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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended January 4, 2003

OR

For the transition period from        to       

Commission file number 0-23418

MTI TECHNOLOGY CORPORATION

14661 Franklin Avenue
Tustin, California 92780
(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (714) 481-7800

4905 East La Palma Avenue
Anaheim, California 92807
(Former Address, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES    X    NO        

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

     The number of shares outstanding of the issuer’s common stock, $.001 par value, as of February 12, 2003 was 32,933,901.

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MTI TECHNOLOGY CORPORATION

INDEX

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PART I

FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to condensed consolidated financial statements.

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MTI TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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MTI TECHNOLOGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

Overview

		The interim condensed consolidated financial statements included herein have been prepared by MTI Technology Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such SEC rules and regulations; nevertheless, the management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. These condensed consolidated financial statements 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 fiscal year ended April 6, 2002. In the opinion of management, the condensed consolidated financial statements included herein reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position of the Company as of January 4, 2003 and April 6, 2002, the condensed consolidated results of operations for the three and nine month periods ended January 4, 2003 and January 5, 2002, and cash flows for the nine months ended January 4, 2003 and January 5, 2002. The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year.
		References to amounts are in thousands, except per share data, unless otherwise specified. Certain prior year amounts have been reclassified to conform with the fiscal 2003 presentation.

2.

Restructuring

		During the fourth quarter of fiscal year 2002, the Company recorded a restructuring charge of $4.9 million which consisted of $4.3 million, $0.3 million and $0.3 million charges related to abandonment of either underutilized or historically unprofitable facilities, headcount reduction of 56 employees or 13%, and disposal of fixed assets, respectively. Of the 56 employees terminated, 15, 8, 6, 10, 14 and 3 were from Sales, Marketing, General and Administrative, Customer Services, research and Development and Manufacturing departments, respectively. The expected cash outflow of the restructuring charge is $0.28 million, related to severance, of which $0.07 million and $0.21 million were paid in the fourth quarter of fiscal year 2002 and in the first quarter of fiscal year 2003, respectively.
		During the first quarter of fiscal year 2003, the Company recorded a restructuring charge of $1,046 which consisted of charges of $545 related to a headcount reduction of 39 employees, or 15% of the Company’s workforce, and $501 related to the disposal or abandonment of fixed assets. Of the 39 employees terminated, 14, 3, 6, 1, 14, and 1 were from the Sales, Marketing, General and Administrative, Customer Service, Research and Development, and Manufacturing departments, respectively. The expected cash outflow of the restructuring charge is $545 related to severance, of which none, $395 and $124 were paid in the first, second and third quarters of fiscal year 2003, respectively. The remaining amount of $26 will be paid during the fourth quarter of fiscal year 2003. The Company completed consolidating its manufacturing facility to Dublin, Ireland, in July 2002.
		In the third quarter of fiscal year 2003, the Company recorded a $221 additional restructuring charge due to lower than anticipated lease payments from sub-lessees in its Sunnyvale, California and Raleigh, North Carolina facilities.
		In January 2003, the Company terminated 8 full time employees from the domestic Customer Service department and, as a result, will record a $20 restructuring charge for severance in the fourth quarter of fiscal year 2003. The $20 will be paid during the fourth quarter of fiscal year 2003.

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The amount accrued for restructuring activities as of January 4, 2003, was as follows:

3.

Inventories

Inventories consist of the following:

4.

Line of Credit

On December 5, 2002, the Company paid off the outstanding $1,685 loan with the Canopy Group, Inc. (“Canopy”) and terminated its loan agreement (the “Canopy Loan Agreement”) with Canopy. The Canopy Loan Agreement was entered into on June 27, 2002, allowing the Company, subject to certain conditions, to borrow up to an aggregate of $7,000 at an interest rate of nine percent per annum under a revolving line of credit. The line was secured by a security interest in substantially all of the Company’s assets. Ralph J. Yarro, III, one of our Directors, is also a Director, President and Chief Executive Officer of Canopy. Darcy G. Mott, one of our Directors, is also a Vice President, Treasurer and Chief Fin