EXABYTE CORP /DE/ - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2005

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

For the transition period from __________________________ to __________________________.

Commission File Number: 0-18033

EXABYTE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	84-0988566
(State of Incorporation)	(I.R.S. Employer Identification No.)

2108 - 55th Street

Boulder, Colorado 80301

(Address of principal executive offices, including zip code)

(303) 442-4333

(Registrant’s Telephone Number, including area code)

Indicate by check 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 ninety days.

Yes ___X___

No ______

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes______ No ___X___

As of May 6, 2005, there were 114,011,072 shares outstanding of the Registrant’s Common Stock (par value $0.001 per share).

EXABYTE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets—December 31, 2004 and March 31, 2005 (unaudited)	3-4

Consolidated Statements of Operations--Three Months Ended March 31, 2004 and 2005 (unaudited)	5

Consolidated Statements of Cash Flows-- Three Months Ended March 31, 2004 and 2005 (unaudited)	6

Notes to Consolidated Financial Statements (unaudited)	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures About Market Risk	29

Item 4. Controls and Procedures	29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 6. Exhibits	30

SIGNATURE	31

PART I

ITEM 1. FINANCIAL STATEMENTS

Exabyte Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands, except per share data)

	December 31, 2004	March 31, 2005 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$ 444	$ 563
Accounts receivable, less allowances for uncollectible accounts and sales returns and programs of $1,910 and $2,071, respectively	13,929	14,143
Inventory, net	12,398	12,262
Other	2,322	2,002
Total current assets	29,093	28,970

Equipment and leasehold improvements, net	2,601	2,676
Goodwill	7,428	7,428
Other non-current assets	857	798
Total non-current assets	10,886	10,902
Total assets	$ 39,979	$ 39,872

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$ 7,766	$ 7,809
Accrued liabilities (Note 2)	5,017	4,506
Current portion of deferred revenue (Note 7)	3,460	3,425
Line of credit - Bank (Note 3)	6,173	8,764
Current portion of notes payable - suppliers (Note 3)	3,201	4,072
Current portion of other non-current liabilities	488	471
Total current liabilities	26,105	29,047
Notes payable, less current portion (Note 3):
Suppliers	6,210	4,431
Others	2,973	2,979
	9,183	7,410
Accrued warranties, less current portion	845	968
Deferred revenue, less current portion (Note 7)	15,025	14,598
Other liabilities, less current portion	573	493
Total non-current liabilities	16,443	16,059
Total liabilities	$ 51,731	$ 52,516

See accompanying notes to the consolidated financial statements.

Exabyte Corporation and Subsidiaries

Consolidated Balance Sheets (continued)

(In thousands, except per share data)

	December 31, 2004	March 31, 2005 (Unaudited)
Stockholders’ equity (deficit) (Note 4):
Preferred stock; no series; $.001 par value; 17,152 shares authorized; no shares issued and outstanding	$ --	$ --
Preferred stock; series A; $.001 par value; 500 shares authorized; no shares issued and outstanding	--	--
Series G convertible preferred stock; $.001 par value; 1,500 shares authorized; no shares issued and outstanding	--	--
Series H convertible preferred stock; $.001 par value; 9,650 shares authorized; no shares issued and outstanding	--	--
Series I convertible preferred stock; $.001 par value; 10,000 shares authorized; no shares issued and outstanding	--	--
Series AA convertible preferred stock; $.001 par value; 55 shares authorized; 45 shares issued and outstanding; aggregate liquidation preference at March 31, 2005 of $44,909	--	--
Common stock, $.001 par value; 350,000 shares authorized; 111,961 and 114,003 shares outstanding, respectively	112	114
Additional paid-in capital	134,257	134,294
Treasury stock, at cost; 96 shares	(578)	(578)
Accumulated deficit	(145,543)	(146,474)
Total stockholders’ deficit	(11,752)	(12,644)

Commitments and contingencies (Note 6)

Total liabilities and stockholders’ deficit	$ 39,979	$ 39,872

See accompanying notes to the consolidated financial statements.

Exabyte Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

	Three Months Ended
	March 31, 2004 (Unaudited)	March 31, 2005 (Unaudited)

Net revenue	$ 26,139	$ 24,623
Cost of goods sold	20,053	17,455

Gross profit	6,086	7,168

Operating expenses:
Selling, general and administrative	6,069	5,501
Engineering, research and development	2,130	2,452
Total operating expenses	8,199	7,953

Loss from operations	(2,113)	(785)

Other income (expense):
Interest expense	(528)	(402)
Gain (loss) on foreign currency translation	(603)	295
Other, net	(28)	(31)

Loss before income taxes	(3,272)	(923)

Income tax expense	(38)	(8)

Net loss	$ (3,310)	$ (931)

Basic and diluted loss per share	$ (0.03)	$ (0.01)

Weighted average common shares used in calculation of basic and diluted loss per share	96,280	112,254

See accompanying notes to the consolidated financial statements.

Exabyte Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

				Three Months Ended
		March 31, 2004 (Unaudited)			March 31, 2005 (Unaudited)
Cash flows from operating activities:
Net loss		$(3,310)			$ (931)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		399			332
Provision for uncollectible accounts receivable and sales returns and programs		129			289
Provision for excess and obsolete inventory		--			100
Stock-based compensation expense		95			26
Stock-based interest expense		88			--
Amortizaton of deferred revenue related to media distribution agreement		(463)			(463)
Loss (gain) on foreign currency translation of non-current liability		293			(279)
Changes in assets and liabilities:
Accounts receivable, net		(3,950)			(503)
Inventory, net		(24)			36
Other current assets		215			320
Other non-current assets		(173)			59
Accounts payable		798			43
Accrued liabilities		(78)			(511)
Deferred revenue		80			--
Other non-current liabilities		(151)			68
Net cash used by operating activities		(6,052)			(1,414)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(452)			(740)
	Cash flows from financing activities:
	Proceeds from issuance of common and preferred stock		168			13
	Borrowings under line of credit – Bank		26,898			28,114
	Payments under line of credit – Bank		(24,874)			(25,523)
	Principal payments on notes payable and other non-current liabilities		(2,254)			(331)
	Net cash provided (used) by financing activities		(62)			2,273
	Net increase (decrease) in cash and cash equivalents		(6,566)			119
	Cash and cash equivalents at beginning of period		6,979			444
	Cash and cash equivalents at end of period		$ 413			$ 563

	Supplemental disclosures of other cash and non-cash investing and financing activities:
	Common stock issued in satisfaction of liability related to overadvance loan guaranties		$ 1,631			$ --
	Common stock issued in satisfaction of accrued bonuses		$ 330			$ --
	Interest paid in cash		$ 440			$ 402
	Adjustment of fixed assets acquired through note payable		$ --			$ 333

See accompanying notes to the consolidated financial statements.

Exabyte Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1— OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements of Exabyte Corporation (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United State of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited interim consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements, and reflect all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation in accordance with GAAP. The results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year. These unaudited interim consolidated financial statements and related notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Business, Liquidity and Basis of Presentation

Exabyte Corporation (“Exabyte” or the “Company”) was incorporated on June 5, 1985 under the laws of the state of Delaware. Exabyte markets, designs and manufactures (through third-party manufacturing partners) storage products including VXA®, and MammothTape™ drives, as well as automation for VXA®, MammothTape™ and LTO™ (Ultrium™) technologies. Exabyte also provides its own brand of recording media and provides worldwide service and customer support to its customers and end users through third-party providers. The Company’s stock is traded on the OTC Bulletin Board under the symbol EXBT.OB.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred losses in 2004 and the first quarter of 2005 and had a stockholders’ deficit of $12,644,000 as of March 31, 2005.

The Company is currently investigating various strategic alternatives that would result in increased liquidity. These alternatives may include one or more of the following:

•	Continued restructuring of current operations to decrease operating costs;
•	Obtaining additional capital from debt or equity fund raising activities;
•	Restructuring of notes payable to certain suppliers to provide for extended payment terms;
•	Strategic alliance or business combination and related funding from such relationship; or
•	Sale of all or a portion of operations or technology rights.

The Company will continue to explore these and other options that would provide additional capital for current operating needs and longer-term objectives. Although the Company issued Series AA preferred stock in 2004 for total gross proceeds of $25,000,000, it will be necessary for the Company to raise additional capital or achieve profitable operations to provide sufficient funds to support its operations in 2005. If the Company is not successful in achieving one or more of the above actions,

including raising additional capital or profitable operations, the Company may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, which require the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities, as well as the reported amounts of revenue and expenses. Accordingly, actual results could differ from the estimates used.

Significant Accounting Policies

Inventory

Inventory is recorded at the lower of cost or market using the first-in, first-out method, and includes materials, labor and manufacturing overhead. Inventory is presented net of reserves for excess quantities and obsolescence related to raw materials and component parts of $8,358,000 and $4,905,000 at December 31, 2004 and March 31, 2005, respectively, and consists of the following:

(In thousands)	December 31, 2004	March 31, 2005