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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

In addition to the historical information contained in this document, this report contains forward-looking statements that involve future risks and uncertainties. We may achieve different results than those anticipated in these forward-looking statements. The actual results that we achieve may differ materially from any forward-looking statements due to such risks and uncertainties. Words such as "believes," "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. You should carefully consider the risks described below, and other factors as may be identified from time to time in our filings with the Securities and Exchange Commission or in our press releases. If any of these risks should actually occur, our business, prospects, financial condition or results of operations would likely suffer. In such case, the trading price of Exabyte common stock or other securit ies could fall, and you may lose all or part of your investment. We are not undertaking any obligation to update these risks to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

We design, manufacture and market a range of VXA® and MammothTape™ tape drives, as well as VXA®, MammothTape™ and LTO™ (Ultrium™) automated tape libraries. We also provide our own brand of recording media and provide worldwide service and customer support to our customers and end users. We were incorporated in June 1985 under the laws of the State of Delaware, and are based in Boulder, Colorado.

We sell innovative tape storage products to our customers who have indicated that they seek products that are easy to use and provide:

• Value;
• A high ratio of storage capacity to price;
• Speed; and
• Data reliability.

Our strategy is to offer a number of products to address a broad range of these requirements.

We concentrate on the midrange application and database server market, manufacturing tape backup and network storage solutions for small, medium and large businesses. We provide cost-effective solutions incorporating VXA, MammothTape and LTO(Ultrium) technologies. Our groundbreaking VXA Packet Technology provides higher capacity, speed and data reliability than our competition, while maintaining competitive prices.

We market our products through resellers, distributors and original equipment manufacturers ("OEMs"). We have a worldwide network of OEMs, distributors and resellers that share our commitment to value and customer service, including partners such as IBM, HP, Fujitsu Limited, Fujitsu Siemens Computers, Bull, Apple Computer, Toshiba, Logitec, Kontron, Imation, Tech Data, Ingram Micro, CDW and Arrow Electronics.

We are managed by a team of executives with extensive experience leading innovation in the data storage industry and driving growth in technology companies. Details regarding our management team are provided at the end of this Item.

We believe our VXA Packet Technology improves the design of tape storage products, dramatically increasing their performance and reducing back-up storage costs. VXA Packet Technology overcomes the limitations of conventional tape storage technology by replacing mechanical components with digital technologies that have been proven in a wide range of other mission-critical IT applications. At a price that is comparable or even lower than any competitive tape drive in its class, VXA Packet Drives provide:

• Significantly greater capacity;
• Superior speed;
• Superior data restore integrity; and
• Affordability.

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Conventional tape storage technology, such as that used in linear and helical scan tape drives, requires highly precise head-to-tape alignment. Accurately recording and restoring data in long linear streams requires precise control of the media as it passes over the head. Because of these limitations, conventional tape storage solutions on the lower end of the price spectrum tend to have limited data capacity, slow data transfer speeds, and less than satisfactory restore integrity.

The complexity and fragility of these components have a number of negative consequences including:

• Complex tracking requirements. Accurate read/write operations in conventional tape storage technology depend on very precise control of the tape drive head to sequentially follow the geometry of each track on the tape media.
• Mechanical obstacles to improving speed, capacity and reliability. Conventional tape storage technology can achieve higher performance only by developing and utilizing increasingly complex and fragile mechanical components to read and write data in narrower, denser tracks.
• High cost of mechanized components. As the complexity of mechanical components has increased in order to read/write data to smaller and smaller tracks, the development and manufacturing costs of conventional tape drives escalate, keeping the price of tape storage products rising while other storage and hardware products deliver year-to-year price reductions to customers.

As a result, conventional tape storage products provide a lower price-performance ratio compared to competing technologies.

With an in-depth understanding of the limitations of conventional tape products, Juan Rodriguez, our Chief Technologist, and a team of engineers set out to address these issues - the result was our VXA Packet Technology, which was first introduced to the market in 1998.

VXA Packet Technology provides a digital solution to the common mechanical problems of tape drives. VXA Packet Drives are the only tape drives that read data from tape in "packets." Unlike traditional tape drives that must read data sequentially from each individual track on a data tape, VXA Packet Drives scan the entire tape, writing and reading data in discrete packets that are reassembled in the buffer. VXA uses buffer segmenting technology, error correction technology, variable speed operation technology and overscan operation technology to read, reassemble and write data in ways that overcome the limitations of conventional tape technology.

• Buffer Segment. VXA Packet Technology employs four heads that scan the entire tape (not an individual track) and read the data packets into a buffer segment. Because each packet has a unique address, the VXA buffer reassembles the packets in the correct order, regardless of the order in which they were read (received), similar to a Web browser reassembling data packets that traveled over the Internet.
• Error Correction. VXA Packet Technology utilizes four-level error correction applied in two phases.
• Variable Speed Operation. Variable Speed Operation is an innovative design concept that enables VXA to continually adjust the tape speed to match the actual data transfer rate of the host. This real-time speed adjustment eliminates backhitching, which causes delays, wear on media and the drive mechanism, all leading to greater reliability of data.
• OverScan Operation. The VXA OverScan Operation, an operation that effectively allows the heads to sweep greater than 100 percent of the tape surface area, eliminates the historical dependence of tape storage on the critical alignment geometry between the tape path and the recording head. (To either write or read data, conventional tape devices depend on a constant head-to-tape speed for linear recording, or a constant track angle for helical scan recording.)

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VXA Packet Technology overcomes the limited capacity, reliability and speed of conventional tape technology by replacing the complex mechanical components - those that have historically interfered with engineering efforts to read and write data in denser tracks - with innovative digital solutions. VXA has achieved dramatic increases in capacity and speed and will continue to increase performance in future generations with only modest changes to the drive design.

In addition, VXA Packet Technology lowers the cost of tape storage because it eliminates the most costly elements of conventional tape drives - the complex and expensive mechanized components needed to maintain tight tolerances between the head and media. As a result, we believe VXA will maintain a very low price point while providing higher and higher levels of capacity and performance - reestablishing a significant price-performance advantage over competing storage technologies.

We also produce MammothTape technology platforms, which are integrated systems encompassing both a helical-scan tape drive and advanced metal evaporated ("AME") media. All aspects of the technology work together to optimize recording performance and to ensure the integrity of vital data.

Sales of our tape drives, including end-of-life products, represented the following percentages of total revenue less sales allowances ("net revenue":

In addition to our tape drives, we design, develop, manufacture, sell and support automated tape drive libraries. These libraries incorporate one or more tape drives and multiple media cartridges to provide much higher data capacities than using a single drive and, with more than one drive, higher data transfer rates.

We offer library products incorporating VXA, MammothTape and LTO(Ultrium) tape drives. Our libraries are designed to be scalable, allowing us to develop different sized libraries based on the same model, with room inside each box for expansion. This capability enables our designs to accommodate increases in customers' data storage needs and allows our end users to protect their library investment.

We engineer our library products to satisfy the reliability, service-ability and management requirements of storage networking. They combine the reliability of our robotics with features such as optional Ethernet ports, hot-pluggable tape drive carriers designed to be serviced during library operation, optional bar code scanners and removable magazines.

Sales of library products, including end-of-life products, represented the following percentages of net revenue:

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Below is a list of our products that we are currently developing. We cannot assure that any of the products we have announced or are developing will be successfully developed, made commercially available on a timely basis or achieve market acceptance.

VXA-3: We expect to introduce the VXA-3 tape drive by the first half of 2005. We are currently anticipating that the tape drive will have a 160 GB native capacity and a 12 MB per second native transfer rate.

VXA-4: We expect to introduce the VXA-4 tape drive in 2007. Current specifications for this drive anticipate a 320 GB native capacity and a 24 MB per second native transfer rate.

As shown in the above tables, we provide various types of media cartridges, as well as cleaning cartridges and data cartridge holders, for our tape drive products. The high-quality media, produced by multiple third parties, is available in different lengths to handle various data storage requirements. Beginning on November 7, 2003, we market our media products exclusively through Imation Corp., which arrangement is discussed in greater detail below.

Sales of media and media related products represented the following percentages of net revenue:

Media sales represent a significant portion of our total revenue. We depend on a continuous supply of Advanced Metal Evaporative ("AME") media to use with our VXA and MammothTape products. We cannot sell our products, or grow our product lines without a sufficient supply of AME media. We transact business with one supplier through a supply agreement that will terminate at the end of 2005 unless terminated earlier by either party, with the supplier being required to provide at least nine months prior written notice. We transact business with our other media suppliers through purchase orders and expect to negotiate terms and conditions of a supply agreement with each such supplier in the future.

Formulated specifically for our VXA and MammothTape tape drives, AME tape (also called VXATape for use with VXA tape drives) offers expanded recording capacity and low abrasivity, which reduces mechanical wear. AME magnetic material is vertically aligned. This unique orientation and the absence of binder components on the media gives AME higher capacity and superior signal strength. AME's specially formulated backcoating dramatically reduces the buildup of static electricity and debris, greatly reducing the chance of read/write errors.

AME media with SmartClean technology is only available for use with M2 tape drives and includes a section of cleaning tape at the beginning of each data cartridge. We specifically designed this cleaning tape to remove chemical films that can build up on recording heads. These films are caused by organic compounds and cannot be removed by other cleaning methods. The M2 drive keeps statistics on its own operation and activates the SmartClean technology when the drive needs cleaning. With normal use, extra cleaning cartridges are needed less frequently.

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As discussed in greater detail below, we currently outsource:

• all of our manufacturing;
• all of our repair and onsite service; and
• the distribution of all of our media products.

We believe that outsourcing such functions helps us operate in a more efficient and cost-effective manner. Outsourcing enables us to focus on our core mission: to design innovative products that meet our customers' evolving needs.

We offer a full range of warranty and post-warranty repair services for our tape drive, library and media products. We deliver these services pursuant to an agreement with Teleplan Service Logistics, Inc., which is the exclusive provider of our repair services. Teleplan performs all in-warranty and out-of-warranty depot repairs of our storage products. Pursuant to this agreement, we receive royalties relating to all out-of-warranty repair services.

According to Teleplan, it is a leader in reverse supply chain management solutions, with facilities worldwide. These locations offer commodity logistics, testing and repair capabilities that match the service requirements of leading OEMs and systems integrators.

Our agreement with Teleplan terminates in June of 2006, unless otherwise extended by the parties. Either of the parties may terminate the agreement earlier upon a material default by the other party.

Revenue from services, spares and support programs represented the following percentages of net revenue:

We market our products worldwide through distributors, resellers and OEMs. We sell our new products initially to distributors and resellers who are quicker to evaluate, integrate, and adopt new technology. OEM sales generally increase (relative to reseller sales) if the new product successfully completes the necessary qualification process. Over the last several years, our sales have been principally to distribution and reseller customers as our sales to OEM customers decreased. In the past year, this trend has been reversed and we now see increasing sales to OEMs. We believe this is a direct result of our long-term strategy to increase the number of our OEM customers as well as the volume of products we sell to them. We believe that a successful business model includes a majority of our revenue coming from OEM purchases.

We distribute our media products pursuant to an agreement with Imation Corp. ("Imation"), which is our exclusive worldwide distributor of our media products. We sell our media products exclusively to Imation, and Imation manages our media brand and provides sales, marketing and distribution services. Our agreement with Imation has an indefinite term, but provides for termination by Imation upon 180 days prior written notice to us, or upon a material default by either party. If Imation terminates the agreement due to our material default, we must pay Imation a prorated portion of the distribution fee we received from Imation.

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Imation is a developer, manufacturer and supplier of magnetic and optical removable data storage media. Imation believes it has one of the broadest product lines in the industry-spanning from a few megabytes to hundreds of gigabytes of capacity in each piece of media. It serves customers in more than 60 countries, in both business and consumer markets, has more than 300 data storage patents in the U.S. alone and employs approximately 2,800 people worldwide, including more than 300 technology scientists.

OEM customers incorporate our products as part of their own systems, which they then sell to their customers under their own brand name. We work closely with our OEM customers during early product development stages to help ensure our products will readily integrate into the OEM's systems.

Product sales to OEMs represented the following percentages of net revenue:

We believe our success depends on OEMs adopting our products, particularly the VXA-2 packet tape technology, as well as OEMs with whom we have an existing relationship increasing their purchases of current products.

Our distributor and reseller customers purchase products for resale. Reseller customers may provide various services to their customers, such as:

• distribution;
• financial terms and conditions;
• pre-sales, sales and/or post-sales system upgrades; or
• other value-added products and/or services.

Sales to distributors and resellers represented the following percentages of net revenue:

We do not sell our products directly to federal, state and local governments. We support our reseller customers that sell directly to the government with various government-directed programs and other sales and marketing services. We believe that the government business generally represents approximately 25% of our non-OEM total revenue.

We market our products overseas directly to international OEMs and resellers. We also serve OEMs and end users through our international resellers. International resellers, which have rights to sell our products in a country or group of countries, serve each of our international markets. Direct international sales will probably continue to represent a significant portion of our revenue for the foreseeable future. In addition, many of our domestic customers may ship a significant portion of our products to their overseas customers.

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Direct international sales accounted for the following percentages of net revenue:

A partial list of our customers includes Apple Computer, Arrow Electronics, Bull, Digital Storage Inc., Fujitsu Siemens Computers, Hewlett Packard, IBM, Ingram Micro, Tech Data, and Toshiba. We have customers who are also competitors, such as IBM with their LTO(Ultrium) tape drive. We have several customers whose sales account for 10% or more of our net revenue. The chart below sets forth the percentages of revenue for customers that exceeded 10% of annual sales over the past three years:

We are currently outsourcing all of our manufacturing process, including manufacturing of our tape drives, library products and media.

We have entered into an agreement with ExcelStor ESGW International Limited ("ExcelStor")to manufacture some of our automation products. The term of the supply agreement with ExcelStor is three years and automatically renews for 2-year terms unless terminated by one of the parties. Either party may terminate the agreement without cause upon 180 days' prior written notice to the other party.

We began transitioning the manufacture of products to ExcelStor's manufacturing facility in China in January 2004. In addition, we may transition the manufacture of some of our drive products to China in 2004 and 2005.

ExcelStor was founded in 2000 to manufacture and sell hard disk drives and is a subsidiary of Great Wall Technology Ltd. ExcelStor has state-of-the-art testing and production facilities in China and is managed by a team of professionals with at least a decade of disk drive manufacturing experience. Based on the location of the manufacturing facilities, and lower-cost quotes received from ExcelStor for the manufacture of our products, we believe that the transition to Excelstor will reduce overhead costs, optimize our inventory control and make our manufacturing processes more efficient.

Until such time as the transition of our manufacturing to Excelstor is completed, Shinei International, a Solectron company ("Shinei"), continues to supply us with our libraries, and Hitachi Ubiquitous Company ("Hitachi") continues to supply us with our tape drives. As such, our tape drives and libraries will be supplied in accordance with the agreements we have with Hitachi and Shinei.

Currently, we obtain AME media pursuant to supply agreements from three suppliers

• Matsushita Electric Industrial Co. Ltd. ("MEI");
• TDK Corporation ("TDK"); and
• Sony Corporation ("Sony").

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We obtain components for our products from sole-source suppliers. We have executed master purchase agreements with some of our sole-source suppliers and conduct business with the rest of our suppliers on a purchase order basis. We rely heavily on our suppliers to produce the components for our products, or the products themselves. The following chart shows the parts manufactured for us by our sole-source suppliers.

The market for data storage devices is highly competitive. We believe that this competition is based largely on the improvements in technology, which increase speed and reliability of storage products and at the same time reduce the cost of those products. With this in mind, we have concentrated our research and development on enhancing existing products and developing new products that will improve the performance and cost of current tape drives we offer. Our research and development expenses were approximately $25.2 million, $23.7 million, and $9.8 in 2001, 2002 and 2003, respectively. The decreases in 2003 are the result of significant headcount reductions, lower costs for external engineering and a decrease in costs incurred in developing VXA and related automation products. We believe that we will continue to have the necessary resources in place to meet all technology development related milestones in 2004.

We rely on a combination of patents, copyright and trade secret protections, non-disclosure agreements, and licensing arrangements to establish and protect our proprietary rights. As of March 8, 2004, we held a total of 106 patents and 9 pending applications in the United States, of which 4 were issued in 2003, all relating to technologies and other aspects of our tape drive and automated tape library products. However, we believe that, because of the rapid pace of technological change in the tape storage industry, factors such as knowledge, ability and experience of our employees, new product introductions and frequent product enhancements may be more significant than patent and trade secret protection.

Our VXA-1 tape drive was previously manufactured by AIWA. As part of the transfer of that manufacturing relationship, we entered into a technology transfer and license agreement with AIWA, whereby AIWA granted us a non-exclusive license to utilize certain AIWA related VXA technologies related to design and production of the VXA-1 and VXA-2 tape drives for a royalty based on the invoice price to us of each VXA-1 and VXA-2 drive we purchase from another manufacturer.

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We additionally entered into a software license agreement for the use of a new business and financial management system to replace our existing system. We believe that the new system is a better fit for a company of our size and structure and we expect to have the system implemented by April 1, 2004. The term of the software license agreement is perpetual.

For the reasons indicated below, we believe that the backlog of purchase orders at the end of any quarter or year is not a meaningful indicator of future sales. Our customers typically are not obligated to purchase minimum quantities of our products. Lead times for the release of purchase orders depend upon the scheduling practices of each customer. We believe that, based upon past order histories, the rate of new orders may vary from month to month. Customers may cancel or reschedule orders without penalty. In addition, while our actual shipments depend upon our production capacity and component availability, we currently do not have our third-party suppliers manufacture products until a purchase order has been received by a customer and we endeavor to fill purchases orders within three weeks.

We strive to maintain appropriate levels of inventory. Excessive amounts of inventory reduces our cash available for operations and may cause us to write-off a significant amount as excess or obsolete. Inadequate inventory levels due to forecasting variances or lack of liquidity may make it difficult for us to meet customer product demand, resulting in lost revenues.

Our goal is to maintain flexibility in our inventory control systems in order to meet customer request dates for product shipments. As such, we generally build our products to customer forecasts and point-of-sale data provided to us by our distributors and resellers. We attempt to maintain approximately two weeks worth of inventory at any given time and believe that this is an appropriate level which allows us to meet these goals. In striving to maintain the proper inventory levels, we go through several steps each month to help us evaluate our inventory levels and maintain them at the appropriate levels. We review sales forecasts and past sales data and evaluate any OEM inventory level requirements for their hubs in determining a rolling monthly inventory forecast. Additionally, we restrict purchases of inventory to conform with our inventory forecast and long lead-time inventory products.

In addition to our inventory controls, we believe that we must accurately time the introduction and end-of-life of our products into and out of the data storage market because it affects our revenue and inventory levels. Accurately timing the release of new products is important to the sales of existing products. Prematurely taking an existing product into an end-of-life cycle could result in revenue loss from that product, and delaying the withdrawal of a product could result in excess product inventory and subsequent inventory write-downs. We continually evaluate our product life cycles. Any timing mistakes or inability to successfully introduce a new product could adversely affect our results of operations.

The data storage market is extremely competitive and subject to rapid technological change. We believe that competition in the data storage market will continue to be intense, particularly because manufacturers of all types of storage technologies compete for a limited number of customers.

The success of any future products depends on:

• timely development;
• customer acceptance;
• supply capacity;
• customer transition to these future products;
• OEM qualification and adoption; and
• media availability.

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Although tape has historically been the preferred medium for data storage backup, companies are developing new technologies for this market. Some of the new technologies are:

• Optical Disk
• Optical Tape
• DVD
• Holographic Storage
• Magneto-optics
• Magnetic Disk

We may also experience competition from new storage architectures, such as SANs, network attached storage and virtual storage.

Our VXA and M2 tape drives face significant competition from current and announced tape drive products manufactured by Quantum, Hewlett Packard, Certance, Sony and the LTO Consortium. The specifications of some of these drives show greater data capacities and transfer rates than our tape drive products. We believe that our VXA tape drives are a low cost, competitive alternative to competing products when compared on the basis of performance, functionality and reliability. In turn, we offer LTO(Ultrium) technology through our library products.

Our library products face competition from companies such as Advanced Digital Information Corporation ("ADIC"), Quantum, Overland Data, StorageTek and QualStar. Significant competition may also develop from companies offering erasable and non-erasable optical disks, as well as other technologies.

Our media products are generally proprietary and are only sold by us through Imation. However, Sony does manufacture certain legacy media products and we compete with them based on price and product availability.

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As of the dates indicated, we had full-time and part-time employees (worldwide), consisting of:

Our success continues to depend significantly upon our ability to attract, retain and motivate key engineering, marketing, sales, supply, support and executive personnel.

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Following is a discussion of certain risks that may impact our business. If any of the following risks actually occurs, our business could be negatively impacted. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently see as immaterial, may negatively impact our business. You should carefully consider the risks described below. If any of the following risks should actually occur, our existing business, future business opportunities, financial condition or results of operations would likely suffer. In such case, the trading price of Exabyte common stock or other securities could fall, and you may lose all or part of your investment.

We have incurred operating losses over the last five years. As a result, we have taken several actions to raise cash, including the sales of preferred stock in 2001 through 2003, revisions to our bank line of credit with overadvance guarantees in 2003 and entering into the Media and Distribution Agreement with Imation in November 2003. However, we believe that additional external funding will be necessary to support and expand our operations, and we therefore are continuing to investigate various strategic alternatives that could increase our liquidity, as described in "Liquidity and Capital Resources." If we do not achieve one or more of these actions, it is possible that we may not be able to continue as a going concern.

As a result of our lack of liquidity, the report of our independent auditors on our consolidated financial statements, as of and for the year ended January 3, 2004, contained an explanatory paragraph regarding the uncertainty relating to our ability to continue as a going concern. Ongoing concerns about our financial condition have impacted our dealings with third parties, such as customers, suppliers and creditors, and any such concerns could have a material adverse effect on our business and results of operations in the future.

In 2003 and 2002, we experienced liquidity constraints which affected our ability to pay our vendors and suppliers for products and meet our overall contractual obligations. This situation caused our vendors to restrict shipments of key components we needed to build and sell our products, including our media products. If our liquidity prevents us from making timely payments to our suppliers in the future, we can again expect restrictions on our ability to obtain products and meet our customers' demands. This situation would materially and adversely impact our revenue, results of operations and financial and competitive condition.

Our product sales depend heavily on OEM qualification, adoption and integration. OEM sales are a key component of our revenue, and many reseller and smaller OEM customers delay their orders until larger OEMs adopt and integrate our products. We have established a number of relationships with OEM customers for our VXA products, but the revenue from these OEMs has not grown as rapidly as necessary for us to be profitable. Our competitive position and ability to achieve future profitable operations may be negatively impacted unless we are able to establish additional relationships with OEM customers and sell increased volumes of our VXA products to these customers.

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We need to improve our gross margins and at the same time sell more of our VXA products to OEM customers who generally pay lower prices than other customers. In order to lower our product cost, we must either revise existing supply agreements or transition our outsourced manufacturing to other suppliers, or relocate such manufacturing to lower cost geographic locations. Although these actions are in process, they have not been completed. Any transition to a new outsourcing manufacturer or location involves the risk of interruption of product supply and delays in meeting our customers' demands.

We now sell all of our proprietary media products to our exclusive distributor, Imation. Our sales prices to Imation are less than the prices we previously realized for these products. As a result of these decreased prices, we must sell a higher volume of media products to realize similar or increased revenue and gross margins, and we depend on Imation to maintain or increase sales levels of our media products.

Many of our key components and products are manufactured overseas in countries such as Japan, Germany, China, Singapore, and Malaysia,. Because we depend on foreign sourcing for our key components, products and subassemblies, our results of operations may be materially affected by:

• reduced intellectual property protections;
• foreign government regulations;
• foreign tax regulations;
• foreign exchange control regulations;
• import/export restrictions;
• foreign economic instability;
• political instability; and
• tariffs, trade barriers and other trade restrictions by the U.S. government in products or components shipped from or to foreign sources.

Our international involvement is also subject to other risks common to foreign operations, including government regulations, foreign exchange or import restrictions or tariffs imposed by the U.S. Government on products or components shipped from another country. Additionally, the sale of our products to domestic federal or state agencies may be limited by the Buy America Act or the Trade Agreement Act to the extent that we incorporate components produced overseas into our products.

Additionally, certain supply agreements and a note payable to a supplier are denominated in the yen at fixed conversion rates. In addition, our foreign subsidiaries incur significant operating costs that are payable in foreign currencies. Foreign currency fluctuations affect our costs for products and our results of operations. Please see "Market Risk" in Item 7 below for more information.

We currently outsource all of our manufacturing processes. Outsourcing our manufacturing to a third party takes many months and, due to the time and expense involved and the inability to easily move the manufacturing to another party, we heavily depend on our existing and proposed third party manufacturers for our products. If our manufacturers cannot meet our product demand, or cannot or will not implement product changes on a timely basis, we would be unable to fill customer orders and our results of operations and financial condition would be adversely impacted. In addition, should our manufacturers be unable to produce the product at a commercially reasonable cost to us, our margins

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would be negatively impacted. Our dependence on third party manufacturers can also adversely affect our ability to negotiate the terms of our future business relationships with these parties.

In 2003, our four largest customers accounted for 41% of our revenues. We do not require minimum purchase obligations from our customers, and they may also cancel or reschedule orders at any time, prior to shipment, without significant penalty. Losing one or more key customers would adversely affect our results of operations.

We obtain all the components to make our products from third parties. We rely heavily on sole-source suppliers (one supplier providing us with one or more components) to develop and/or manufacture critical components for our tape drives or libraries. A shortage of any component would directly affect our ability to manufacture the product. In addition, by relying on sole-source suppliers, we have limited control over many component items, including:

• delivering components on schedule;
• manufacturing a high volume of components;
• maintaining the highest possible product quality when manufacturing; and
• managing manufacturing costs.

Excessive amounts of inventory reduces our cash available for operations and may result in charges for excess or obsolete materials. Inadequate inventory levels may make it difficult for us to meet customer product demand, resulting in decreased revenue. In the past we have experienced charges and write-downs for excess and obsolete inventory. An inability to forecast future product revenue or estimated life cycles of products may result in inventory related charges that would negatively affect our results of operations and financial condition.

Many of our current and potential competitors have significantly greater financial, technical, and marketing resources than us. We can expect our competitors to aggressively market helical scan, mini cartridge, half-inch cartridge, optical or other storage product technologies. These technologies may be equivalent or superior to our own technologies, or may render some of our products non-competitive or obsolete. In order to compete under these pressures, we must adapt our technologies to competitive changes affecting speed, capacity and costs of storage products, including price erosion.

Technology typically changes and advances quickly in the high technology industry. In order to successfully compete in this industry, our future products must apply and extend our current technology, as well as keep pace with new technology developments. Factors which impact our ability to compete include:

• rapid development of tape drive technologies;
• customer and OEM adoption of VXA and MammothTape technology;
• integration of our VXA and MammothTape technologies into a compelling tape drive platform;
• compatibility of tape drives to other data storage products;
• data storage density;
• data transfer rate;

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• customer confidence and familiarity;
• product reliability; and
• price.

If any new technology provides users with similar or increased benefits than tape, tape technology could become obsolete.

Although we file patent applications for our products when appropriate, patents may not result from these applications, or they may not be broad enough to protect our technology. Other parties may also challenge, invalidate or circumvent our patents. Occasionally, third parties ask us to indemnify them from infringement claims and defending these infringement claims may result in long and costly litigation, which could potentially invalidate a patent. We may attempt to secure a license from third parties to protect our technology but cannot assure that we would succeed. Much of our third party manufacturing utilizes proprietary technology, and we may extend licenses of this technology to our third party manufacturers. However, we cannot assure that our third party manufacturers will adhere to the limitations or confidentiality restrictions of their license. Also, some foreign laws may not fully protect our intellectual property rights. This may adversely affect our ability to use such techn ology and, as a result, our results of operations.

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Mr. Juan A. Rodriguez, age 63, has served as our director and Chief Technologist since November 2001, was our interim President and Chief Executive Officer from January 2002 until June 2002, and has served as our Chairman of the Board and Chief Technologist since June 2002. Mr. Rodriguez co-founded Ecrix Corporation in 1996 and was its Chairman of the Board and Chief Executive Officer since 1996. Mr. Rodriguez co-founded Storage Technology Corporation in 1969 after several years as an IBM tape technology engineer. While at Storage Technology Corporation, he served in vice presidential and general manager roles over Engineering, Hard Disk Operations and Optical Disk Operations. In 1985, Mr. Rodriguez co-founded Exabyte Corporation, where he held the positions of chairman, president and CEO through 1992. Mr. Rodriguez is an adjunct professor for the University of Colorado, Boulder College of Engineering and Applied Science.

Mr. Tom Ward, age 47, joined us as our President, Chief Executive Officer and a director in June 2002. Mr. Ward founded Data Storage Marketing, a distributor of storage products, in 1987 and sold the company to General Electric in 1997. Mr. Ward founded Canicom in 1997, a call center company, which he sold to Protocol Communications, an integrated direct marketing company, in 2000, assuming the position of Chief Operating Officer until June 2001. Mr. Ward began his career with Storage Technology Corporation serving in several roles in engineering and marketing. He later joined MiniScribe as Director of Sales for High Performance Products.

Mr. Carroll A. Wallace, age 54, was engaged as a consultant in May 2003 to act as the interim Chief Financial Officer of Exabyte and became an employee and officer on November 1, 2003. Mr. Wallace was a partner at KPMG LLP from 1982 to 2002, at which time he retired from the firm. During Mr. Wallace's tenure at KPMG, he served as partner in charge of the audit department of the Denver, Colorado office from 1992 to 1995, and from 1995 through 2001, Mr. Wallace headed KPMG's Colorado technology practice which served companies ranging in size from early growth state to large diverse corporations.

Mr. Wallace is the subject of an administrative proceeding commenced by the Securities and Exchange Commission in April, 1999, alleging that Mr. Wallace violated applicable auditing standards in the audit of financial statements of a public investment company for 1994 and 1995. The claims concern an alleged misclassification (in one year) and overstatement in the value of restricted securities held by the investment company in one particular portfolio company. Mr. Wallace denies all such claims. In December 2002, an administrative law judge at the SEC entered an initial decision adverse to Mr. Wallace and concluded that Mr. Wallace should be temporarily denied the privilege of practicing before the SEC as an accountant for one year. As stated in that decision, no fraud or investor losses were charged or proven. Mr. Wallace appealed the decision to the Commission, and in August 2003, the Commission upheld the findings of the administrative law judge and entered an administrative order against Mr. Wallace. Mr. Wallace requested and received a stay of the order and has appealed this decision to the United States Federal District Court of Appeals.

Executive officers serve at the discretion of the Board of Directors. There are no family relationships among any of the directors and officers.

We will make available free of charge through our website, http://www.exabyte.com, this annual report, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to such reports, as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission.

In addition, we will make available, free of charge upon request, a copy of our Ethics Code, which is applicable to all of our employees, including our principal executive officers. For a copy of this code, please contact the Corporate Secretary.

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Our corporate offices, including our research and development and limited manufacturing facilities, are located in Boulder, Colorado, in leased buildings aggregating approximately 55,726 square feet. As discussed more fully in Management's Discussion and Analysis of Financial Condition and Results of Operations , we ceased use of several other leased facilities during 2003 and settled our remaining obligations under the related leases through a notes payable. In addition, we closed our European sales office located in The Netherlands during 2003. The lease terms on our present facilities expire in 2005 and 2006. Although we do not currently anticipate expanding our operations, we believe that we have enough space available if further expansion becomes necessary. The following chart identifies the location and type of each Exabyte property:

We are subject to incidental litigation risks in the ordinary course of our business. We are not currently the subject of any material pending legal proceeding.

Not Applicable.

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Exabyte's common stock is traded on the Over-The Counter Bulletin Board under the symbol "EXBT". From October 19, 1987 until February 26, 2003, Exabyte's common stock was traded on the Nasdaq National Market and from February 26, 2003 until March 24, 2003 on the Nasdaq SmallCap Market.

For the calendar quarters indicated, the following table shows the high and low bid prices of our common stock as reported on Nasdaq or the OTC Bulletin Board, as applicable.

On March 8, 2004, we had 565 holders of record of our common stock. The reported closing price of the common stock was $1.20. We have never paid cash dividends on our common stock. We presently intend to retain any earnings for use in our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We are prohibited under the terms of our line of credit agreement with Silicon Valley Bank from declaring or setting aside any cash dividends.

On December 5, 2003, we issued a total of 263,155 shares of common stock as a bonus to our executive officers and other key employees for the third quarter of 2003. Of those shares, 105,262 were issued to executive officers, with the remaining shares being issued to other key employees of the Company.

On January 13, 2004, we issued a total of 1,690,759 shares of common stock to our Chief Executive Officer and another key employee for bonuses related to the fourth quarter of 2002 and the first three quarters of 2003. Our Chief Executive Officer received 745,214 of those shares. The Company believes that these issuances are not considered sales for purposes of the registration requirements of the Securities Act of 1933. In addition, we believe that these parties met the standards for purchasers in a non-public

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offering, the Company made no general solicitation; and the Company also relied upon an exemption from securities registration for a non-public offering in issuing these shares.

On November 7, 2003, we issued 1,500,000 shares of Series I preferred stock to Imation for $1.00 per share in cash for a total of $1,500,000. Also in November, 2003, the State of Wisconsin Investment Board, the sole owner of all our outstanding Series G preferred stock, exchanged all such Series G shares for 2,515,000 shares of our common stock. In October, 2003, a holder of 616,500 shares of our Series I preferred stock converted those shares into approximately 1,034,000 shares of our common stock. All these transactions did not involve an underwriter, underwriter discounts or commissions. We believe that these parties met the standards for purchasers in a non-public offering; the Company made no general solicitation; and the Company relied upon an exemption from securities registration for a non-public offering in selling or issuing the above-mentioned shares. Also, the Company relied upon an exemption for an exchange with an existing stockholder under Section 3(a)(9) for the conversion o f the Series I preferred stock mentioned above.

The following table provides information regarding the Company's equity compensation plans, which consist of Exabyte's Incentive Stock Plan, 1997 Non-Officer Stock Option Plan and options granted to the Company's CEO outside of the Incentive Stock Plan as of January 3, 2004. The Company also has an employee stock purchase plan which invests only in common stock of the Company, but which is not included in the table below.

(1) Amount includes shares issued under a stock option plan approved by stockholders on July 30, 2002 for the issuance of options to Mr. Ward of up to 7,000,000 shares.

(2) Amount includes the 1997 Non-Officer Stock Option Plan, under which options may be granted to employees who are not officers or directors of the Company, as well as a stock option plan approved by the Board of Directors in 2003 for the issuance of options to Mr. Ward for an additional 7,000,000 shares.

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The following selected consolidated statement of operations data, balance sheet data, and cash flow data, as of and for the years ended January 3, 2004, December 28, 2002, December 29, 2001, December 30, 2000 and January 1, 2000 have been derived from the audited consolidated financial statements of the Company. The selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and the notes thereto. There were 52 weeks in 1999, 2000, 2001 and 2002 and 53 weeks in 2003.

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(In thousands, except per share data)

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The following tables set forth unaudited quarterly operating results for fiscal 2002 and 2003 in dollars and as a percentage of net revenue. This information has been prepared on a basis consistent with the audited consolidated financial statements included elsewhere herein and, in the opinion of management, contains all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation thereof. These unaudited quarterly results should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K. The operating results for any quarter are not necessarily indicative of results for any future period. The sum of the quarterly earnings per share may not total annual amounts reported in the consolidated financial statements as a result of the fluctuation in the amount of weighted average common shares used in the calculation of basic and diluted loss per share.