conducted a questionnaire/review with each major supplier
and vendor to review their Year 2000 readiness. The Company is now substantially
complete with the individual  reviews of its major  suppliers and vendors;  with
the exception of several recently-added  suppliers who are being reviewed in the
fourth quarter of 1999.

COSTS.  Through the third quarter of 1999,  the Company  incurred  approximately
$39.5  million in costs to improve  the  Company's  IT systems and for Year 2000
readiness efforts. Of this amount, 91% represented the costs of transitioning to
new computer  hardware and software  for its  financial,  accounting,  inventory
control,  order  processing,   supply  chain  management  and  other  management
information  systems.  This system  hardware  and software  was  implemented  to
upgrade and improve the Company's IT systems. The implementation of the hardware
and software also resulted in facilitating the Company's Year 2000 readiness for
these  systems.  The balance was expended  for  hardware  and software  testing,
third-party  consulting costs and third-party audits and reviews. The Company is
not separately  tracking the internal costs for its Year 2000 review activities;
such  costs  are  principally  the  related  payroll  costs  for  the  Company's
information  systems group. The Company  anticipates  incurring an additional $2
million in the final  quarter  of 1999 in  connection  with Year 2000  readiness
efforts,   including  additional  system  hardware  and  software,   third-party
consulting  fees,  third-party  audits and  reviews  and  product  software  and
hardware testing costs.

CONTINGENCY PLANS. The Company has prepared, and continues to revise and update,
contingency  plans for critical  areas to address Year 2000 failures if remedial
efforts are not fully  successful.  The Company's  contingency plans address the
Company's most reasonably  likely worst case scenarios.  Presently,  the Company
does not anticipate  significant Year 2000 failures with respect to its products
and IT and  non-IT  systems,  and thus  does  not  contemplate  any  significant
contingency  planning  for  these  areas.  The  Company  believes  that its most
reasonably  likely worst case Year 2000 failure scenario would be a key supplier
of a  critical  component  who is  unable to timely  deliver  components  to the
Company's manufacturing  locations. In such a case, the Company may be unable to
timely manufacture  product which would in turn negatively impact sale revenues.
Such a situation  would also include the inability of the local power company to
deliver power to the Company's Penang manufacturing site.  Additionally,  if any
of the  Company's  logistical  transportation  providers  are unable to ship the
Company's  finished  goods  to  distribution  and  retail  points,  due to  such
provider's  Year  2000  failure  or  a  Year  2000  failure  in  the  underlying
transportation  network (air traffic  centers,  ports of call,  custom clearance
houses, etc.), then, similarly,  the Company's sales revenue would be negatively
impacted.  To address these issues the Company's  contingency  plans include the
identification of alternate providers for critical components and maintaining an
inventory buffer for critical  components.  The Company has established multiple
accounts  for  alternative  third-party  logistics.  Finally,  the  Company  has
alternative manufacturing capacity at different locations worldwide which should
minimize  to some  degree the adverse  impact if any one  manufacturing  site is
adversely affected. The Company's contingency plans have been based, in part, on
the results of third-party  supplier audits. The Company anticipates the need to
revise  and  update  its  contingency  plans  from  time to  time as  additional
information becomes available.

                                       39
<PAGE>

GENERAL.  To supplement the Company's  efforts  described above, the Company has
engaged  outside IT and legal  advisors  to conduct  independent  reviews of the
Company's Year 2000 plans.

No  assurance  can be given that the Company  will not be  materially  adversely
affected by Year 2000 issues. Although the Company is not currently aware of any
material  operational  issues with  preparing its internal IT and non-IT systems
for the Year 2000, the Company may experience  material  unanticipated  problems
and costs caused by  undetected  errors or defects in its internal IT and non-IT
systems. In addition,  the failure of third parties to timely address their Year
2000 issues  could have a material  adverse  impact on the  Company's  business,
operations  and  financial  condition.  If, for example,  third party  suppliers
become unable to deliver  necessary  components,  the Company would be unable to
timely manufacture products and meet customer order requirements.  Similarly, if
international  shipping and freight forwarders were unable to ship product,  the
Company would be unable to deliver product to sales channels.

Additionally, there can be no assurance that the Company will not be the subject
of lawsuits regarding the failure of the Company's products (former or present),
or third party products bundled with the Company's  products,  in the event they
are not Year 2000 ready.  Despite the testing and remediation efforts undertaken
by the Company,  the Company's products may contain errors or defects associated
with the Year 2000. Known or unknown errors or defects in the Company's products
could result in delay or loss of revenue,  diversion of  development  resources,
damage to the Company's  reputation or increased service and warranty costs, any
of which could  materially  adversely affect the Company's  business,  operating
results and financial  condition.  In addition,  because the computer systems in
which the Company's products are used involve different  hardware,  software and
firmware  components  from  different  manufacturers,  it  may be  difficult  to
determine which component in a system caused a Year 2000 issue. As a result, the
Company may be subjected to Year 2000 related  lawsuits  independent  of whether
its products  are Year 2000 ready.  Any Year 2000  related  suits,  if adversely
determined,  could have a material  adverse  affect on the  Company's  business,
operating results and financial condition.

The  foregoing   discussion  of  the  Company's  Year  2000  readiness  includes
forward-looking statements,  including estimates of the timeframes and costs for
addressing  the known Year 2000 issues  confronting  the Company and is based on
management's current estimates,  which were derived using numerous  assumptions.
There can be no assurance  that these  estimates  will be achieved.  There are a
number of important  factors that could cause actual events or results to differ
materially  from  those  indicated  by such  forward-looking  statements.  These
factors  include,  but are not limited to, the  availability  of personnel  with
required  remediation skills, the ability of the Company to identify and correct
all  relevant  computer  code and the  success  of third  parties  with whom the
Company  does  business in  addressing  their Year 2000 issues.  Any  statements
contained  herein that are not statements of historical fact may be deemed to be
forward-looking   statements.   Without   limiting  the  foregoing,   the  words
"believes," "anticipates," "plans," "expects," "intends" and similar expressions
are intended to identify forward-looking statements.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

A discussion  of the  Company's  exposure  to, and  management  of,  market risk
appears in Item 2 of this Form 10-Q under the heading  "Disclosures About Market
Risk".




                                       40
<PAGE>





 IOMEGA CORPORATION

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

Except as set forth below,  or in the  Company's  Annual Report on Form 10-K for
the year ended  December  31,  1998 and  Quarterly  Reports on Form 10-Q for the
periods ended March 28, 1999 and June 27, 1999, in management's  opinion,  there
are  no  material  pending  legal  proceedings,   other  than  ordinary  routine
litigation  incidental  to its  business,  to which  the  Company  or any of its
subsidiaries is a party or to which any of their property is subject.

As previously disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and in the Company's  Quarterly  Report on Form 10-Q for
the period  ended  March 28,  1999,  on October 9, 1998,  Hi-Val,  Inc.  filed a
complaint against the Company and other parties,  Hi-Val,  Inc. v. Nomai,  S.A.,
Nomus,  Inc.,  Kevin Scheier and Iomega,  in the Superior  Court of  California,
County of Santa Clara. The claims were related to an alleged arrangement between
Nomai,  S.A.  and  Hi-Val  for  Hi-Val to  distribute  Nomai's  XHD  cartridges.
Plaintiff  sought to recover  $26 million in alleged,  unspecified  damages.  On
October 18, 1999, the parties engaged in mediation and, based on such mediation,
expects to resolve the matter with a cash  payment by Iomega that is  immaterial
to the Company's results of operations and financial condition.

As previously disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and in the Company's  Quarterly  Report on Form 10-Q for
the period ended June 27, 1999, on May 27, 1998,  Scott D. Ora filed a complaint
against the  Company and other  parties.  The  action,  captioned  Ora v. Iomega
Corporation,  et al., was filed in Superior Court of the State of California for
the County of Los Angeles and alleged that the Company and certain of its former
officers violated certain federal and state securities laws and alleged that Kim
B. Edwards, former Chief Executive Officer and director of the Company, breached
his duties as a director of the Company.  The Company  successfully  removed the
action  to the  United  States  District  Court  for  the  Central  District  of
California.  On February 9, 1999, the Court  dismissed  five of the  complaint's
original  seven causes of action.  On August 18, 1999,  the Court  dismissed the
remaining two causes of action and gave Ora the  opportunity  to file an amended
complaint  with respect to those two counts.  On October 8, 1999, the Court also
granted the Company's  motion to stay discovery until the Court has ruled on the
sufficiency of any amended  pleading.  On November 1, 1999, Ora filed an Amended
Complaint  repleading  the two  causes of action  dismissed  on August  18,  and
bringing new related conspiracy causes of action.  Management  believes that the
named  defendants have highly  meritorious  defenses to the allegations  made in
this lawsuit and intends to defend vigorously against these allegations.

As previously disclosed in the Company's Annual Report on Form 10-K for the year
ended  December 31,  1998,  on  September  10,  1998,  a purported  class action
lawsuit, Rinaldi et al. v. Iomega Corporation,  was filed against the Company in
the  Superior  Court of  Delaware,  New Castle  County.  The suit alleges that a
defect in the Company's Zip drives  causes an abnormal  clicking  noise that may
indicate damage to the Zip drive or disks. The plaintiffs sought relief pursuant
to claims of breach of warranty,  violation of the Delaware  Consumer Fraud Act,
and negligent design, manufacture and failure to warn. On September 3, 1999, the
Court  dismissed  the claims of breach of warranty and violation of the Consumer
Fraud Act,  granting the plaintiffs  the  opportunity to amend the latter claim.
The parties are proceeding with discovery  relating to the remaining claims. The
Company intends to vigorously defend against this suit.

                                       41
<PAGE>

As previously  disclosed in the Company's  Quarterly Report on Form 10-Q for the
period ended June 27, 1999, on July 6, 1999,  the Company  initiated  litigation
against Castlewood  Systems,  Inc.  ("Castlewood") in the United States District
Court in the  District of Utah for  infringing  the  Company's  U.S.  Patent No.
4,458,273  and U.S.  Patent No.  5,854,719 and for  infringing  and diluting the
Company's  registered  trademarks  "Iomega,"  "Zip"  and  "Jaz".  The  complaint
requests  monetary  damages and  injunctive  relief  enjoining  Castlewood  from
further infringement. The Court has not set a trial date. On September 17, 1999,
the Company also initiated  litigation  against Castlewood in the Paris District
Court based on claims of copyright  and patent  infringement.  Additionally,  on
September 20, 1999,  the Company  initiated  litigation  against Motek, a French
retailer of Castlewood's products, in the Paris District Court.

The Company continues to be committed to vigorously protecting and enforcing its
intellectual  property  rights and to attacking  unfair  competition,  including
through the proceedings referenced above.

It is the opinion of management,  after discussions with legal counsel, that the
ultimate  dispositions  of these  lawsuits  and claims  will not have a material
adverse effect on the Company's financial position or results of operations.


Item 2.   Change in Securities and Use of Proceeds

The Company did not sell any equity  securities during the third quarter of 1999
that were not registered under the Securities Act of 1933.


Item 6.   Exhibits and Reports on Form 8-K

(a)   EXHIBITS. The exhibits listed on the Exhibit Index filed as a part of this
      Quarterly Report on Form 10-Q are incorporated herein by reference.

(b)   REPORTS ON FORM 8-K. The Company filed a current report on Form 8-K  dated
      August 19, 1999 incorporating under Item 5 (Other Events)  a press release
      issued by the Company on August 19, 1999 entitled "Iomega  Chief Executive
      Resigns."






                                       42
<PAGE>





                                  SIGNATURES



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




                                              IOMEGA CORPORATION
                                                 (Registrant)



                                                /s/  David J. Dunn
                                                -----------------------
Dated:      November 9, 1999                    David J. Dunn
                                                Chairman and Chief Executive
                                                Officer




                                                /s/  Philip G. Husby
                                                -----------------------
Dated:      November 9, 1999                    Philip G. Husby
                                                Senior Vice President, Finance
                                                and Chief Financial Officer






















                                       43
<PAGE>





                                EXHIBIT INDEX


The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

Exhibit No.     Description

 10.13    (i)   Amendment  No. 3 to  Credit  Agreement,  dated  October  14,
                1999.

 27             Financial Data Schedule (only filed as part of electronic copy).



























                                       44