Exabyte downplays financial troubles

Storage vendor Exabyte insists the company is in the midst of a financial turnaround, despite continuing quarterly losses and a recent U.S. Securities and Exchange Commission filing full of warning signs.

Primary among the reasons for optimism, company officials say, is Exabyte's recent announcement that IBM will include Exabyte tape drives in Big Blue's eServer pSeries computers.

The financially troubled company - which makes tape drives, autoloaders and libraries - is hoping that the IBM deal and the company's acquisition of storage startup Ecrix a year ago, will help reverse an extended financial slump. Ecrix, which Exabyte acquired for about US$10 million, had a tape approach it claimed eliminated the hardware components that increase the complexity and cost of traditional streaming tape.

"It is very true that Exabyte's a turnaround situation," says Kelly Beavers, vice president of marketing. "We've changed management; we've changed a lot of things. In fact, the Ecrix deal and IBM are going to help Exabyte survive. Without Ecrix's technology there would be no basis for the deal."

The company said that its revenues grew by $1.3 million between the second quarter of 2002 and the third quarter and that gross margins increased from 23.7 percent to 28.7 percent. Operating expenses also fell, from $13.3 million to $11.7 million.

"We reported a much smaller loss in the third quarter versus the second quarter," says Beavers. "In fact, we improved the results by almost $5 million."

However, Exabyte has logged operating loses for the last five years and noted cash reserves of just over $3 million in the recent filing. The company also indicated that it has had a negative cash flow for three years and a deficit of $83.8 million. It has borrowed $17.9 million as of Sept. 28 -- its full line of credit from Silicon Valley Bank.

Beavers expressed confidence, however, that the company will get its credit extended.

According to the SEC filing, "certain factors related to the company's results of operations raise substantial doubt about whether [the company] can continue as a going concern," and that the company "will be able to fund its operations through the end of 2002."

Beavers claims this terminology is common to quarterly and annual filings and does not accurately reflect the company's outlook.

"10-Q's are written in a very rigid way, and the SEC makes you say certain kinds of things, and they are disclaimers that are meant to alert investors that [they] should go look at this stuff [themselves]," says Beavers. He says that previous Exabyte reports have contained the same verbiage.

Exabyte claims it is cash-flow positive and will have sufficient funds to continue beyond the end of 2002.

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