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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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FORM 10-Q



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|    |  |                                                                                         
|--- |  | ----------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
|   
|    |  | For the quarterly period ended April 30, 2001                                           
|   
|[ ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|   
|    |  | For the transition period from _________________ to _________________                   

Commission file number 0-21103



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ADVANCED DIGITAL INFORMATION CORPORATION

|                                                       |  |                                     
|------------------------------------------------------ |  | ------------------------------------
|Incorporated under the laws
of the State of Washington |  | I.R.S. Identification
No. 91-1618616

11431 Willows Road
P.O. Box 97057
Redmond, Washington 98073-9757

(425) 881-8004

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 [ ]

The total shares of common stock without par value outstanding at the end
of the quarter reported is 52,131,367.



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TABLE OF CONTENTS



|                             |                                                                                               |                                                            |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  |  |  |  |  | 
|PART IFINANCIAL INFORMATION
|                             | Item 1. Financial Statements                                                                 
|                             |                                                                                               | Consolidated Balance Sheets                               
|                             |                                                                                               | Consolidated Statements of Income                         
|                             |                                                                                               | Consolidated Statements of Cash Flows                     
|                             |                                                                                               | Consolidated Statements of Changes in Shareholders Equity
|                             |                                                                                               | Notes to Interim Consolidated Financial Statements        
|                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                             | Item 3. Quantitative and Qualitative Disclosures about Market Risk Management                
|PART II  OTHER INFORMATION 
|                             | Item 1. Legal Proceedings.                                                                   
|                             | Item 2. Changes in Securities.                                                               
|                             | Item 3. Defaults Upon Senior Securities.                                                     
|                             | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                             | Item 5. Other information.                                                                   
|                             | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                  



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##### Table of Contents






PART IFINANCIAL INFORMATION







Item 1. Financial Statements

Advanced Digital Information Corporation

Consolidated Balance Sheets

(In thousands, except for share data)

|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |           |        |             |         | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------- | ------------------------------------ | -------------------- | -------------------------- | ------ | ----------- | ------- | --------- | ------ | ----------- | ------- | 
|                                     |                                                                                                                   |                                      |                      |                            |        | October 31, |         | April 30,
|                                     |                                                                                                                   |                                      |                      |                            |        | 2000        |         | 2001     
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |           |        | (Unaudited)
|Assets                              
|                                    
|                                    
|                                    
|                                    
|Current assets:                     
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                         |                                      | $                    | 185,169                    |        |             | $       | 146,826   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, net of allowances of $1,864 in 2000
and $1,848 in 2001                                       |                                      |                      | 67,821                     |        |             |         | 85,518    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories, net                                                                                                  |                                      |                      | 48,110                     |        |             |         | 73,006    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Marketable equity securities                                                                                      |                                      |                      | 19,349                     |        |             |         | 25,382    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other                                                                                        |                                      |                      | 1,351                      |        |             |         | 2,353     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                             |                                      |                      | 9,038                      |        |             |         | 6,935     |       
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          
|                                     |                                                                                                                   |                                      | Total current assets |                            |        | 330,838     |         |           |        | 340,020     |        
|                                    
|                                    
|                                    
|                                    
|Property, plant and equipment, net   |                                                                                                                   |                                      | 18,864               |                            |        |             | 24,070  |          
|                                    
|                                    
|                                    
|                                    
|Deferred income taxes                |                                                                                                                   |                                      | 3,700                |                            |        |             | 3,778   |          
|                                    
|                                    
|                                    
|                                    
|Investments                          |                                                                                                                   |                                      | 20,972               |                            |        |             | 21,088  |          
|                                    
|                                    
|                                    
|                                    
|Intangible and other assets          |                                                                                                                   |                                      | 8,700                |                            |        |             | 7,810   |          
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          
|                                     |                                                                                                                   | $                                    | 383,074              |                            |        | $           | 396,766 |          
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          
|Liabilities and Shareholders Equity
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                  |                                      | $                    | 32,661                     |        |             | $       | 25,509    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued liabilities                                                                                               |                                      |                      | 15,538                     |        |             |         | 12,720    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                                                                              |                                      |                      | 6,000                      |        |             |         | 4,308     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue                                                                                                  |                                      |                      | 8,215                      |        |             |         | 10,798    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Bank line of credit and current portion of long-term debt                                                         |                                      |                      | 5,282                      |        |             |         | 4,666     |       
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          
|                                     |                                                                                                                   |                                      |                      | Total current liabilities  |        |             | 67,696  |           |        |             | 58,001  | 
|                                    
|                                    
|                                    
|                                    
|Long-term debt                       |                                                                                                                   |                                      | 1,087                |                            |        |             | 1,082   |          
|                                    
|                                    
|                                    
|                                    
|Commitments                          |                                                                                                                   |                                      |                     |                            |        |             |        |          
|                                    
|                                    
|                                    
|                                    
|Shareholders equity:               
|                                    
|                                    
|                                    
|                                    
|                                     | Preferred stock, no par value; 4,000,000 shares
authorized; none issued and outstanding                           |                                      |                      |                           |        |             |         |          |       
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, no par value; 160,000,000 shares authorized,
52,131,367 issued and outstanding (51,802,283 in 2000) |                                      |                      | 199,976                    |        |             |         | 202,663   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                                 |                                      |                      | 120,136                    |        |             |         | 136,760   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income (loss):                                                                   
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                   | Cumulative translation adjustment    |                      |                            | (2,755 | )           |         |           | (2,345 | )          
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                   | Unrealized investment gains (losses) |                      |                            | (3,066 | )           |         |           | 605    |            
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          
|                                     |                                                                                                                   |                                      |                      | Total shareholders equity |        |             | 314,291 |           |        |             | 337,683 | 
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          
|                                     |                                                                                                                   | $                                    | 383,074              |                            |        | $           | 396,766 |          
|                                     |                                                                                                                   |                                      |                      |                            |        |             |         |          

See the accompanying notes to these consolidated financial statements.

1



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##### Table of Contents






Advanced Digital Information Corporation

Consolidated Statements of Income

(In thousands, except for per share data)

|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |        |  
|---------------------------------------- | ------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                         |                                                   |   | Three months ended |        | Six months ended
|                                         |                                                   |   | April 30,          |        | April 30,       
|                                         |                                                   |   |                    |        |                 
|                                         |                                                   |   | 2000               |        | 2001             |   | 2000   |        | 2001
|                                         |                                                   |   |                    |        |                  |   |        |        |     
|                                         |                                                   |   | (Unaudited)       
|Net sales                                |                                                   | $ | 64,898             |        |                  | $ | 94,778 |        |      | $ | 128,760 |        |   | $ | 184,844 |       
|                                        
|                                        
|                                        
|                                        
|Cost of sales                            |                                                   |   | 41,483             |        |                  |   | 65,384 |        |      |   | 82,443  |        |   |   | 129,000 |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                         | Gross profit                                      |   |                    | 23,415 |                  |   |        | 29,394 |      |   |         | 46,317 |   |   |         | 55,844 |  
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Operating expenses:                     
|                                        
|                                        
|                                        
|                                        
|                                         | Selling and administrative                        |   |                    | 12,582 |                  |   |        | 14,543 |      |   |         | 23,533 |   |   |         | 27,252 |  
|                                        
|                                        
|                                        
|                                        
|                                         | Research and development                          |   |                    | 4,118  |                  |   |        | 5,902  |      |   |         | 8,074  |   |   |         | 10,722 |  
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                         |                                                   |   | 16,700             |        |                  |   | 20,445 |        |      |   | 31,607  |        |   |   | 37,974  |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Operating profit                         |                                                   |   | 6,715              |        |                  |   | 8,949  |        |      |   | 14,710  |        |   |   | 17,870  |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Other income (expense):                 
|                                        
|                                        
|                                        
|                                        
|                                         | Interest income                                   |   |                    | 2,488  |                  |   |        | 1,857  |      |   |         | 4,672  |   |   |         | 4,520  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Interest expense                                  |   |                    | (91    | )                |   |        | (79    | )    |   |         | (189   | ) |   |         | (149   | )
|                                        
|                                        
|                                        
|                                        
|                                         | Gain on marketable equity securities transactions |   |                    | 75,794 |                  |   |        | 1,246  |      |   |         | 75,982 |   |   |         | 3,094  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Foreign currency transaction gains (losses), net  |   |                    | (69    | )                |   |        | 45     |      |   |         | 60     |   |   |         | (192   | )
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                         |                                                   |   | 78,122             |        |                  |   | 3,069  |        |      |   | 80,525  |        |   |   | 7,273   |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Income before provision for income taxes |                                                   |   | 84,837             |        |                  |   | 12,018 |        |      |   | 95,235  |        |   |   | 25,143  |       
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |                                                   |   | 28,894             |        |                  |   | 4,101  |        |      |   | 32,106  |        |   |   | 8,519   |       
|                                        
|                                        
|                                        
|                                        
|Minority interest                        |                                                   |   |                   |        |                  |   |       |        |      |   | 18      |        |   |   |        |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Net income                               |                                                   | $ | 55,943             |        |                  | $ | 7,917  |        |      | $ | 63,111  |        |   | $ | 16,624  |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Basic net income per share               |                                                   | $ | 1.09               |        |                  | $ | 0.15   |        |      | $ | 1.23    |        |   | $ | 0.32    |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Diluted net income per share             |                                                   | $ | 1.03               |        |                  | $ | 0.15   |        |      | $ | 1.17    |        |   | $ | 0.31    |       
|                                         |                                                   |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       

See the accompanying notes to these consolidated financial statements.

2



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Advanced Digital Information Corporation

Consolidated Statements of Cash Flows

(In thousands)

|                                                     |                                                                                  |                                                   |         |                  |         |      |         |        |         |  
|---------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------- | ------- | ---------------- | ------- | ---- | ------- | ------ | ------- | -
|                                                     |                                                                                  |                                                   |         | Six months ended
|                                                     |                                                                                  |                                                   |         | April 30,       
|                                                     |                                                                                  |                                                   |         |                 
|                                                     |                                                                                  |                                                   |         | 2000             |         | 2001
|                                                     |                                                                                  |                                                   |         |                  |         |     
|                                                     |                                                                                  |                                                   |         | (Unaudited)     
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                                                                       |                                                   | $       | 63,111           |         |      | $       | 16,624 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income to net cash used
in operating activities:   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Depreciation and amortization                     |         |                  | 2,148   |      |         |        | 3,546   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Allowance for doubtful accounts receivable        |         |                  | 607     |      |         |        | 171     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Allowance for inventory obsolescence              |         |                  | 2,983   |      |         |        | 2,382   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Gain on marketable equity securities transactions |         |                  | (75,982 | )    |         |        | (3,094  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Deferred income taxes                             |         |                  | (917    | )    |         |        | 55      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Other                                             |         |                  | 119     |      |         |        | 5       |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Change in assets and liabilities:                                               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Accounts receivable                               |         |                  | (12,789 | )    |         |        | (17,523 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Inventories                                       |         |                  | (17,559 | )    |         |        | (26,834 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Prepaid expenses and other                        |         |                  | (271    | )    |         |        | (991    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Other assets                                      |         |                  | 11      |      |         |        | (4      | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Accounts payable                                  |         |                  | 10,526  |      |         |        | (7,260  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Accrued liabilities                               |         |                  | (1,834  | )    |         |        | (3,069  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Income taxes payable                              |         |                  | 17,299  |      |         |        | (946    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                  | Deferred revenue                                  |         |                  | 998     |      |         |        | 2,505   |  
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Net cash used in operating activities                |                                                                                  |                                                   | (11,550 | )                |         |      | (34,433 | )     
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of property, plant and equipment                                        |                                                   |         | (3,072           | )       |      |         | (7,667 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in marketable equity securities                                       |                                                   |         | (26,769          | )       |      |         |       |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other investments                                                                |                                                   |         |                 |         |      |         | (500   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from marketable equity securities transactions                          |                                                   |         | 79,455           |         |      |         | 3,094  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisition of minority interest                                                 |                                                   |         | (4,765           | )       |      |         |       |        
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Net cash provided by (used in) investing activities  |                                                                                  |                                                   | 44,849  |                  |         |      | (5,073  | )     
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayment of bank line of credit and long-term debt                              |                                                   |         | (1,078           | )       |      |         | (979   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from issuance of common stock for stock
options and stock purchase plan |                                                   |         | 7,033            |         |      |         | 1,926  |        
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Net cash provided by financing activities            |                                                                                  |                                                   | 5,955   |                  |         |      | 947     |       
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Effect of exchange rate changes on cash              |                                                                                  |                                                   | (862    | )                |         |      | 216     |       
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Net increase (decrease) in cash and cash equivalents |                                                                                  |                                                   | 38,392  |                  |         |      | (38,343 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                  |                                                   | 156,548 |                  |         |      | 185,169 |       
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |       
|Cash and cash equivalents at end of period           |                                                                                  | $                                                 | 194,940 |                  |         | $    | 146,826 |       
|                                                     |                                                                                  |                                                   |         |                  |         |      |         |        |        

See the accompanying notes to these consolidated financial statements.

3



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Advanced Digital Information Corporation

Consolidated Statements of Changes in Shareholders Equity

Six months ended April 30, 2001

(In thousands)

(Unaudited)

|                                                         |                                         |                            |        |              |   |          |         |               |   |               |         |        |   |   |        |             |   |   |         |   |        | 
|-------------------------------------------------------- | --------------------------------------- | -------------------------- | ------ | ------------ | - | -------- | ------- | ------------- | - | ------------- | ------- | ------ | - | - | ------ | ----------- | - | - | ------- | - | ------ | 
|                                                         |                                         |                            |        |              |   |          |         |               |   |               |         |        |   |   |        | Accumulated
|                                                         |                                         |                            |        | Common Stock |   |          |         |               |   | Other        
|                                                         |                                         |                            |        |              |   | Retained |         | Comprehensive
|                                                         |                                         |                            |        | Shares       |   | Amount   |         | Earnings      |   | Income (Loss) |         | Total 
|                                                         |                                         |                            |        |              |   |          |         |               |   |               |         |       
|Balance at October 31, 2000                              |                                         |                            | 51,802 |              |   | $        | 199,976 |               |   | $             | 120,136 |        |   | $ | (5,821 | )           |   | $ | 314,291 |  
|                                                        
|                                                        
|                                                        
|                                                        
|Purchases under Stock Purchase Plan                      |                                         |                            | 77     |              |   |          | 1,009   |               |   |               |        |        |   |   |       |             |   |   | 1,009   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Exercise of stock options,
including tax benefit of $761 |                                         |                            | 252    |              |   |          | 1,678   |               |   |               |        |        |   |   |       |             |   |   | 1,678   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Comprehensive income:                                   
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Net income                              |                            |        |             |   |          |         |              |   |               |         | 16,624 |   |   |        |            |   |   |         |  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Unrealized investment gains             |                            |        |             |   |          |         |              |   |               |         |       |   |   |        | 3,671       |   |   |         |  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Foreign currency translation
adjustment |                            |        |             |   |          |         |              |   |               |         |       |   |   |        | 410         |   |   |         |  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                         | Total comprehensive income |        |              |  |          |         |               |  |               |         |        |  |   |        |             |  |   |         |   | 20,705 | 
|                                                         |                                         |                            |        |              |   |          |         |               |   |               |         |        |   |   |        |             |   |   |         |  
|Balance at April 30, 2001                                |                                         |                            | 52,131 |              |   | $        | 202,663 |               |   | $             | 136,760 |        |   | $ | (1,740 | )           |   | $ | 337,683 |  
|                                                         |                                         |                            |        |              |   |          |         |               |   |               |         |        |   |   |        |             |   |   |         |  

See the accompanying notes to these consolidated financial statements.

4



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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements

April 30, 2001

(Unaudited)

Note 1. Basis of presentation

The accompanying condensed consolidated financial statements are unaudited
and should be read in conjunction with the financial statements included in our
Annual Report on Form 10-K for the year ended October 31, 2000. In our opinion
all normal recurring adjustments which are necessary for the fair presentation
of the results for the interim periods are reflected herein. Operating results
for the six-month period ended April 30, 2001, are not necessarily indicative
of results to be expected for a full year.

Note 2. Earnings per share

The following table sets forth the computation of basic and diluted net
income per share for the three months and six months ended April 30, 2000 and
2001:

|                             |                                                                                                       |   |                                           |        |                  |   |      |        |      |   |      |        |  |   |      |        | 
|---------------------------- | ----------------------------------------------------------------------------------------------------- | - | ----------------------------------------- | ------ | ---------------- | - | ---- | ------ | ---- | - | ---- | ------ |  | - | ---- | ------ | 
|                             |                                                                                                       |   | Three months ended                        |        | Six months ended
|                             |                                                                                                       |   | April 30,                                 |        | April 30,       
|                             |                                                                                                       |   |                                           |        |                 
|                             |                                                                                                       |   | 2000                                      |        | 2001             |   | 2000 |        | 2001
|                             |                                                                                                       |   |                                           |        |                  |   |      |        |     
|                             |                                                                                                       |   | (In thousands, except for per share data)
|Numerator:                  
|                            
|                            
|                            
|                            
|                             | Net income                                                                                            |   | $                                         | 55,943 |                  |   | $    | 7,917  |      |   | $    | 63,111 |  |   | $    | 16,624 | 
|                             |                                                                                                       |   |                                           |        |                  |   |      |        |      |   |      |        |  |   |      |        | 
|Denominator:                
|                            
|                            
|                            
|                            
|                             | Denominator for basic net income per
shareweighted average shares                                    |   |                                           | 51,524 |                  |   |      | 52,079 |      |   |      | 51,334 |  |   |      | 52,010 | 
|                            
|                            
|                            
|                            
|                             | Dilutive potential common shares from Team
Member (employee) stock options                            |   |                                           | 2,580  |                  |   |      | 1,782  |      |   |      | 2,577  |  |   |      | 1,951  | 
|                             |                                                                                                       |   |                                           |        |                  |   |      |        |      |   |      |        |  |   |      |        | 
|                             | Denominator for diluted net income per
shareadjusted weighted average shares and assumed
conversions |   |                                           | 54,104 |                  |   |      | 53,861 |      |   |      | 53,911 |  |   |      | 53,961 | 
|                             |                                                                                                       |   |                                           |        |                  |   |      |        |      |   |      |        |  |   |      |        | 
|Basic net income per share   |                                                                                                       | $ | 1.09                                      |        |                  | $ | 0.15 |        |      | $ | 1.23 |        |  | $ | 0.32 |       
|                             |                                                                                                       |   |                                           |        |                  |   |      |        |      |   |      |        |  |   |      |        | 
|Diluted net income per share |                                                                                                       | $ | 1.03                                      |        |                  | $ | 0.15 |        |      | $ | 1.17 |        |  | $ | 0.31 |       
|                             |                                                                                                       |   |                                           |        |                  |   |      |        |      |   |      |        |  |   |      |        | 

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

April 30, 2001

(Unaudited)

Note 3. Inventories

Inventories are comprised of the following:

|                                     |  |                |         |           |  |   |         |  
|------------------------------------ |  | -------------- | ------- | --------- |  | - | ------- | -
|                                     |  | October 31,    |         | April 30,
|                                     |  | 2000           |         | 2001     
|                                     |  |                |         |          
|                                     |  | (In thousands)
|Finished goods                       |  | $              | 30,840  |           |  | $ | 46,598  |  
|                                    
|                                    
|                                    
|                                    
|Work-in-process                      |  |                | 1,605   |           |  |   | 644     |  
|                                    
|                                    
|                                    
|                                    
|Raw materials                        |  |                | 27,132  |           |  |   | 39,472  |  
|                                     |  |                |         |           |  |   |         |  
|                                     |  |                | 59,577  |           |  |   | 86,714  |  
|                                    
|                                    
|                                    
|                                    
|Allowance for inventory obsolescence |  |                | (11,467 | )         |  |   | (13,708 | )
|                                     |  |                |         |           |  |   |         |  
|                                     |  | $              | 48,110  |           |  | $ | 73,006  |  
|                                     |  |                |         |           |  |   |         |  

Note 4. Investments in marketable equity securities and other investments

At times we invest in certain marketable equity securities. In accordance
with Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, such investments are
classified as available-for-sale. Under FAS 115, unrealized investment gains
and losses, net of taxes, are reflected as a net amount in a separate component
of shareholders equity until realized. For the purpose of computing realized
gains and losses, costs are identified on a specific identification basis.

At April 30, 2001, the cost basis of marketable equity securities included
as a current asset was $26,769,000 and the fair value was $25,382,000. The
difference between the cost basis and fair value, net of the benefit
for taxes,
is recorded as a $902,000 unrealized investment loss.

The fair value of our remaining investment in Crossroads Systems, Inc. is
$3,085,000. At April 30, 2001, the difference between the cost basis and fair
value is $2,318,000. This amount, net of taxes of $811,000, is recorded as an
unrealized investment gain of $1,507,000.

During the three months and six months ended April 30, 2001 we realized a
gain on certain marketable equity securities transactions of $1,246,000 and
$3,094,000, respectively.

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

April 30, 2001

(Unaudited)

Note 5. Acquisition of Pathlight Technology

On January 30, 2001, we entered into a definitive agreement to acquire
Pathlight Technology, Inc., a privately held company based in Ithaca, New York,
through a merger of a wholly owned subsidiary with Pathlight. Pathlight
supplies products consisting of proprietary hardware and software that allow
users to deploy advanced enterprise data storage systems called Storage Area
Networks or SANs. SANs are used to solve the growing problem of providing
organizations with efficient enterprise-wide access to electronic information.
The merger was consummated on May 11, 2001. We exchanged 10.3 million shares
of ADIC common stock for all of the outstanding stock, warrants and stock
options of Pathlight in the merger, which will be accounted for as a
pooling-of-interests. The 10.3 million shares were reduced by
approximately 500,000 shares in connection with the settlement of
certain litigation.




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

The following discussion and analysis should be read in conjunction with
our financial statements included in our Annual Report on Form 10-K for the
year ended October 31, 2000. This discussion contains certain forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. Such risks are detailed below
in the Section caption Risk Factors. Our actual results could differ
materially from those discussed here. We undertake no obligation to publicly
release any revisions to these forward-looking statements that may be required
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

General

We provide hardware and software-based data storage solutions to the open
systems marketplace. Our storage solutions integrate into a wide range of
rapidly evolving network computing environments and are designed to enable
organizations to organize, protect and retrieve complex mission-critical data.
We design, manufacture, sell and support specialized data storage hardware and
software products and provide related services. Currently, we derive
substantially all of our revenue from the sale of storage libraries and related
service and support. We distribute our products primarily through value-added
resellers (VARs), distributors and original equipment manufacturers (OEMs), and
also sell directly to large end users.

Results of Operations

Net Sales.Net sales increased during the second quarter of fiscal 2001
by 46% to $94.8 million from $64.9 million in the comparable quarter of fiscal
2000. Net sales for the six months ended April 30, 2001 were $184.8 million,
an increase of 44% from $128.8 million during the six months ended April 30,
2000. The increase in both comparison periods was primarily due to increased
sales to our OEM customers. Revenue from OEM customers was 38% of total sales
in the second quarter of fiscal 2001 as compared to 20% of total sales in the
second quarter of fiscal 2000. For the six months ended April 30, 2001 and
2000, OEM sales comprised 42% and 20% of total sales, respectively. The growth
in OEM

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sales is primarily a result of sales to IBM during the first half of
fiscal 2001. Shipments to IBM began in the fourth quarter of fiscal 2000. In
addition, sales to our other OEM customers have continued to grow.

Gross Profit.Gross profit was $29.4 million or 31% of net sales for the
three months ended April 30, 2001 compared to $23.4 million or 36% of net sales
for the same period in fiscal 2000. For the six months ended April 30, 2001,
gross profit was $55.8 million or 30% of net sales compared to $46.3 million or
36% for the same period in fiscal 2000. The reduction in gross margin is
generally a result of OEM sales representing a greater percentage of our total
sales. As our multi-product OEM relationships continue to mature and our OEM
sales mix shifts to higher margin products we anticipate improvement in gross
margin.

Selling and Administrative Expenses.Selling and administrative expenses
were $14.5 million or 15% of net sales for the three months ended April 30,
2001 compared to $12.6 million or 19% of net sales for the same period in
fiscal 2000. For the six month period ended April 30, 2001, selling and
administrative expenses were $27.3 million or 15% of net sales compared to
$23.5 million or 18% of net sales for the same period in fiscal 2000. As a
percentage of net sales, selling and administrative expenses decreased in 2001
due to the increase in OEM sales, which generally have lower related sales and
marketing costs than ADIC branded sales. An increase in sales, marketing and
administrative personnel along with higher marketing costs associated with
continued efforts to take advantage of new products and sales channels has
resulted in the overall increase of selling and administrative expenses over
prior periods.

Research and Development Expenses.Research and development expenses were
$5.9 million for the second quarter of fiscal 2001 compared to $4.1 million for
the second quarter of fiscal 2000. During the six months ended April 30, 2001
we incurred research and development expenses of $10.7 million compared to $8.1
million for the same period in fiscal 2000. As a percentage of net sales,
research and development expenses have been 6% in all the comparison periods.
The dollar increase is related to our continued investment in software
development and new hardware products. We expect that research and development
expenditures will increase both in absolute dollars and as a percentage of
sales as a result of the merger with Pathlight.

Other Income (Expense).Other income was $3.1 million for the second
quarter of fiscal 2001 and $78.1 million for the second quarter of fiscal 2000.
For the six months ended April 30, 2001, other income was $7.3 million
compared to $80.5 million for the same period in fiscal 2000. The decrease in
interest income in both the three months and six months ended April 30, 2001,
is the result of a reduction of our cash balances which were used to fund
increases in accounts receivable and inventories. Interest expense primarily
relates to interest on operating credit lines through a German bank. During
the three months and six months ended April 30, 2001, we recognized gains on
certain marketable equity securities transactions. Fiscal 2000 includes a gain
of $74.4 million on the sale of a portion of our equity interest in Crossroads
Systems, Inc.

Provision for Income Taxes.Income tax expense for the three and six
months ended April 30, 2001 was $4.1 million and $8.5 million, respectively.
Both periods have an effective tax rate of 34%. The effective tax rate
includes taxes paid in various federal, state and international jurisdictions
and is consistent with the rate for the comparable periods of fiscal 2000.

Liquidity and Capital Resources

Cash flows used in operating activities were $34.4 million for the six
months ended April 30, 2001, and $11.6 million for the same period in fiscal
2000. In fiscal 2001, operating cash was primarily used to fund increases in
inventories and accounts receivable along with decreases in accounts payable

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and accrued liabilities, and was offset by net income, depreciation and
other allowances. The increase in inventory since the end of fiscal 2000 is
primarily the result of the additional inventory requirements necessary to
support our OEM customers, new ADIC branded product launches and our sales
growth. In fiscal 2000, operating cash was used to fund increases in accounts
receivable and inventories and was offset by net income and growth in accounts
payable and income taxes.

Cash flows used in investing activities were $5.1 million for the first
six months of fiscal 2001. In the comparable period of fiscal 2000, investing
activities provided cash of $44.8 million. Both periods reflect investments in
property, plant and equipment to support our growth. In fiscal 2001, cash
flows include proceeds from certain marketable equity securities transactions.
Fiscal 2000 reflects the proceeds from the sale of Crossroads and other
marketable equity securities, and is partially offset by investments in
marketable equity securities.

Cash flows provided by financing activities during the first six months of
fiscal 2001 were $947,000, compared to $6.0 million provided during the same
period of fiscal 2000. During the first half of fiscal 2001, proceeds from the
exercise of stock options were $1.9 million, while the same period of fiscal
2000 included proceeds of $7.0 million. Offsetting the above proceeds in both
periods were certain payments of bank line of credit and long-term debt.

At April 30, 2001, our cash and cash equivalents totaled $146.8 million,
down from $185.2 million at October 31, 2000. Our working capital, the
difference between current assets and current liabilities, was $282.0 million,
$263.1 million and $257.5 million at April 30, 2001, October 31, 2000 and April
30, 2000, respectively. The ratio of current assets to current liabilities for
the same periods was 5.9 to 1, 4.9:1 and 4.6:1, respectively.

We believe that our existing cash and cash equivalents, available bank
lines of credit, debt capacity and anticipated cash flow from our operating
activities will be sufficient to fund our working capital and capital
expenditure needs for at least the next 12 months. We do not anticipate that
the Pathlight merger will have a significant effect on cash flow during the
next 12 months. We may utilize cash to acquire or invest in businesses,
products or technologies that we believe are strategic. We regularly evaluate
other companies and technologies for possible acquisition by us. In addition,
we have made and expect to continue to make substantial investments in
companies with whom we have identified potential synergies.

Risk Factors

This report contains forward-looking statements. There are many factors
that could cause actual results to differ materially from those projected by
the forward-looking statements made in this report. Factors that might cause
such a difference include, but are not limited to, the risk factors described
below. We do not undertake any obligation to publicly release the result of
any revisions to the forward-looking statements contained in this report that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

Integration
of the Pathlight Business May Be Difficult.Our acquisition of
Pathlight only recently closed, and significant efforts must still be made to
integrate the Pathlight business with ours. Combining our two companies
involves technological, operational and personnel-related risks. This
integration process will be complex, time-consuming and expensive, and will
disrupt our business if not completed in a timely and efficient manner. We are
in the process of integrating our information and communication systems, as
well as some sales, marketing and other functions. The process of integrating
separate businesses, especially when they are as geographically separated as
Pathlight, located in New York, and our corporate headquarters, located in
Washington, involves a number of special risks, including:

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| |  |  | the possibility that the business cultures of the two
companies may not match well;                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | the possibility that management may be distracted from
regular business concerns by the need to integrate operations;
|
| |  |  | unforeseen difficulties in integrating operations and systems;                                                       
|
| |  |  | problems in retaining our employees;                                                                                 
|
| |  |  | challenges in retaining our customers; and                                                                           
|
| |  |  | potential adverse effects on our operating results.                                                                  

Failure of the Merger to Qualify as a Pooling-of-Interests Would Harm the
Financial Results of the Combined Companies.If the merger does not qualify
for pooling-of-interests accounting treatment for financial reporting purposes,
the future reported earnings of the combined companies could be harmed due to
amortization of goodwill and other intangible assets, which could harm the
trading price of our common stock. The availability of pooling-of-interests
accounting treatment for this merger depends upon circumstances and events
occurring before and after the effective time of the merger. For example,
there must not be any significant changes in the business of the combined
companies, including significant dispositions of assets, for a period of two
years following completion of the merger. In addition, affiliates of ADIC and
Pathlight must not sell any shares of either companys stock, except in
specified limited amounts, until the day that the combined company publicly
announces financial results covering at least 30 days of combined operations
after the merger. If affiliates of either company sell shares in excess of the
limited exception prior to that time, the merger may not qualify for accounting
as a pooling-of-interests.

The Pooling-of-Interests Method Will Adversely Affect Our Historical
Comparisons/Growth Rate, Which May Be Perceived Negatively by the Market.At
consummation of the merger, balance sheets and other financial information of
the separate companies will be presented as though the companies had been
combined at that date. Financial statements and financial information of the
separate companies presented for prior years will also be restated on a
combined basis to furnish comparative information. The market may perceive the
change in historical data negatively due to the effect this will have on our
historical comparisons and growth rates.

We May Lose Pathlight Employees.Substantially all of Pathlights
employees accepted employment with us following the closing of the merger.
However, despite our efforts to retain quality employees, we might lose some of
Pathlights key employees in the future. Competition for qualified management
and technical employees in the network storage industry is intense. We have a
different corporate culture than Pathlight had. Pathlight employees may be
unwilling to continue to work for a larger, publicly-traded company instead of
a smaller company. In addition, competitors may recruit employees during
integration phase of the merger, as is common in high technology mergers. As a
result, employees of Pathlight could leave with little or no prior notice. The
success of the combined companies may depend on the retention of key employees
who are critical to the continued design, development and support of
Pathlights products and services. We cannot assure you that the combined
companies will be able to attract, retain and integrate employees to develop
and use the Pathlight technology following the merger.

The Expected Benefits of Our Merger with Pathlight May Not be Realized.
The potential benefits that we expect to achieve as a result of the merger with
Pathlight may be more difficult to achieve than expected or may not be
achievable at all. For example:



| |  |  | our sales channels may not be able to sell or market
Pathlights products as effectively as anticipated;
| | - |  | --------------------------------------------------------------------------------------------------------

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| |  |  | we may not be able to integrate Pathlights technology with
our library products as effectively as anticipated;          
| | - |  | -------------------------------------------------------------------------------------------------------------------------
|
| |  |  | anticipated cost reductions may not be available, or may be
offset by unanticipated cost increases; and                  
|
| |  |  | economies of scale may not be available  in particular, our
purchasing power may not increase as a result of the merger.

Our Quarterly Revenues and Operating Results May Fluctuate for a Number of
Reasons, Which May Cause Our Stock Price to Fluctuate.Our quarterly operating
results have varied in the past and are likely to vary significantly in the
future due to several factors, including:



| |  |  | size and timing of significant customer orders;                           
| | - |  | --------------------------------------------------------------------------
|
| |  |  | shifts in product or distribution channel mix;                            
|
| |  |  | increased competition and pricing pressure;                               
|
| |  |  | timing of new product announcements and releases by us or our competitors;
|
| |  |  | new product developments by storage device manufacturers;                 
|
| |  |  | recognition of losses or gains from our strategic investments;            
|
| |  |  | the rate of growth in the data storage market;                            
|
| |  |  | market acceptance of new and enhanced versions of our products;           
|
| |  |  | timing and levels of our operating expenses;                              
|
| |  |  | gain or loss of significant customers or distributors;                    
|
| |  |  | currency fluctuations; and                                                
|
| |  |  | personnel changes.                                                        

Our Quarterly Revenue and Operating Results May Be Affected By Seasonal
Trends and Are Inherently Uncertain.Our seasonal trends may result in lower
revenue in the first quarter of each fiscal year compared to the fourth quarter
of the previous fiscal year due to customer purchasing and budgetary practices
and our sales commission and budgetary structure. Operating results in any
period should not be considered indicative of the results investors can expect
for any future period. We cannot assure you that we will be able to sustain
our recent levels of quarterly revenue and net income, as normalized for
unusual or one-time items, or that we will maintain profitability in any future
period. Any unfavorable change in the factors described above or any other
factors could adversely affect our operating results for a particular quarter.
In addition, it is likely that in some future quarter our operating results
will be below the expectations of public market analysts and investors. In any
of these events, the price of our common stock would likely decline.

Because We Operate with Little Backlog, Our Operating Results Could Be
Adversely Affected If We Do Not Accurately Anticipate Future Sales Levels.
Historically, we have operated with little order backlog and, due to the nature
of our business, we do not anticipate having significant backlog in the future.
Consequently, a large portion of our revenue in each quarter results from
orders placed during that quarter. Because of the relatively large dollar size
of orders from our distributors and original equipment manufacturers, or OEMs,
delay in the placing of a small number of orders by a small number of
purchasers could negatively affect our operating results for a particular
period. In addition, our operating expense levels are, in the short term,
largely fixed and are based, in part, on expectations regarding future revenue.
Thus, our operating results could be disproportionately affected if we do not
receive the expected number of orders in a given quarter and our revenue falls
below our expectations.

Competition in the Open Systems Storage Solutions Market May Lead to
Reduced Market Share, Declining Prices for Our Products and Reduced Profits.
The markets for data storage solutions in general, and automated tape libraries
and storage management software in particular, are intensely

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competitive, fragmented and characterized by rapidly changing technology
and evolving standards. These conditions could render our products less
competitive or obsolete and could harm our business, financial condition and
ability to market our products as currently contemplated. Because we offer and
are developing a range of open systems storage solutions, including automated
tape libraries, software and storage peripherals, our competitors differ
depending on the product format and performance level. Some of our competitors
have greater financial, technical, manufacturing, marketing and other resources
than we have. As a result, our competitors may be able to respond more quickly
than we can to new or changing opportunities, technologies, standards or
customer requirements. Competitors may develop products and technologies that
are less expensive or technologically superior to our products. In addition,
our competitors may manufacture and market their products more successfully
than we do our products.

There is significant price competition in the markets in which we compete,
and we believe that pricing pressures are likely to continue. Certain
competitors may reduce prices in order to preserve or gain market share. To
successfully compete in this market, we must be able to manage our component
and product design costs. This pricing pressure, and our potential inability
to manage our component and product design costs, could result in significant
price erosion, reduced gross profit margins and loss of market share, which
could negatively affect our business, financial condition and operating
results.

The Storage Device Market is Characterized by Rapid Technological
Evolution, and Our Success Depends on Our Ability to Develop New Products.The
market for our products is characterized by rapidly changing technology and
evolving industry standards and is highly competitive with respect to timely
innovation. At this time, the data storage market is particularly subject to
change with the emergence of Fibre Channel protocol and new storage solutions
such as Storage Area Networks, or SANs, and Network Attached Storage, or NAS,
devices. The introduction of new products embodying new or alternative
technology or the emergence of new industry standards could render our existing
products obsolete or unmarketable. Our future success will depend in part on
our ability to anticipate changes in technology, to gain access to such
technology for incorporation into our products and to develop new and enhanced
products on a timely and cost-effective basis. Risks inherent in the
development and introduction of new products include:



| |  |  | the difficulty in forecasting customer demand accurately;                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | our inability to expand production capacity fast enough to meet customer demand;                              
|
| |  |  | the possibility that new products may cannibalize our current products;                                       
|
| |  |  | delays in our initial shipments of new products;                                                              
|
| |  |  | competitors responses to our introduction of new products; and                                               
|
| |  |  | the desire by customers to evaluate new products for longer
periods of time before making a purchase decision.

In addition, we must be able to maintain the compatibility of our products
with significant future device technologies, and we must rely on producers of
new device technologies to achieve and sustain market acceptance of those
technologies. Development schedules for high-technology products are subject
to uncertainty, and we may not meet our product development schedules.

If we are unable, for technological or other reasons, to develop products
in a timely manner or if the products or product enhancements that we develop
do not achieve market acceptance, our business will be harmed.

We Rely on Tape Technology for a Substantial Portion of Our Revenue.We
derive a significant majority of our revenue from products that incorporate
some form of tape technology, including digital linear tape, or DLT. Most
often, these tape drive products are available from only a single manufacturer,

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and we expect to continue to derive a substantial amount of revenue from
these products for the foreseeable future. As a result, our future operating
results significantly depend on the continued availability and market
acceptance of products employing tape drive technology. If products
incorporating other technologies gain comparable or superior market acceptance,
our business, financial condition and operating results would be adversely
affected unless we successfully develop and market products incorporating the
new technology.

We Depend on Certain Key Suppliers, Some of Which Are Also Our
Competitors.We do not possess proprietary magnetic tape drive, optical disk,
high-density disk or other storage technologies and, consequently, we depend on
a limited number of third-party manufacturers to supply us with the devices
that we incorporate into our products. In some cases, these manufacturers are
sole-source providers of the device technology. Some of these sole-source
manufacturers market their own tape library products, and are thus also our
competitors. Quantum is the primary supplier of DLT drives and has, in the
past, allocated quantities of drives among its customers. It is possible that
Quantum will again resort to allocation and, as a result, we may not be able to
meet our future DLT drive requirements. It is likely that we will also depend
on a small number of suppliers in the event other device technologies
supplement or supplant DLT devices in any of our products.

ATL, a company which designs, manufactures, markets and services automated
tape libraries that compete with our small and mid-range library products, is
owned by Quantum. ATL may be able to manufacture and market these competitive
products more successfully than we can manufacture and market our products,
especially since ATL now has access to Quantums financial and other resources.
Furthermore, because Quantum is competing directly with us in certain markets
through ATL, Quantum may be unable to meet our demand for DLT drives or may
provide these products to us at less competitive prices.

Our other suppliers have in the past been, and may in the future be,
unable to meet our supply needs, including our needs for timely delivery,
adequate quantity and high quality. We do not have long-term contracts with
any of our significant suppliers. If these suppliers were to decide to pursue
the tape library market directly, they may cease supplying us with tape drives
and media, in which case we may be unable to obtain adequate supplies of tape
drives and media at acceptable prices, if at all. The partial or complete loss
of any of our suppliers could result in significant lost revenue, added costs
and production delays or may otherwise harm our business, financial condition,
operating results and customer relationships.

We Have a Concentrated Branded Customer Base, and Therefore the Loss of a
Single Customer Could Negatively Affect Our Operating Results.The majority of
our end users purchase our branded products from value-added resellers, or
VARs. For the small and mid-range libraries, many of these VARs purchase our
products from large distributors such as Ingram Micro, Tech Data and others.
In fiscal 2000, Ingram Micro represented 11% of our net sales. We have no
long-term orders with any of our significant customers or distributors.
Generally, we sell products pursuant to purchase orders. In addition, our
distributors carry competing product lines that they may promote over our
products. A distributor might not continue to purchase our products or market
them effectively. Moreover, certain of our contracts with our distributors
contain most favored nation pricing provisions mandating that we offer our
products to these customers at the lowest price offered to other similarly
situated customers. In addition, sales of our large libraries, and the revenue
associated with the on-site service of those libraries, are somewhat
concentrated in specific customers, including government agencies and
government-related companies. Our operating results could be adversely
affected if any of the following factors were to occur relating to one or more
of our significant resellers:



| |  |  | the reduction, delay or cancellation of orders or the return of a significant amount of products;
| | - |  | -------------------------------------------------------------------------------------------------

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| |  |  | the loss of one or more of such resellers; or                                                         
| | - |  | ------------------------------------------------------------------------------------------------------
|
| |  |  | any financial difficulties of such resellers that result in
their inability to pay amounts owed to us.

We Expect to Increase Our Focus on OEM Sales and Could Be Adversely
Affected if our OEM Sales Efforts Are Not Successful.We rely on OEMs such as
Dell Computer, Fujitsu Siemens Computers and IBM and are increasing our focus
on sales to OEMs. Sales to Dell Computer represented 18% of sales in fiscal
2000; sales to all OEMs represented 23% of sales in fiscal 2000. OEMs
typically conduct substantial and lengthy evaluation programs before certifying
a new product for inclusion in their product line. We may be required to
devote significant amounts of financial and human resources to these evaluation
programs with no assurance that our products will ever be selected. In
addition, even if selected by the OEM, there generally is no requirement that
the OEM will purchase any particular amount of product or that it will refrain
from purchasing competing products. We do not have purchase commitments from
our OEMs and a reduction in the level of sales from this channel would
significantly impact revenue. Further, OEM sales typically feature lower
profit margins than we have obtained in the past through our other distribution
channels.

In addition, in fiscal 2000, we began shipping products to IBM using their
StorageSmart Ultrium Linear Tape-Open drives, or LTO drives. There is no
assurance that these automation libraries will gain market acceptance. The LTO
drives are also a recently developed product that, like all drive products, may
experience technical problems or otherwise prove to be difficult to
manufacture. In addition, these LTO drives may not be well received by the
marketplace. If these LTO based products are unsuccessful for any of these
reasons, our business, financial condition and operating results may be harmed.
If any of the OEMs decide not to continue to purchase our products, our
business, financial condition and operating results may be harmed.

Our Operating Results Would Be Adversely Affected by a Significant Amount
of Product Returns.Our customers have rights in certain instances to return products to us, and we
may otherwise allow product returns if we think that doing so is in the
interest of maximizing the effectiveness of our sales channels. We estimate
and reserve for potential returns in our reported financial results. Actual
returns could exceed the level of our estimates due to new product
introductions or other changes affecting the market for our products. If
returns are made at levels that exceed our estimates, our financial results
could be adversely affected in the periods of these returns.

We May Make Acquisitions That Are Not Successful.We have in the past
acquired businesses, and we may do so in the future. Acquisitions present a
number of risks, including:



| |  |  | our ability to successfully integrate the acquired entitys
operations, technologies and products with our own;                             
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to retain key customers and employees;                                                                                          
|
| |  |  | our ability to manage a larger and more diverse business, a
portion of which may be in markets where we have no or limited prior
experience;
|
| |  |  | unanticipated costs associated with the integration of the
acquired entity into our business;                                               
|
| |  |  | diversion of managements attention from our core business
during the acquisition and integration process;                                  
|
| |  |  | potential adverse effects on existing business relationships
with suppliers and customers; and                                              
|
| |  |  | charges and write-offs incurred in connection with
acquisitions.                                                                            

Additionally, we expect that the consideration paid for future
acquisitions, if any, could be in the

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form of cash, stock, assumption of indebtedness and/or rights to purchase
stock. Dilution to existing shareholders and to earnings per share may result
to the extent that shares of stock or other rights to purchase stock are issued
in connection with any such future acquisitions. Dilution may occur if the
earnings from such acquisitions do not exceed associated interest and other
charges. We may also incur charges from the completion of acquisitions, such
as the expense of in-process research and development or severance or other
charges arising from the integration of the businesses.

We May Not Be Able to Sustain Our Current Growth or Effectively Manage Any
Future Growth.We are experiencing rapid growth. This growth has resulted in,
and may possibly create in the future, additional capacity requirements, new
and increased responsibilities for management personnel, and added pressures on
our operating and financial systems. Our facilities, personnel and operating
and financial systems may not be sufficient to manage and sustain our current
or future growth, and additional growth may detract from our ability to respond
to new opportunities and challenges quickly. We may not be effective in adding
capacity to our current facilities. We also continue to make additions and
modifications to our ERP system. We may encounter unexpected difficulties
while modifying our ERP system and our business could be harmed. Our ability
to manage any future growth effectively will also depend on our ability to hire
and retain qualified management, sales and technical personnel. If we are
unable to manage growth effectively or hire and retain qualified personnel, our
business, financial condition and operating results could be materially
negatively affected. In addition, to the extent expected revenue growth does
not materialize, increases in our selling and administrative costs that are
based on anticipated revenue growth could harm our operating results.

Any Inability to Meet Our Future Capital Requirements Would Limit Our
Ability to Grow.We may need, or could elect, to seek additional funding in
the future. In the event we need to raise additional funds, we may not be able
to do so on favorable terms, if at all. Further, if we issue equity
securities, shareholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of our
existing securities. If we cannot raise funds on acceptable terms, we may not
be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated
requirements.

Risks Associated with International Operations May Adversely Affect Our
Business.Net sales to customers outside the United States accounted for 38%
of net sales in fiscal 2000. We believe that international sales will continue
to represent a significant portion of our net sales. Our international
operations and sales to customers outside the United States subject us to a
number of risks, including:



| |  |  | the imposition of governmental controls;                                                                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | exposure to foreign exchange risk;                                                                                               
|
| |  |  | the need to comply with a wide variety of foreign and U.S. export laws;                                                          
|
| |  |  | political and economic instability in certain international markets;                                                             
|
| |  |  | trade restrictions and protectionist laws and business practices that favor local competition;                                   
|
| |  |  | changes in tariffs and tax laws;                                                                                                 
|
| |  |  | longer payment cycles typically associated with international
sales and potential difficulties in collecting accounts receivable;
|
| |  |  | potentially lower level of protection of our intellectual property than in the United States;                                    
|
| |  |  | greater difficulty of administering business overseas;                                                                           
|
| |  |  | the need to support multiple languages;                                                                                          
|
| |  |  | difficulty recruiting sales and technical support personnel
with the skills to support our products;                             
|
| |  |  | potential severance exposure related to our employee
agreements with our European employees; and                                 

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| |  |  | dependence on local vendors.
| | - |  | ----------------------------

Furthermore, although we endeavor to meet standards established by foreign
regulatory bodies, we may not be able to comply with changes in foreign
standards in the future. Our inability to design products to comply with
foreign standards could harm our business, financial condition and operating
results.

We May Be Sued By Our Customers for Product Liability Claims as a Result
of Failures in Our Data Storage Products.We face potential liability for
performance problems of our products because our end users employ our storage
technologies for the storage and backup of important data. Although we
maintain general liability insurance, our insurance may not cover potential
claims of this type or may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of our insurance coverage could harm our business.

We May Face Liability Associated with the Use of Products and Processes on
Which Patent Ownership or Other Intellectual Property Rights Are
Claimed.While ADIC is not currently directly involved in any intellectual property
litigation or proceedings, we may become involved in
intellectual property litigation or proceedings in the future. We are now, and
we may in the future be, subject to claims or inquiries regarding our alleged
unauthorized use of a third partys intellectual property. For
example, we very recently settled litigation that Crossroads
Systems, Inc. had filed against Pathlight,
our wholly owned subsidiary, relating to infringement of Crossroads' patent by certain products sold by Pathlight.
See Part II, Item 1, Legal Proceedings below. In addition, in 2000 we
entered into a settlement agreement with the Lemelson Medical,
Education and Research Foundation, Limited Partnership regarding
violation of their ownership and right to grant licenses under
certain patents. While the settlement agreement with Lemelson
involved only a negligible amount of money and we are not a
significant user of the products and processes on which Lemelson
claims ownership, we may face liability if their claims to these
patents are upheld and we use these products and processes in the
future in ways that are not currently anticipated.

An adverse outcome
in any intellectual property litigation could subject us to significant liabilities to third parties,
require us to license technology from others or require us to cease marketing
or using certain products, any of which could negatively affect our business,
financial condition and operating results. If we are required to seek licenses
under patents or proprietary rights of others, we may not be able to acquire
these licenses on acceptable terms, if at all. In addition, the cost of
responding to an intellectual property infringement claim, in terms of legal
fees and expenses and the diversion of management resources, whether or not the
claim is valid, could harm our business, financial condition and operating
results.

We May Face Currency Risks Associated with Fluctuating Foreign Currency
Valuations.Currently, approximately one-half of our international sales are
denominated in U.S. dollars, and fluctuations in the value of foreign
currencies relative to the U.S. dollar could therefore make our products less
price competitive. The remaining portion of our international sales are
denominated in foreign currencies, primarily the German mark, British pound
sterling and French franc. A decrease in the value of a relevant foreign
currency in relation to the U.S. dollar after establishing prices and before
our receipt of payment and conversion of such payment to U.S. dollars would
have an adverse effect on our operating results. Furthermore, the expenses of
our international subsidiaries are denominated in their local currencies.
Because we currently engage in only limited foreign currency hedging
transactions, our operating results could be adversely affected by movement in
foreign currency exchange rates.

We May Need to Upgrade Our Financial and Other Software to Account for the
European Economic Communitys Adoption of the Euro.On January 1, 1999,
certain member states of the European Economic Community fixed their respective
currencies to a new currency, commonly known as the Euro. During the three
years beginning January 1, 1999, business in these countries will be conducted

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both in the existing national currency, such as the French franc or the
German mark, as well as the Euro. Thereafter, all transactions must be
recorded in Euros. We will need to ensure that our financial and other
software systems are capable of processing transactions and properly handling
both the existing currencies and the Euro. We do not currently expect the
introduction and use of the Euro will materially affect our business; however,
if we encounter unexpected difficulties, our business could be harmed.

A Number of Key Personnel Are Critical to the Success of Our Business.
Our future success depends in large part on our ability to retain certain key
executives and other personnel, some of whom have been instrumental in
establishing and maintaining strategic relationships with key suppliers and
customers. We do not have any employment agreements with our U.S. employees,
except for change of control agreements with our executive officers. Our
future growth and success will depend in large part on our ability to hire,
motivate and retain highly qualified management, technical, operations and
sales and marketing personnel. Competition for such personnel is intense in
the high-technology industry, particularly in the Seattle and Denver areas. We
may not be able to retain our existing personnel or attract additional
qualified personnel in the future. In addition, companies in our industry
whose employees accept positions with competitors frequently claim that the
competitors have engaged in unfair hiring practices. We may receive such
claims in the future as we seek to hire qualified personnel, and such claims
could result in litigation. Regardless of the merits of these claims, we could
incur substantial costs in defending ourselves against these claims.

A Failure to Develop and Maintain Proprietary Technology Will Negatively
Affect Our Business.Because our business depends on technology, our ability to compete effectively
depends in part on our ability to develop and maintain proprietary aspects of
our technology. We hold patents on various design elements of our automated
storage library products in the United States and international jurisdictions,
and we are pursuing additional patent applications. We cannot be certain,
however, that we will receive any future patents or that any patents we do
receive will be valid or provide meaningful protection for our product
innovations. We also rely on a combination of copyright, trademark, trade
secret and other intellectual property laws and various contract rights to
protect our proprietary rights. Such rights, however, may not preclude
competitors from developing products that are substantially equivalent or
superior to our products. In addition, many aspects of our products are not
subject to intellectual property protection and can therefore be reproduced by
our competitors.

Our Increased Research and Development Spending May Not Yield Results That
Justify the Costs Incurred.We have substantially increased our research and
development spending over that of prior periods. Our products and markets are
technologically advanced and rapidly evolving, and we cannot be assured that
these efforts will successfully provide us with new or upgraded products that
will be competitive. If these programs are not successful, our increased
investment in research and development will not yield corresponding benefits to
us.

Undetected Software or Hardware Errors Could Increase Our Costs and Reduce
Our Revenue.We may not be able to adequately control and eliminate
manufacturing flaws. Our products operate near the limits of electronic and
physical performance and are designed and manufactured with relatively small
tolerances. If flaws in design, production, assembly or testing were to occur
in our products or those of our vendors, we could experience a rate of failure
in our products that would result in substantial repair or replacement costs
and potential damage to our reputation. Continued improvement in manufacturing
capabilities and control of material and manufacturing quality and costs are
critical factors in our future growth. We frequently revise and update
manufacturing and test processes to address engineering and component changes
to our products and evaluate the reallocation of manufacturing resources among
our facilities. We can make no assurance that our efforts to monitor, develop
and implement appropriate test and manufacturing processes for our products
will be sufficient to permit us to avoid a rate of failure in our products that
results in substantial shipment delays, significant repair or replacement costs
and

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damage to our reputation. In addition, our products are combined with
products from other vendors. As a result, when problems occur, it is difficult
to identify the source of the problem. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relations problems.

We Face Substantial Warranty Exposure.We generally provide product
warranties for varying lengths of time. In the past, we have incurred higher
warranty expenses relating to new products than we typically incur with
established products. In anticipation of such expenses, we establish
allowances for the estimated liability associated with product warranties.
However, these warranty allowances may be inadequate, and we may incur
substantial warranty expenses in the future with respect to new or established
products.

We Have Antitakeover Provisions in Place That Make It More Difficult for a
Third Party to Acquire Us.Our Board of Directors has the authority, without
any action by the shareholders, to issue up to 4,000,000 shares of preferred
stock and to fix the rights and preferences of such shares. In addition, we
have adopted a shareholder rights plan involving the issuance of preferred
stock purchase rights designed to protect our shareholders from abusive
takeover tactics by causing substantial dilution to a person or group that
attempts to acquire us on terms not approved by our board. Certain provisions
in our articles of incorporation, bylaws and shareholder rights plan, as well
as Washington law, and the ability of our board to issue preferred stock, may
have the effect of delaying, deferring or preventing a change in control, may
discourage bids for our common stock at a premium over its market price and may
adversely affect the market price, and the voting and other rights of the
holders, of common stock.

Our Stock Price May Be Extremely Volatile.The market price of our common
stock has experienced fluctuations since it commenced trading in October 1996
and is likely to fluctuate significantly in the future. Our stock price can
fluctuate for a number of reasons, including:



| |  |  | announcements about us or our competitors;                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | quarterly variations in operating results;                                                                     
|
| |  |  | the introduction of new technology or products or changes in
product pricing policies by us or our competitors;
|
| |  |  | comments regarding us and the data storage market made on Internet bulletin boards; and                        
|
| |  |  | changes in earnings estimates by analysts or changes in accounting policies.                                   




Item 3. Quantitative and Qualitative Disclosures about Market Risk Management

We are exposed to various market risks, including changes in foreign
currency rates and interest rates. We may enter into various derivative
transactions to manage certain of these exposures. We do not hold or issue
derivative instruments for trading purposes.

The assets and liabilities of our non-U.S. subsidiaries have functional
currencies other than the U.S. dollar and are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items
are translated at the average exchange rates prevailing during the period. A
10% depreciation in the U.S. dollar would result in an approximately $450,000
decrease in income before provision for income taxes for the first six months
of fiscal 2001.

At April 30, 2001, we had variable rate debt of approximately $4.5 million
provided by German banks, and fixed rate debt of $1.2 million, also provided by
a German bank. The fair value of such debt approximates the carrying amount on
the consolidated balance sheets at April 30, 2001. We have entered

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into an interest rate swap agreement on the variable rate debt, which
fixes the interest rate at 4.3% through November 2003. Interest on the fixed
rate debt is 4.4%.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings.

On April 14, 2000, Crossroads Systems (Texas), Inc. brought
suit against Pathlight Technology, Inc. (Pathlight) in the
United States District Court for the Western District of
Texas, Austin Division (Case No. A-00CA-248-SS). Crossroads
alleged that Pathlights SAN Gateway and SAN Router products
infringe Crossroads U.S. Patent No. 5,941,972 (the "'972
Patent"), and alleged
that the infringement was willful. Crossroads and ADIC entered into a
Settlement Agreement on June 12, 2001 and this lawsuit was
dismissed with prejudice. Pursuant to the Settlement Agreement, ADIC
paid Crossroads $15 million and received a fully paid up license
to make, use, offer to sell and sell products incorporating the
technology covered by the '972 Patent (including any continuation,
divisional, reissue, reexamination or foreign counterpart application
of that patent that are directed to a system, apparatus or method
that provides connectivity between fibre channel and SCSI), for the
life of the patent. The Settlement Agreement includes ADIC's
acknowledgement that the accused Pathlight products are within the
claims of, and therefore infringed, the '972 Patent, and that the
'972 Patent is valid and enforceable.

Pathlight became a wholly-owned subsidiary of ADIC on May 11,
2001, as the result of a merger of a wholly owned subsidiary
of ADIC into Pathlight pursuant to an Agreement and Plan of
Merger among ADIC, Pathlight, and ADICs merger subsidiary
dated January 30, 2001 (the Merger Agreement). Pursuant to
the Merger Agreement, 1,030,000 shares of ADIC common stock
that were issuable to the former Pathlight shareholders were retained in an escrow account that was established to
cover losses that may be incurred by ADIC in connection with
the Crossroads patent litigation. In connection with the settlement,
the designated shareholder representatives of the former Pathlight
shareholders consented to the settlement and to the cancellation and
return to ADIC of 531,915 of the shares held in the escrow account.




Item 2. Changes in Securities.

None




Item 3. Defaults Upon Senior Securities.

None




Item 4. Submission of Matters to a Vote of Security Holders.

None




Item 5. Other information.

None




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

None

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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.

|                     |  |                                                                                                             
|-------------------- |  | ------------------------------------------------------------------------------------------------------------
|                     |  | ADVANCED DIGITAL INFORMATION CORPORATION                                                                    
|                    
|Dated: June 14, 2001 |  | /s/ PETER H. VAN OPPEN                                                                                      
|                     |  |                                                                                                             
|                     |  | Peter H. van Oppen, Chairman
and Chief Executive Officer                                                    
|                    
|Dated: June 14, 2001 |  | /s/ JON W. GACEK                                                                                            
|                     |  |                                                                                                             
|                     |  | Jon W. Gacek, Senior Vice President
and Chief Financial Officer (Principal
Financial and Accounting Officer)

20