Iomega utilizes the disks in its removable media hard disk drives. Our other customers during fiscal 1999 included SyQuest Technologies, Incorporated (Syquest). During the third quarter of fiscal 1999, SyQuest filed for protection under Chapter 11 of the Bankruptcy Code. The Company's other customers during fiscal 1998 included Micropolis Corporation (Micropolis) and Quantum Corporation ("Quantum"). During the third quarter of fiscal 1998, Micropolis filed for protection under Chapter 11 of the Bankruptcy Code. Due to cessation of its high-end manufacturing operations, Quantum's high-end products are now being manufactured by Matsushita Kotobuki Electronics Industries ("MKE"), and we shipped products to MKE during fiscal 1998. Due to the rapid and frequent development of new disk drive products, it is common in the industry for the relative mix of customers and products to change rapidly, even from quarter to quarter.

We have generally sold our products to customers pursuant to purchase orders and similar short-term arrangements. In June 1996, we entered into a long-term supply agreement with Maxtor covering the supply of disks to Maxtor through June 2001. This agreement is subject to a number of conditions and qualifications and there can be no assurance that Maxtor will in fact remain a significant customer during the term of the agreement.

We believe that close technical collaboration with our customers and their other suppliers during the design phase of new disk drives facilitates integration of our products into new disk drives, improves our ability to rapidly reach cost effective high volume manufacturing and enhances the likelihood that we will become a primary supplier of thin-film disks for new disk drive products. However, the design-in process is ongoing and recurs frequently, and we must compete for participation in each new product program, even those of existing customers.

Our customer sales and service efforts are an integral part of maintaining strong customer relations. The sales and service organization processes requests from customers concerning product needs and acts to mobilize our resources to fulfill customer requests.

Although HMT has broadened its customer base, there are a relatively small number of disk drive manufacturers, and we expect that our dependence on a few customers will continue in the future. Additionally, there is the possibility that one or more of our customers could develop or expand their ability to produce thin-film disks internally and, as a result, could reduce the level of purchases or cease purchasing from us or could sell thin-film disks in competition with us. For example, MMC Technology, Incorporated (MMC Technology), a division of Hyundai Electronics America, and an affiliate of Maxtor, began internal media production of thin-film disks during fiscal 1998. There has also been a trend toward consolidation in the disk drive industry that we expect to continue. For example, during fiscal 1998, StorMedia, one of our competitors, acquired another of our competitors; Akashic Memories Corporation ("Akashic"), a subsidiary of Kubota, Inc.. Then, during fiscal 1999, Stormedia filed for protection under Chapter 11 of The Bankruptcy Code. Also during fiscal 1999 one of our customers, Western Digital, announced it had sold all of its media manufacturing operations to Komag Incorporated. Western Digital also signed a long term volume purchase agreement with Komag in connection with the sale of its media manufacturing operations. Recently Hyundai Electronics America's announced the intended sale of MMC Technology to Trace Corporation. In April 2000, we entered into a definitive merger agreement with Komag, Incorporated. Under the terms of the definitive merger agreement, each issued and outstanding share of HMT stock will be converted into 0.9094 shares of Komag's common stock. This agreement is publicly available and we urge you to read it for further information. The merger will be accounted for under purchase accounting and is subject to customary closing conditions, including regulatory approvals, the approval of both companies' shareholders and both companies' lenders. The merger is expected to close in the third quarter of calendar 2000. If any of our customers or competitors were to further combine and rationalize suppliers and competitive product lines, our business, results of operations and financial condition could be materially adversely affected.

Competitors in the thin-film disk industry fall into three groups: U.S. non-captive manufacturers, Asian-based manufacturers and U.S. captive manufacturers. Historically each of these groups has supplied approximately one-third of the worldwide thin-film disk unit output. Our primary U.S. non-captive competitor is Komag, Incorporated. Asian-based competitors include Fuji Electric Company Limited, Mitsubishi Kasei Corporation, Trace Corporation, Showa Denko K.K. and Hoya Corporation. As previously noted, on April 26 we signed an agreement to merge with Komag. The merger is expected to close in the third quarter of calendar 2000. Certain of these companies have significantly greater financial, technical and marketing resources than us. In addition, U.S. captive manufacturers, which include certain computer manufacturers, as well as disk drive manufacturers such as Seagate Technology, Inc. ("Seagate") and MMC Technology, an affiliate of Maxtor, manufacture disks for their internal use as part of their vertical integration programs. These companies could increase their internal production and reduce or cease purchasing from independent disk suppliers such as the Company. In the event of an oversupply of disks, these customers are likely to utilize their internal capacity prior to purchasing disks from independent manufacturers such as us. Moreover, while captive manufacturers have, to date, sold only nominal quantities of thin-film disks in the open market, there can be no assurance that such companies will not in the future do so in direct competition with us. Furthermore, there can be no assurance that other current and potential customers will not acquire or develop capacity to produce thin-film disks for internal use, or that disk manufacturing capacity will not exceed demand. Any such changes could have a material adverse effect on our business, operating results and financial condition. Announcement or implementation of any of the following by our competitors could have a material adverse effect on our business, operating results and financial condition: changes in pricing, product introductions, increases in production capacity, changes in product mix and technological innovation.

The market for thin-film disk products is highly competitive, and we expect competition to increase in the future. We believe that the principal competitive factors affecting this market include performance, quality, delivery capability and price. We believe that our products compete favorably in the high-end segment of the market that we serve, especially with respect to performance and quality. The thin-film disk industry is characterized by short product life cycles, ranging from nine to 12 months. As a result, we must continually anticipate, and adapt our products to meet demand for increased storage capacity. There can be no assurance that in the future we will be able to manufacture products on a timely basis with the quality and features necessary in order to remain competitive. In addition, the development of technologically innovative products requires substantial investments in research and development. Specifically, the thin-film disk industry is characterized by intense price competition. We have experienced significant pricing pressures since fiscal 1998, and there can be no assurance that we will not face similar pressure in fiscal 2001. Price competition has had and may continue to have a material adverse effect on our business, operating results and financial condition.

Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, we believe that our success will depend more upon the innovation, technological expertise and marketing abilities of our employees. There can be no assurance that we will be able to protect our technology adequately or that competitors will not be able to develop similar technology independently. We have 51 patents and six pending patent applications in the United States. In addition, we have nine foreign patents. Patents may not be issued with respect to our pending patent applications, and our issued patents may not be sufficiently broad to protect our technology. No assurance can be given that any patent issued to us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide adequate protection to our products. In addition, we have only limited patent rights outside the United States, and the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.

We may from time to time be notified by third parties that we may be infringing patents owned by such third parties. If necessary, we may have to seek a license under such patents or modify our products and processes in order to avoid infringement of such patents. There can be no assurance that such a license would be available on acceptable terms, if at all, or that we could so avoid infringement of such patents, in which case our business, operating results and financial condition could be materially adversely affected.

Litigation may be necessary to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or claims for indemnification resulting from infringement claims by third parties. Such litigation, even if successful, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results and financial condition. See "Risk Factors - Intellectual Property and Proprietary Rights."

We rely on a limited number of suppliers for many materials used in our manufacturing processes, including substrates, plating chemicals, abrasive tapes and slurries, certifier heads, sputter targets and certain other materials. In general, we seek to have two or three suppliers for our requirements; however, there can be no assurance that we can secure more than one source for all of our materials requirements in the future or that our suppliers will be able to meet our requirements on a timely basis or on acceptable terms. Shortages have occurred in the past, and there can be no assurance that shortages will not occur in the future, or that materials will not be available only with longer lead times. Moreover, changing suppliers for certain materials, such as lube or buffing tape, may require that the product be requalified with each customer. Requalification could prevent an early design, or could prevent or delay continued participation in disk drive programs for which our products have been qualified. In addition, long lead times are required to obtain many materials. Regardless of whether these materials are available from established or new sources of supply, these lead times could impede our ability to quickly respond to changes in demand and product requirements. Furthermore, a significant increase in the price of one or more of these materials could adversely affect our business, operating results and financial condition. While we have implemented procedures to monitor the quality of the materials received from our suppliers, there can be no assurance that the materials will meet the Company's specifications and will not adversely impact manufacturing yields or cause other production problems. In addition, there are only a limited number of providers for thin-film disk manufacturing equipment, such as sputtering machines, glide testers and certifiers, and ordering additional equipment for replacement or expansion requires long lead times, limiting the rate and flexibility of capacity expansion. Any limitations on, or delays in, the supply of materials or equipment could disrupt our production volume and could have a material adverse effect on our business, operating results and financial condition.

As of March 31, 2000, we had 1,445 full-time employees, with 1,249 in manufacturing, 71 in research and development, 84 in quality assurance and 41 in administration and marketing. We believe we generally have good relations with our employees. None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe that attracting and motivating skilled technical personnel is vital to our success. Although competition for such personnel is intense, we believe that we have not historically experienced difficulties in attracting personnel that are significantly different from those experienced by our competitors.

On November 30, 1995, we effected a leveraged recapitalization. The leveraged recapitalization and related transactions consisted of: (i) our repurchase by from Hitachi Metals of shares of Common Stock representing all the outstanding capital stock of HMT for an aggregate purchase price of $52.1 million in cash; (ii) the recapitalization of HMT through the issuance of 21,968,057 shares of common stock for an aggregate purchase price of approximately $0.7 million, 5,900,000 shares of Series A preferred stock for an aggregate purchase price of approximately $59.0 million, $47.0 million of subordinated promissory notes and $60.0 million in senior debt with associated warrants to purchase 701,344 shares of common stock at an exercise price of $0.0003 per share and (iii) the grant of options to purchase 11,451,865 shares of common stock under the 1995 Management Stock Option Plan and 1995 Stock Option Plan. The purchasers of HMT securities in the leveraged recapitalization included certain investment funds affiliated with Summit Partners, L.P. and certain other investment funds, our management and employees and Hitachi Metals. The terms of the leveraged recapitalization were determined through negotiations between Hitachi Metals and Summit Partners, who, prior to the leveraged recapitalization, did not have any affiliation with HMT. Pursuant to these negotiations, the shares of common stock were valued at $0.03 per share, the shares of Series A preferred stock were valued at $10.00 per share, and the subordinated notes were valued at face value. The values of these securities were confirmed by a third party appraisal.

The leveraged recapitalization has been accounted for as a recapitalization, and accordingly, no change in the accounting basis of our assets has been made.

As of November 30, 1995 (immediately prior to the leveraged recapitalization), we had $98.5 million in assets and $122.7 million in liabilities. Immediately following the leveraged recapitalization, we had $110.9 million in assets, $132.1 million in liabilities (including a $60.0 million senior bank term loan and $47.0 million of subordinated notes) and $59.0 million of Series A preferred stock.

In April 2000, HMT entered into a definitive merger agreement with Komag, Incorporated. Under the terms of the definitive merger agreement, each issued and outstanding share of HMT stock will be converted into 0.9094 shares of Komag's common stock. The merger will be accounted for under purchase accounting and is subject to customary closing conditions, including regulatory approvals, the approval of both companies' shareholders and lenders. The merger is expected to close in the third quarter of calendar 2000.

Our operating results historically have been, and may continue to be, subject to significant quarterly and annual fluctuations. As a result, our operating results in any quarter may not be indicative of our future performance. Factors affecting operating results include: market acceptance of new products; timing of significant orders; changes in pricing by us or our competitors; timing of product announcements and product transitions by us, our customers or our competitors; order cancellations, modifications and quantity adjustments and shipment reschedulings; changes in product mix; manufacturing yields; the level of utilization of our production capacity; increases in production and engineering costs associated with initial manufacture of new products; and changes in the cost of, or limitations on, the availability of materials. The impact of these and other factors on our revenues and operating results in any future period cannot be forecasted with certainty. Our expense levels are based, in part, on our expectations as to future revenues. Because our sales are generally made pursuant to purchase orders that are subject to cancellation, modification, quantity reduction or rescheduling on short notice and without significant penalties, our backlog as of any particular date may not be indicative of sales for any future period, and such changes could cause our net sales to fall below expected levels. If revenue levels are below expectations, operating results are likely to be materially adversely affected. Net income, if any, and gross margins may be disproportionately affected by a reduction in net sales because a proportionately smaller amount of our expenses varies with our revenues.

We derive substantially all of our net sales from the sale of thin-film disks to a small number of customers. We typically supply disks in volume for a limited number of disk drive products at any one time (14 as of March 31, 2000), and these products have an extremely short life cycle. Due to the rapid technological change and frequent development of new disk drive products, it is common in the industry for the relative mix of customers and products to change rapidly, even from quarter to quarter. Generally, new products have higher average selling prices than more mature products. Therefore, our ability to introduce new products in a timely fashion is an important factor in its continued success. Moreover, manufacturing yields and production capacity utilization impact our operating results. New products often have lower manufacturing yields and are produced in lower quantities than more mature products. If production for a disproportionate number of new products is commenced in a given quarter or if manufacturing yields for such products do not improve in a timely manner, our operating results for such quarter could be adversely affected. For example, during the quarter ended March 31, 1997, our operating results were adversely affected due partly to lower yields associated with initial production of a significant number of new products. Manufacturing yields generally improve as the product matures and production volumes increase. Manufacturing yields also vary depending on the complexity and uniqueness of product specifications. The ability to adjust manufacturing procedures to reduce costs and improve manufacturing yields and productivity during a product's life is limited, and many adjustments can only be implemented in connection with new product introductions or upgrades. Small variations in manufacturing yields and productivity can have a significant impact on operating results. Furthermore, because the thin-film disk industry is capital intensive and requires a high level of fixed costs, operating results are also extremely sensitive to changes in volume. Substantial advance planning and commitment of financial and other resources is necessary for expansion of manufacturing capacity, while our sales are generally made pursuant to purchase orders that are subject to cancellation, modification, quantity reduction or rescheduling without significant penalties. The impact of any of the foregoing factors could have a material adverse effect on our business, operating results and financial condition.

We have generally sold our products to customers pursuant to purchase orders and similar short-term arrangements. In June 1996, we entered into a long-term supply agreement with Maxtor covering the supply of disks to Maxtor through June 2001. This agreement is subject to a number of conditions and qualifications, and there can be no assurance that Maxtor will in fact remain a significant customer during the term of the agreement.

Qualifying thin-film disks for incorporation into a new disk drive product requires us to work extensively with the customer and the customer's other suppliers to meet product specifications. Therefore, customers often require a significant number of product presentations and demonstrations, as well as substantial interaction with our senior management, before making a purchasing decision. Accordingly, our products typically have a lengthy sales cycle, which can range from six to 12 months, during which we may expend substantial financial resources and management time and effort with no assurance that a sale will result.

While the industry is currently suffering from excess capacity, a rebound in demand could require us to resume our capacity expansion. During fiscal 1998 and 1997 we were operating at close to full capacity. In fiscal 1997, we completed construction of a new 124,000 square foot production facility at our Fremont, California site. We brought four production scale sputtering lines into service during fiscal 1997, six in 1998, and an additional two in fiscal 1999. This building has capacity for four more lines. During fiscal 1997, we completed the first phase of expansion of our facility in Eugene, Oregon, commencing volume production of aluminum substrates and nickel-plated and polished substrates at that site. During the third quarter of fiscal 1999, we completed the second phase of expansion of the Eugene facility, adding more polishing capacity. During the third quarter of fiscal 1999, we idled seven sputtering lines and associated equipment and facilities in connection with our restructuring plan.

We currently expect to spend approximately $10 million over the next 12 months for maintenance and upgrades to production equipment, a substantial majority of which will be spent on our Fremont, California facility.

The market for our products is highly competitive, and we expect competition to continue in the future. There can be no assurance that in the future we will be able to develop and manufacture products on a timely basis with the quality and features necessary in order to remain competitive. Competitors in the thin-film disk industry fall into three groups: U.S. non- captive manufacturers, Asian-based manufacturers and U.S. captive manufacturers. Historically, each of these groups has supplied approximately one-third of the worldwide thin-film disk unit output. Our primary U.S. non-captive competitor is Komag. Asian-based competitors include Fuji, Mitsubishi, Trace Corporation, Showa Denko and Hoya. In addition, U.S. captive manufacturers, which include certain computer manufacturers, as well as disk drive manufacturers such as Seagate and MMC Technology, an affiliate of Maxtor, manufacture disks for their internal use as part of their vertical integration programs. During periods of industry excess capacity, such as was experienced during fiscal 1999 and 2000, these customers favor their internal capacity over purchasing disks from independent suppliers such as us. Moreover, while captive manufacturers have, to date, sold only nominal quantities of thin-film disks in the open market, there can be no assurance that such companies will not in the future do so in direct competition with us. These companies could increase their internal production and reduce or cease purchasing from independent disk suppliers such as us. Also, consolidation of customers and competitors could reduce demand for our products. For example, during fiscal 1999, Komag purchased Western Digital's U.S. media manufacturing operations and Western Digital signed a long-term volume purchase agreement in connection with the sale. During calendar 2000, Trace Corporation announced a pending purchase of MMC Technology and Komag and HMT Technology Corporation announced a pending merger.

Furthermore, there can be no assurance that other current and potential customers will not acquire or develop capacity to produce thin-film disks for internal use. Any such changes could have a material adverse effect on our business, operating results and financial condition. Announcement or implementation of any of the following by our competitors could have a material adverse effect on our business, operating results and financial condition: changes in pricing, product introductions, increases in production capacity, changes in product mix and technological innovation. Specifically, the thin-film disk industry is characterized by intense price competition. We experienced significant pricing pressure during fiscal 1998, 1999 and 2000, and there can be no assurance that we will not experience increased price competition in the future. Pricing pressure has included, and may in the future include, demands for discounts, long-term supply commitments, just-in-time inventory warehouses and extended payment terms. Any increase in price competition could have a material adverse effect on our business, operating results and financial condition.

During fiscal 1999 and 2000, many of our competitors and customers had excess disk manufacturing capacity, resulting in industry capacity in excess of levels of demand. As a result, we and many of our customers and competitors have experienced poor operating results. During fiscal 1999 and 2000, we recorded a net loss of $21.0 million and $51.6 million respectively, primarily a result of declining demand and increased competition.

These increased levels of competition, could have further material adverse effects on our business, operating results and financial condition.

Rapid technological development and short product life cycles have characterized the thin-film disk industry. Product life cycles typically range from nine to 12 months. As a result, we must continually anticipate, and adapt our products to meet, demand for increased storage capacity. Although we are continually developing new products and production techniques, there can be no assurance that we will be able to anticipate technological advances in disk drives and develop products incorporating such advances in a timely manner or to compete effectively against our competitors' new products. In addition, there can be no assurance that customers will certify our products for inclusion in new disk drive products. We anticipate continued changes in the requirements of the disk drive industry and thin-film disk manufacturing technologies, and there can be no assurance that the future technological innovations will not reduce demand for thin-film disks. Our business, operating results and financial condition will be materially adversely affected if our efforts are not successful, if the technologies that we have chosen not to develop prove to be competitive alternatives or if any trend develops toward technology that would replace thin-film disks as a storage medium.

We rely on a limited number of suppliers for many materials used in its manufacturing processes, including aluminum blanks, substrates, sputter targets, plating chemicals, abrasive tapes and slurries, certifier heads and certain other materials. In general, we seek to have two or three suppliers for its requirements; however, there can be no assurance that we can secure more than one source for all of our materials requirements in the future or that our suppliers will be able to meet our requirements on a timely basis or on acceptable terms. Shortages have occurred in the past and there can be no assurance that shortages will not occur in the future, or that materials will be available without longer lead times. Moreover, changing suppliers for certain materials, such as lube or buffing tape, may require that the product be requalified with each customer. Requalification could prevent an early design-in, or could prevent or delay continued participation in disk drive programs for which our products have been qualified. In addition, long lead times are required to obtain many materials. Regardless of whether these materials are available from established or new sources of supply, these lead times could impede our ability to quickly respond to changes in demand and product requirements. Furthermore, a significant increase in the price of one or more of these materials could adversely affect our business, operating results and financial condition. In addition, there are only a limited number of providers for thin- film disk manufacturing equipment, such as sputtering machines, glide testers and certifiers, and ordering additional equipment for replacement or expansion requires long lead times, limiting the rate and flexibility of capacity expansion. Any limitations on, or delays in, the supply of materials or equipment could disrupt our production volume and could have a material adverse effect on our business, operating results and financial condition.

The manufacture of our high-performance thin-film disks requires a tightly controlled multi-stage process and the use of high-quality materials. Efficient production of our products requires utilization of advanced manufacturing techniques and clean room facilities. Disk fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and quality-limiting contaminants. Despite stringent manufacturing controls, weaknesses in process control or minute impurities in materials may cause a substantial percentage of the disks in a lot to be defective. The success of our manufacturing operation depends in part on our ability to maintain process control and minimize such impurities in order to maximize our yield of acceptable high-quality disks. Minor variations from our specifications could have a disproportionately adverse impact on manufacturing yields. For example, in the quarter ended March 31, 1995, our operating results were materially adversely affected by chlorine contamination of our thin-film disk products that we believe resulted from chlorine contamination of disk carriers provided by one of our suppliers. While we have implemented procedures to monitor our manufacturing process and the quality of production materials, there can be no assurance that such procedures will be adequate.

We are from time to time notified by third parties that we may be infringing patents owned by such third parties. If necessary, we may have to seek a license under such patents or modify our products and processes in order to avoid infringement of such patents. There can be no assurance that such a license would be available on acceptable terms, if at all, or that we could so avoid infringement of such patents, in which case our business, operating results and financial condition could be materially adversely affected.

Litigation may be necessary to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or claims for indemnification resulting from infringement claims by third parties. Such litigation, even if successful, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results and financial condition.

Our future operating results depend in significant part upon the continued contributions of our officers and personnel, many of whom would be difficult to replace. We do not have employment agreements with any employee. The loss of our officers or other key personnel, who are critical to our success, could have a material adverse effect on the business, operating results and financial condition. In addition, our future operating results depend in part upon our ability to attract, train, retain and motivate other qualified management, technical, manufacturing, sales and support personnel for our operations. Competition for such personnel is intense, especially since many of our competitors are located near our facilities in Fremont, California. Among the competitive factors in attracting personnel are compensation and benefits, equity incentives and geographic location. There can be no assurance that we will be successful in attracting or retaining such personnel. The loss of the services of existing personnel as well as the failure to recruit additional personnel could materially adversely effect our business, operating results and financial condition.

Our Fremont facilities, which currently account for all of our finished products, are located near major earthquake faults. Disruption of operations at any of our facilities for any reason, including power failures, work stoppages or natural disasters such as fire, floods or earthquakes, would cause delays in, or an interruption of, production and shipment of products, which could materially adversely affect our business, operating results and financial condition.

Certain provisions of our Amended and Restated Certificate of Incorporation, and Bylaws and Delaware law, including the provisions of Section 203 of the Delaware General Corporation Law, which restrict the ability of a substantial stockholder to acquire us, may discourage certain transactions involving a change in control of HMT. In addition to the foregoing, the ability of the Board of Directors to issue "blank check" preferred stock without further stockholder approval could have the effect of delaying, deferring or preventing a change in control of HMT.

In April 2000, the Company entered into a definitive merger agreement with Komag, Incorporated ("Komag"). Komag designs, develops, manufactures and markets high-performance thin-film disks. Under the terms of the definitive merger agreement, each issued and outstanding share of HMT stock will be converted into 0.9094 shares of the Komag's common stock. The merger will be accounted for under purchase accounting and is subject to customary closing conditions, including regulatory approvals, the approval of both companies' shareholders and the Company's lenders. The merger is expected to close in the third quarter of calendar 2000.

Investors and security holders are advised to read the joint proxy statement/prospectus regarding the business transaction referenced in the foregoing information, when it becomes available, because it will contain important information. HMT and Komag expect to mail a joint proxy statement/prospectus about the transaction to their respective stockholders. Such joint proxy statement/prospectus will be filed with the Securities and Exchange Commission by both companies. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus (when available) and other documents filed by the companies at the Securities and Exchange Commission's web site at http://www.sec.gov. The joint proxy statement/prospectus and such other documents may also be obtained from HMT or Komag.

There are certain risks and uncertainties relating to the proposed merger with Komag which will be described in the joint proxy statement/prospectus to be mailed to Komag and HMT's respective stockholders and will be filed with the Securities and Exchange Commission.

The trading price of our common stock could be subject to wide fluctuations in response to a variety of factors, including quarterly variations in operating results, announcements of technological innovations or new products by us, our customers or our competitors, developments in patents or other intellectual property rights, general conditions in the computer or disk drive industry, comments made by analysts, including charges in analysts estimates and general economic and market conditions. Additionally, the stock markets in general, and the market for technology stocks in particular, has experienced extreme price volatility in recent years. This volatility has often had a substantial effect on the market prices of many technology companies for reasons unrelated or disproportionate to the operating performance of such companies. Broad market fluctuations could have a significant impact on the market price of the common stock.

Various factors such as changes in prevailing interest rates or changes in perceptions of our creditworthiness could cause the market price of our 5 3/4% convertible subordinated notes due calendar 2004 to fluctuate significantly. The trading price of the convertible notes could also be significantly affected by the market price of the common stock, which could be subject to wide fluctuations in response to a variety of factors as discussed above.

We own one 57,776 square foot building, used for manufacturing and administration, on approximately 4.3 acres of land in Fremont, California and another 124,000 square foot manufacturing and administrative facility on an adjacent five acre parcel. We lease an adjacent 50,400 square foot building used primarily for manufacturing under a lease that expires in December 2003 with three five-year extension options. We also lease a nearby 60,312 square foot building used for administration, engineering and distribution, under a lease that expires in May 2004.

We also own a 106,458 square foot building, used for manufacturing and administration, on approximately 4.6 acres in Eugene, Oregon. We lease a nearby 23,970 square foot building used for engineering and distribution, under a lease that expires in December, 2002, with two five-year extension options.

Our Fremont facilities, which currently account for all of our finished disk production, are located near major earthquake faults. Disruption of operations for any reason, including power failures, work stoppages or natural disasters such as fire, floods or earthquakes, could materially adversely affect our business, operating results and financial condition.

None

Not applicable.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters

The following table sets forth, for each quarter of fiscal year 1999 and 2000, the range of high and low closing sales prices, as reported on the Nasdaq National Market.

                                            PRICE RANGE OF
                                             COMMON STOCK
                                        ----------------------
                                           High         Low
                                        ----------  ----------
Fiscal 1999
   First Quarter........................  14 5/8       8 13/16
   Second Quarter.......................  10 13/16     5 3/4
   Third Quarter........................  13 15/16    10 1/32
   Fourth Quarter.......................  15 9/16      3 1/2

Fiscal 2000
   First Quarter........................   4 13/16     2 1/2
   Second Quarter.......................   4 5/32      2 1/4
   Third Quarter........................   4 1/8       3 1/16
   Fourth Quarter.......................   4 11/16     2 5/8

As of June 1, 2000, there were approximately 245 holders of record of our common stock. On June 1, 2000, the last sale price reported on the Nasdaq National Market for our common stock was $1.75 per share.

We have never declared or paid cash dividends on our common stock. We currently intend to retain all future earnings for use in our business, and do not anticipate paying cash dividends on the common stock in the foreseeable future. In addition, the terms of our revolving credit facility prohibit the payment of dividends without the banks' prior approval. See Notes 5 and 8 of Notes to Consolidated Financial Statements.

                                                         Fiscal Year Ended March 31,
                                              -----------------------------------------------------
                                                  2000     1999       1998       1997       1996
                                              ---------  ---------  ---------  ---------  ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales...................................  $192,762   $239,531   $356,194   $263,209   $194,401
Cost of sales...............................   236,788    221,495    225,599    156,277    119,803
                                              ---------  ---------  ---------  ---------  ---------
Gross profit (loss).........................   (44,026)    18,036    130,595    106,932     74,598
                                              ---------  ---------  ---------  ---------  ---------
Operating expenses:
  Research and development..................     9,094      9,728      8,825      5,812      3,803
  Selling, general and administrative.......     9,771     11,655     13,679     11,803      7,774
  Recapitalization expenses.................        --         --         --         --      4,347
  Restructuring expenses....................        --     15,662         --         --         --
                                              ---------  ---------  ---------  ---------  ---------
          Total operating expenses..........    18,865     37,045     22,504     17,615     15,924
                                              ---------  ---------  ---------  ---------  ---------
Operating income (loss).....................   (62,891)   (19,009)   108,091     89,317     58,674
Interest expense, net.......................    10,893     10,994      8,194      3,329      8,578
                                              ---------  ---------  ---------  ---------  ---------
Income (loss) before income tax provision
  (benefit) and extraordinary debt
  extinguishment costs......................   (73,784)   (30,003)    99,897     85,988     50,096
Income tax provision (benefit)..............   (22,135)    (9,001)    29,969     25,400      2,590
                                              ---------  ---------  ---------  ---------  ---------
Net income (loss) before extraordinary
  debt extinguishment costs.................   (51,649)   (21,002)    69,928     60,588     47,506
Extraordinary debt extinguishment costs,
  net of income taxes.......................        --         --         --         --      1,127
                                              ---------  ---------  ---------  ---------  ---------
Net income (loss)...........................   (51,649)   (21,002)    69,928     60,588     46,379
Accretion reversal (accretion) for
  dividends on Mandatorily Redeemable
  Series A Preferred Stock..................        --         --         --      1,157     (1,157)
                                              ---------  ---------  ---------  ---------  ---------
Net income (loss) available for common
  stockholders..............................  ($51,649)  ($21,002)   $69,928    $61,745    $45,222
                                              =========  =========  =========  =========  =========
Net income (loss) available for common
  stockholders per share(1)
  Basic.....................................    ($1.14)    ($0.48)     $1.66      $1.52      $1.28
                                              =========  =========  =========  =========  =========
  Diluted...................................    ($1.14)    ($0.48)     $1.40      $1.35      $1.28
                                              =========  =========  =========  =========  =========
Shares used in computing per share
  amounts(1)
  Basic.....................................    45,411     43,720     42,196     40,493     35,224
  Diluted...................................    45,411     43,720     54,542     46,019     35,224


                                                                      March 31,
                                              -----------------------------------------------------
                                                  2000     1999       1998       1997       1996
                                              ---------  ---------  ---------  ---------  ---------
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)...................   $75,872    $85,170    $88,699    $71,827    $45,899
Total assets................................   377,062    442,540    478,223    373,389    165,786
Subordinated promissory notes payable to
  stockholders..............................        --         --         --         --     47,000
Mandatorily Redeemable Series A Preferred
  Stock.....................................        --         --         --         --     60,157
5 3/4% Convertible Subordinated Notes.......   230,000    230,000    230,000    230,000         --
Total stockholders' equity..................   117,571    165,948    182,452     95,442     19,524

(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in computing per share amounts.

Subsequent Event

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Item 1 under the heading entitled "Risk Factors."

Pricing pressure was evident in calendar 1999; according to Trend Focus, worldwide shipments of hard disk drives grew 20% to 174 million units in calendar 1999 while revenues remained flat from 1998 at $25.9 billion. Analysts predict that drive unit shipments will continue to grow at a 16% annualized level through 2003 to 316 million units while average sales prices are expected to fall off at approximately 5.5% annually resulting in $32 billion in revenue by 2003. Although calendar quarter four showed a reduction in corporate PC sales, the continued growth in the sub $1,000 PC market and Y2K preparation resulted in increased drive and media sales for calendar 1999. However, the disks-per-drive ratio continued its decline from 1998 to 1999 falling from 2.15 to a 1.77 average for desktop PCs. This ratio is expected to continue its drop over the next three years to 1.4 in calendar 2000 and reach below 1.2 by calendar 2003.

                                                            Fiscal Year Ended March 31,
                                              -----------------------------------------------------
                                                2000       1999       1998       1997       1996
                                              ---------  ---------  ---------  ---------  ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales...................................     100.0%     100.0%     100.0%     100.0%     100.0%
Cost of sales...............................     122.8%      92.5%      63.3%      59.4%      61.6%
                                              ---------  ---------  ---------  ---------  ---------
Gross profit (loss).........................     -22.8%       7.5%      36.7%      40.6%      38.4%

Operating expenses:
  Research and development..................       4.7%       4.1%       2.5%       2.2%       2.0%
  Selling, general and administrative.......       5.1%       4.8%       3.9%       4.5%       4.0%
  Recapitalization expenses.................        --         --         --         --        2.2%
  Restructuring expenses....................        --        6.5%        --         --         --
                                              ---------  ---------  ---------  ---------  ---------
          Total operating expenses..........       9.8%      15.4%       6.4%       6.7%       8.2%
                                              ---------  ---------  ---------  ---------  ---------
Operating income (loss).....................     -32.6%      -7.9%      30.3%      33.9%      30.2%
Interest expense, net.......................       5.7%       4.6%       2.3%       1.2%       4.4%
                                              ---------  ---------  ---------  ---------  ---------
Income (loss) before income tax provision
  (benefit) and extraordinary debt
  extinguishment costs......................     -38.3%     -12.5%      28.0%      32.7%      25.8%
Income tax provision (benefit)..............     -11.5%      -3.7%       8.4%       9.7%       1.4%
                                              ---------  ---------  ---------  ---------  ---------
Net income (loss) before extraordinary
  debt extinguishment costs.................     -26.8%      -8.8%      19.6%      23.0%      24.4%
Extraordinary debt extinguishment costs,
  net of income taxes.......................        --         --         --         --        0.5%
                                              ---------  ---------  ---------  ---------  ---------
Net income (loss)...........................     -26.8%      -8.8%      19.6%      23.0%      23.9%
                                              =========  =========  =========  =========  =========

             Name               Age          Position  with the Company
------------------------------ ------ ----------------------------------------
Ronald L. Schauer.............    56  Chief Executive Officer and
                                      Chariman of the Board
Ronald J. Buschur..............   36  President & Chief Operating Officer
George J. Hall.................   55  Executive Vice-President, Operations
Peter S. Norris................   49  Executive Vice-President, Finance, Chief
                                      Financial Officer and Assistant Secretary
Michael A. Russak..............   53  Executive Vice-President, Research &
                                      Development and Chief Technical Officer
Donald P. Beadle (1)(2).......    64  Director
Bruce C. Edwards (1)..........    46  Director
Richard S. Love (2)...........    62  Director
Harry G. Van Wickle (2).......    53  Director

                                     SUMMARY COMPENSATION TABLE


                                       ANNUAL COMPENSATION               LONG-TERM
                            ------------------------------------------- COMPENSATION
                                                              OTHER       AWARDS/
                                                              ANNUAL     SECURITIES   ALL OTHER
                             FISCAL                        COMPENSATION  UNDERLYING  COMPENSATION
NAME AND PRINCIPAL POSITION   YEAR   SALARY($)    BONUS($)    ($)(1)     OPTIONS(#)     ($)(2)
--------------------------- -------- ---------- ---------- ------------ ------------ ------------
Mr. Ronald L. Schauer......   2000     376,825         --          --          --          4,775
  Chief Executive             1999     352,603     34,092          --          --          5,242
  Officer                     1998     291,060    132,714          --          --          3,701
Mr. George J. Hall.........   2000     247,499         --          --          --          2,883
  Vice President,             1999     229,825     22,279          --          --          3,242
  Operations                  1998     191,285     86,710          --          --          2,440
Dr. Michael A. Russak......   2000     248,999         --          --          --          3,216
  Vice President, Research    1999     238,213     23,562          --          --          3,535
   and Development            1998     205,037     91,809        1,685         --          2,732
Mr. Peter S. Norris........   2000     225,014         --          --          --          2,935
  Vice President and Chief    1999     207,996     18,936          --          --          3,318
  Financial Officer           1998     161,835     73,589        2,631         --          2,331
Mr. Ronald J. Buschur......   2000     257,595         --          --          --          2,883
  President and Chief         1999     218,066     18,702          --          --          3,385
  Operating Officer           1998     159,103     70,917          --          --          2,360

                                         INDIVIDUAL GRANTS
                            --------------------------------------------
                                          % OF                            POTENTIAL REALIZABLE
                                         TOTAL                              VALUE AT ASSUMED
                            NUMBER OF   OPTIONS                             ANNUAL RATES OF
                            SECURITIES GRANTED TO                             STOCK PRICE
                            UNDERLYING EMPLOYEES                            APPRECIATION FOR
                             OPTIONS   IN FISCAL   EXERCISE                  OPTION TERM(4)
                             GRANTED      YEAR       PRICE    EXPIRATION ---------- ----------
NAME AND PRINCIPAL POSITION   (#)(1)     (%)(2)    ($/SH)(3)     DATE      5%($)      10%($)
--------------------------- ---------- ---------- ----------- ---------- ---------- ----------
Ronald L. Schauer..........        --         --         --          --         --         --
George J. Hall.............    60,000       4.16      3.3125   10/14/09   $124,993   $316,756
Michael A. Russak..........    60,000       4.16      3.3125   10/14/09   $124,993   $316,756
Peter S. Norris............    60,000       4.16      3.3125   10/14/09   $124,993   $316,756
Ronald J. Buschur..........    60,000       4.16      3.3125   10/14/09   $124,993   $316,756

                                                NUMBER OF SECURITIES
                                                     UNDERLYING            VALUE OF IN-THE-MONEY
                           SHARES               UNEXERCISED OPTIONS            OPTIONS AS OF
                          ACQUIRED              AS OF MARCH 31, 2000         MARCH 31, 2000(1)
                             ON     VALUE   --------------------------- ---------------------------
                          EXERCISE REALIZED  EXERCISABLE  UNEXERCISABLE  EXERCISABLE  UNEXERCISABLE
             NAME           (#)      ($)         (#)           (#)           ($)           ($)
------------------------- -------- -------- ------------- ------------- ------------- -------------
Ronald L. Schauer........       0        0        92,501        32,499         --            --
George J. Hall...........       0        0        80,001        59,999         --            --
Michael A. Russak........       0        0        80,001        59,999         --            --
Peter S. Norris..........       0        0        59,501        70,499         --            --
Ronald J. Buschur........       0        0        80,001        59,999         --            --

                                                        BENEFICIAL OWNERSHIP(1)
                                                        --------------------
                                                                    PERCENT
                                                         NUMBER OF     OF
                   BENEFICIAL OWNER                       SHARES     TOTAL
------------------------------------------------------- ----------- --------
State of Wisconsin Investment Board....................  6,545,000    13.92
  121 East Wilson Street
  Madison, WI 53702
Crabbe Huson Group, Inc................................  3,804,028     8.09
  121 S.W. Morrison, Suite 1400
  Portland, OR 97204
Dimensional Fund Advisors..............................  2,429,529     5.17
  1299 Ocean Avenue, 11th Floor
  Santa Monica, CA 90401
Donald P. Beadle(2)....................................      6,354        *
Bruce C. Edwards(3)....................................     35,646        *
Richard S. Love(4).....................................      6,354        *
Harry G. Van Wickle(5).................................      6,354        *
Ronald L. Schauer(6)...................................  2,084,751     4.43
Ronald J. Buschur(7)...................................    592,827     1.26
George J. Hall(8)......................................    419,626        *
Michael A. Russak(9)...................................    526,900     1.12
Peter S. Norris(10)....................................    533,270     1.13
All directors and executive officers as a group (9
  persons)(11).........................................  4,212,082     8.96

                                                           March 31,
                                                    -------------------------
                                                         2000       1999
                                                    ----------   ----------
                               ASSETS
Current assets:
  Cash and cash equivalents.....................      $55,314      $53,077
  Receivables -- trade, net of allowance for
     doubtful accounts of $944 and $3,054 at
     March 31, 2000 and 1999, respectively......       24,888       29,559
  Other receivables.............................           13           13
  Inventories, net..............................       16,594       26,585
  Deposits, prepaid expenses and other..........          153          588
  Deferred income taxes.........................        3,848        5,133
                                                    ----------   ----------
          Total current assets..................      100,810      114,955
Property, plant and equipment, net..............      271,225      321,508
Other assets....................................        5,027        6,077
                                                    ----------   ----------
          Total assets..........................     $377,062     $442,540
                                                    ==========   ==========

                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..............................      $15,266      $20,732
  Accrued liabilities...........................        9,672        8,498
  Obligations under capital leases -- current
     portion....................................          --           555
                                                    ----------   ----------
          Total current liabilities.............       24,938       29,785
Other long-term liabilities.....................          865        2,680
Deferred income taxes...........................        3,688       14,127
5 3/4% Convertible Subordinated Notes, due 2004.      230,000      230,000
                                                    ----------   ----------
          Total liabilities.....................      259,491      276,592
                                                    ----------   ----------
Commitments and contingencies (Note 6)

Common Stock, $0.001 par value; authorized:
  100,000,000 shares; issued and outstanding:
  46,174,465 and 44,299,557 shares at March 31,
  2000 and 1999, respectively...................           46           44
Additional paid-in capital......................      116,931      113,661
Retained earnings...............................       77,243      128,892
Distribution in excess of basis (Note 1)........      (76,649)     (76,649)
                                                    ----------   ----------
          Total stockholders' equity............      117,571      165,948
                                                    ----------   ----------
          Total liabilities and stockholders'
            equity..............................     $377,062     $442,540
                                                    ==========   ==========

                                                  Years Ended March 31,
                                          ------------------------------------
                                          2000            1999         1998
                                          ----------   ----------   ----------
Net sales................................. $192,762     $239,531     $356,194
Cost of sales.............................  236,788      221,495      225,599
                                          ----------   ----------   ----------
  Gross profit (loss).....................  (44,026)      18,036      130,595
                                          ----------   ----------   ----------
Operating expenses:
  Research and development................    9,094        9,728        8,825
  Selling, general and administrative.....    9,771       11,655       13,679
  Restructuring expenses..................      --        15,662          --
                                          ----------   ----------   ----------
     Total operating expenses.............   18,865       37,045       22,504
                                          ----------   ----------   ----------
     Operating income (loss)..............  (62,891)     (19,009)     108,091

Interest expense, net.....................   10,893       10,994        8,194
                                          ----------   ----------   ----------
     Income (loss) before income tax......  (73,784)     (30,003)      99,897
Income tax provision (benefit)............  (22,135)      (9,001)      29,969
                                          ----------   ----------   ----------

Net income (loss)......................... ($51,649)    ($21,002)     $69,928
                                          ==========   ==========   ==========

Net income (loss) per share
  Basic...................................   ($1.14)      ($0.48)       $1.66
                                          ==========   ==========   ==========
  Diluted.................................   ($1.14)      ($0.48)       $1.40
                                          ==========   ==========   ==========
Shares used in computing net income
  (loss) per share
  Basic...................................   45,411       43,720       42,196
                                          ==========   ==========   ==========
  Diluted.................................   45,411       43,720       54,542
                                          ==========   ==========   ==========

                                                                       Distributions
                                       Common Stock       Additional   In Excess of                   Total
                                   ---------------------    Paid-in      Net Book      Retained    Stockholders'
                                     Shares      Amount     Capital       Value        Earnings      Equity
                                   -----------  --------  -----------  ------------  ------------  -----------
Balances, March 31, 1997.......... 41,046,360       $41      $92,084      ($76,649)      $79,966      $95,442
  Follow-On Offering of $0.001
    par value Common Stock, net
    of offering expenses..........  1,000,000         1       13,350            --           --        13,351
  Common Stock issued under
    Employee Stock Purchase
    Plan..........................    278,255        --        2,575            --           --         2,575
  Common Stock issued under Stock
    Option Plans..................    832,528         1        1,155            --           --         1,156
  Net income......................        --         --           --            --        69,928       69,928
                                   -----------  --------  -----------  ------------  ------------  -----------
Balances, March 31, 1998.......... 43,157,143        43      109,164       (76,649)      149,894      182,452
  Common Stock issued under
    Employee Stock Purchase
    Plan..........................    371,777        --        3,334            --            --        3,334
  Common Stock issued under Stock
    Option Plans..................    770,637         1        1,163            --            --        1,164
  Net loss........................        --         --           --            --       (21,002)     (21,002)
                                   -----------  --------  -----------  ------------  ------------  -----------
Balances, March 31, 1999.......... 44,299,557        44      113,661       (76,649)      128,892      165,948
  Common Stock issued under
    Employee Stock Purchase
    Plan..........................  1,208,389         1        2,969          --            --          2,970
  Common Stock issued under Stock
    Option Plans..................    666,519         1          301          --            --            302
  Net loss........................        --         --          --           --         (51,649)     (51,649)
                                   -----------  --------  -----------  ------------  ------------  -----------
Balances, March 31, 2000.......... 46,174,465       $46     $116,931      ($76,649)      $77,243     $117,571
                                   ===========  ========  ===========  ============  ============  ===========

                                                        YEAR ENDED MARCH 31,
                                                  -------------------------------
                                                      2000     1999       1998
                                                  ---------  ---------  ---------
Cash flows from operating activities:
Net income (loss).................................($51,649)  ($21,002)   $69,928
Adjustments to reconcile net income (loss) to
  net cash provided by operations:
Depreciation and amortization.....................  56,104     53,425     41,771
Equipment writedowns - restructuring..............     --      12,839        --
Provision (reversal) for loss on inventories......     --      (2,509)     1,844
Provision (reversal) for doubtful accounts
  receivable......................................  (2,110)     1,727        272
Loss (gain) on sale or disposal of assets.........     272       (480)       --
Changes in operating assets and liabilities:
Deferred income taxes.............................  (9,154)     2,235      9,946
Receivables -- trade..............................   6,781     38,730    (34,517)
Other receivables.................................     --         631       (621)
Inventories.......................................   9,991     (5,676)    (8,407)
Deposits, prepaid expenses and other assets.......     435         41       (155)
Accounts payable..................................  (5,466)    (6,569)       877
Accrued liabilities...............................   1,174        228       (495)
Long term liabilities.............................  (1,815)    (5,304)     4,422
                                                  ---------  ---------  ---------
Net cash provided by operating activities.........   4,563     68,316     84,865
                                                  ---------  ---------  ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment....  (6,025)   (43,436)  (130,320)
Sale of short-term investments....................     --         --      10,833
Decrease in other assets..........................     982      1,367        942
                                                  ---------  ---------  ---------
Net cash used in investing activities.............  (5,043)   (42,069)  (118,545)
                                                  ---------  ---------  ---------
Cash flows from financing activities:
Principal payments on obligations under capital
  leases..........................................    (555)    (2,653)    (2,642)
Proceeds from issuance of Common Stock............   3,272      4,498     17,082
                                                  ---------  ---------  ---------
Net cash provided by financing activities.........   2,717      1,845     14,440
                                                  ---------  ---------  ---------
Net increase (decrease) in cash and cash
  equivalents.....................................   2,237     28,092    (19,240)
Cash and cash equivalents at beginning of period..  53,077     24,985     44,225
                                                  ---------  ---------  ---------
Cash and cash equivalents at end of period........ $55,314    $53,077    $24,985
                                                  =========  =========  =========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period.......... $10,893    $13,495    $13,582
Net cash paid (received) for income taxes
  during the period...............................($12,871)   $11,588    $20,860
Supplemental disclosure of noncash investing and
  financing activities:
Machinery and equipment acquired pursuant to a
  capital lease...................................   $ --      $2,792     $1,633

                                                 Years Ended March 31,
                                           -------------------------------
                                             2000       1999       1998
                                           ---------  ---------  ---------
  Maxtor Corporation...................       60.50%      36.0%      23.4%
  Samsung Electronics Company Limited..        7.50%      17.8%      16.0%
  Iomega Corporation...................       14.60%      15.2%      28.9%
  Western Digital Corporation..........       13.30%      24.1%      19.0%

                                                 March 31,
                                           --------------------
                                             2000       1999
                                           ---------  ---------
                                          (dollars in thousands)
   Inventories:
     Raw materials.....................      $7,739     $5,575
     Work-in-process...................       3,890      3,569
     Finished goods....................       4,965     17,441
                                           ---------  ---------
                                            $16,594    $26,585
                                           =========  =========

                                                 March 31,
                                           --------------------
                                             2000       1999
                                           ---------  ---------
                                          (dollars in thousands)
   Property, Plant and Equipment, Net:
     Land................................    $4,869     $4,869
     Building and improvements...........   110,393    110,393
     Leasehold improvements..............    37,068     36,790
     Machinery, equipment, furniture
       and fixtures......................   286,968    280,471
     Construction in progress............    15,667     18,770
                                           ---------  ---------
                                            454,965    451,293
     Less accumulated depreciation
       and amortization..................   183,740    129,785
                                           ---------  ---------
                                           $271,225   $321,508
                                           =========  =========

                                                 March 31,
                                           --------------------
                                             2000       1999
                                           ---------  ---------
                                          (dollars in thousands)
   Accrued Liabilities:
     Interest payable....................    $2,557     $2,878
     Payroll related items...............     4,335      4,397
     Other...............................     2,780      1,223
                                           ---------  ---------
                                             $9,672     $8,498
                                           =========  =========

                                                 Years Ended March 31,
                                           -------------------------------
                                             2000       1999       1998
                                           ---------  ---------  ---------
                                                (dollars in thousands)
   Hitachi Metals Trading
     Purchases of raw materials.........        403         --     $1,237
   Hitachi Metals America
     Purchases of raw materials.........        541        259      1,241

                                              (in
      Fiscal Year Ending March 31,         thousands)
----------------------------------------   ---------
      2001............................        4,204
      2002............................        4,232
      2003............................        4,237
      2004............................        2,209
      2005............................           61
      Thereafter......................           --
                                           ---------
                                            $14,943
                                           =========

                                                               Outstanding Options
                                          --------------------------------------------------
                                                                                    Weighted
                              Available     Number                      Aggregate   Average
                                 for          of                         Exercise   Exercise
                                Grant       Options      Per Share        Price      Price
                             ------------ ----------- ---------------- ------------ --------
Balances, March 31, 1997..     2,797,136   3,304,949   $0.03 - $18.50    8,365,789    $2.53
  Granted...................  (1,701,000)  1,701,000  $10.00 - $14.50   19,523,015   $11.48
  Cancellations.............     237,478    (237,478)                   (1,433,675)   $6.03
  Exercised.................                (742,186)  $0.03 - $14.88     (314,585)   $0.42
                             ------------ -----------                  ------------
Balances, March 31, 1998..     1,333,614   4,026,285   $0.03 - $18.50   26,140,544    $6.50
  Authorized................   2,500,000
  Granted...................  (1,188,650)  1,188,650   $7.67    $7.94    9,267,191    $7.80
  Cancellations.............     671,894    (671,894)                   (7,722,078)  $11.49
  Exercised.................                (791,185)  $0.03   $11.06     (447,811)   $0.57
                             ------------ -----------                  ------------
Balances, March 31, 1999..     3,316,858   3,751,856   $0.03   $18.50   27,237,846    $7.26
  Granted...................  (1,441,740)  1,441,740   $2.50    $3.88    4,297,108    $2.98
  Cancellations.............     720,803    (720,803)                   (6,150,245)   $8.53
  Exercised.................                (666,519)  $0.03    $2.81      (85,787)   $0.13
                             ------------ -----------                  ------------
Balances, March 31, 2000..     2,595,921   3,806,274                    25,298,922    $6.62
                             ============ =========== ================ ============ ========

                                                    Years Ended March 31,
                                           ----------------------------------
                                              2000        1999        1998
                                           ----------  ----------  ----------
  Net income (loss) -- as reported........  ($51,649)   ($21,002)    $69,928
  Net income (loss) -- pro forma..........  ($55,112)   ($24,379)    $65,605
  Earnings (loss) per share -- as reported
    Basic.................................    ($1.14)     ($0.48)      $1.66
    Diluted...............................    ($1.14)     ($0.48)      $1.40
  Earnings (loss) per share -- pro forma
    Basic.................................    ($1.21)     ($0.56)      $1.55
    Diluted...............................    ($1.21)     ($0.56)      $1.32

                                     2000           1999           1998
                                 ------------- -------------- --------------
Risk-free interest rate .......  5.03% - 6.57% 4.18% - 5.63%  5.72% - 6.74%
Expected life .................  2-5 Years     2-5 Years      2-5 years
Expected volatility ...........  0.98          0.81           0.69
Expected dividend .............  $  --         $  --          $  --

                         Options Outstanding           Options Exercisable
                 -----------------------------------  ----------------------
                              Weighted
                               Average    Weighted                 Weighted
                              Remaining    Average                 Average
    Range of       Number    Contractual  Exercise      Number     Exercise
Exercise Prices  Outstanding    Life        Price     Exercisable   Price
---------------- ----------- ----------- -----------  ----------- ----------
$0.03  -  $2.81   1,187,832        7.97       $1.91      745,802      $1.36
$3.21 -  $7.563   1,267,435        8.80       $6.07      571,990      $6.50
$8.06 -  $11.063  1,128,309        7.14      $10.87      591,666     $10.84
$11.375-  $18.50    222,698        7.00      $13.69      166,344     $13.82
                 -----------                          -----------
$0.03 - $18.50    3,806,274        7.95       $6.62    2,075,802      $6.48
                 ===========                          ===========

                                                    Years Ended March 31,
                                          -----------------------------------
                                             2000         1999        1998
                                          -----------  ----------  ----------
                                                  (dollars in thousands)
  Current:
    Federal.............................    ($12,478)   ($11,235)    $19,756
    State...............................       --           --           268
  Deferred:
    Federal.............................     (14,203)      2,694      13,218
    State...............................       4,546        (460)     (3,273)
                                          -----------  ----------  ----------
                                            ($22,135)    ($9,001)    $29,969
                                          ===========  ==========  ==========

                                                   Years Ended March 31,
                                          -----------------------------------
                                             2000         1999        1998
                                          -----------  ----------  ----------

  Income tax provision (benefit) at
    statutory rate......................     (35.00%)    (35.00%)      35.00%

  Benefit of foreign sales corporation..       --           --        (3.10%)
  State income taxes....................      (1.28%)     (1.40%)       3.20%
  Credits...............................      (3.47%)     (5.10%)     (5.20%)
  Other.................................        9.75%      11.50%       0.10%
                                          -----------  ----------  ----------
    Effective tax rate..................     (30.00%)    (30.00%)      30.00%
                                          ===========  ==========  ==========

                                                              March 31,
                                                       ----------------------
                                                          2000        1999
                                                       ----------  ----------
                                                        (dollars in thousands)
  Deferred tax assets:
    Accrued vacation.................................       $513        $551
    Credits..........................................     16,670      15,265
    Inventory reserve................................      1,178       1,778
    Allowances and other accrued liabilities.........      2,277       5,977
    Net operating loss carryforward..................     26,344       3,402
                                                       ----------  ----------
            Total deferred tax assets................     46,982      26,973
                                                       ----------  ----------
  Deferred tax liabilities:
    Depreciation.....................................    (46,822)    (35,966)
                                                       ----------  ----------
 Total deferred tax liabilities                          (46,822)    (35,966)
                                                       ----------  ----------
            Net deferred tax assets (liabilities)....       $160     ($8,993)
                                                       ==========  ==========

                                                     Years Ended March 31,
                                               --------------------------------
                                                 2000       1999        1998
                                               ---------  ---------  ----------
                                                   (in thousands except for
                                                        share amounts)
Basic:
  Weighted average shares outstanding.........   45,411     43,720      42,196
  Shares used in computing per share amounts..   45,411     43,720      42,196
  Net income (loss)........................... ($51,649)  ($21,002)    $69,928
  Net income (loss) per share.................   ($1.14)    ($0.48)      $1.66
                                               =========  =========  ==========
Diluted:
  Weighted average shares outstanding.........   45,411     43,720      42,196
  Net effect of dilutive stock
    options - based on the  treasury stock
    method using average market price ........      --         --        2,662
  Assumed conversion of 5 3/4% convertible
    subordinated notes........................      --         --        9,684
                                               ---------  ---------  ----------
  Shares used in computing per share amounts..   45,411     43,720      54,542
                                               =========  =========  ==========

  Net income (loss)........................... ($51,649)  ($21,002)    $69,928
  Add 5 3/4% convertable subordinated note
   interest, net of interest capitalized
   and income tax effect......................      --         --        6,580
                                               ---------  ---------  ----------
  Net income (loss)........................... ($51,649)  ($21,002)    $76,508
                                               =========  =========  ==========

  Net income (loss) per share.................   ($1.14)    ($0.48)      $1.40
                                               =========  =========  ==========

                                     Fiscal     Fiscal     Fiscal
                                      2000       1999       1998
                                    ---------  ---------  ---------
                                        (dollars in thousands)
      Singapore.................... $138,418   $143,872   $165,776
      Malaysia.....................   27,411     41,118    102,847
      Korea........................   14,011     42,544     57,084
      Other Foriegn Countries......    5,858         --        256
      United States................    2,004      4,236      3,619
                                    ---------  ---------  ---------
      Net Revenue.................. $187,702   $231,770   $329,582
                                    =========  =========  =========

                                              Year Ended March 31, 2000
                                    ------------------------------------------
                                      First     Second      Third     Fourth
                                     Quarter    Quarter    Quarter    Quarter
                                    ---------  ---------  ---------  ---------
                                        (in thousands, except per share data)
Net sales........................... $44,899    $44,791    $59,608    $43,464
Gross(loss)......................... (20,297)   (11,027)    (1,191)   (11,510)
Operating  (loss)................... (24,900)   (15,839)    (5,896)   (16,256)
Net (loss).......................... (19,342)   (13,034)    (6,019)   (13,253)
Net (loss) available for
  common stockholders............... (19,342)   (13,034)    (6,019)   (13,253)
Net (loss) available for
  common stockholders per share
  Basic.............................  ($0.43)    ($0.29)    ($0.13)    ($0.29)
  Diluted...........................  ($0.43)    ($0.29)    ($0.13)    ($0.29)
Shares used in computing net
loss per share
  Basic.............................  44,758     45,124     45,664     46,092
  Diluted...........................  44,758     45,124     45,664     46,092


                                              Year Ended March 31, 1999
                                    ------------------------------------------
                                      First     Second      Third     Fourth
                                     Quarter    Quarter    Quarter    Quarter
                                    ---------  ---------  ---------  ---------
                                        (in thousands, except per share data)
Net sales........................... $56,765    $56,999    $69,792    $55,974
Gross profit (loss).................   9,326      8,046      7,210     (6,546)
Operating income (loss).............   4,227      3,450    (14,876)   (11,810)
Net income (loss)...................   1,092        505    (12,354)   (10,245)
Net income (loss)  available for
  common stockholders...............   1,092        505    (12,354)   (10,245)
Net income (loss) available for
  common stockholders per share
  Basic.............................   $0.03      $0.01     ($0.28)    ($0.23)
  Diluted...........................   $0.03      $0.01     ($0.28)    ($0.23)
Shares used in computing net income
  (loss) per share
  Basic.............................  43,415     43,570     43,822     44,138
  Diluted...........................  43,415     43,570     43,822     44,138

                                                     Additions
                                              -----------------------
                                   Balance at Charged to  Charged to              Balance
                                   Beginning   Costs and     Other                at end
Description                         of Year    Expenses    Accounts   Deductions  of Year
---------------------------------- ---------- ----------- ----------- ---------- ----------
Year ended March 31, 1998:
  Provision for loss on inventory..   $5,320       1,844         --          --    $7,164

  Allowance for doubtful accounts
     receivable....................   $1,055        $272         --          --    $1,327


Year ended March 31, 1999:
  Provision for loss on inventory..   $7,164         --        1,928    (4,437)    $4,655

  Allowance for doubtful accounts
     receivable....................   $1,327        $260         --     $1,467     $3,054


Year ended March 31, 2000:
  Provision for loss on inventory..   $4,655         --          --     (1,553)    $3,102

  Allowance for doubtful accounts
     receivable....................   $3,054        $360         --    ($2,470)      $944

Exhibit
Number                     Description of Document

  2.1   Agreement and Plan of Reorganization by and Among Komag, Incorporated,
        KHM Incorporated, and HMT Technology Corporation
  3.2   Restated Certificate of Incorporation, dated March 27, 1997.(3)
  3.3   Bylaws of the Registrant.(1)
  4.1   Reference is made to Exhibits 3.2 through 3.3.(1)
  4.2   Specimen stock certificate.(1)
  4.3   Form of Restricted Global Convertible Subordinated Note due 2004. (2)
  4.4   Form of Unrestricted Global Convertible Subordinated Note due 2004. (2
  4.5   Form of Certificated Convertible Subordinated Note due 2004.  (2)
  4.6   Indenture, dated as of January 15, 1997, between the Company and
        State Street Bank and Trust Company of California, N.A., as
        Trustee.(2)
 10.1   Credit Suisse First Boston and Fleet National Bank Credit Agreement
        dated November 2, 1998. (4)
 10.1.1 First Amendment to Fleet Revolving Credit Agreement, dated August 16,
        1999, between the Company and Fleet Mational Bank and Credit Suisse
        First Boston.   (5)
 10.1.2 first Amendment to Fleet Security Agreement, dated August 16, 1999,
        between the Company and Fleet National Bank and Credit Suisse First
        Boston  (5)
 10.2   Lease Agreement between the Company and Sun Life Assurance Company
        of Canada, dated January 5, 1989, as amended.(1)
 10.3   Form of Indemnity Agreement entered into between the Registrant and
        its directors and executive officers.(1)
 10.4   Registrant's 1995 Stock Option Plan (the "1995 Plan").(1)
 10.5   Form of Incentive Stock Option under the 1995 Plan.(1)
 10.6   Form of Early Exercise Agreement under the 1995 Plan.(1)
 10.7   Registrant's 1995 Management Stock Option Plan (the "Management
        Plan").(1)
 10.8   Form of Incentive Stock Option under the Management Plan.(1)
 10.9   Form of Early Exercise Agreement under the Management Plan.(1)
 10.10  Registrant's 401(k) Profit Sharing Plan.(1)
 10.11  Master Lease Agreement by and between the Company and Comdisco,
        dated November 30, 1995.(1)
 10.12  Investor Rights Agreement by and among the Company, certain of the
        Company's officers, and the Investors listed on Exhibit A of the
        Recapitalization Agreement, dated November 30, 1995.(1)
 10.13  Registrant's 1996 Equity Incentive Plan (the "Incentive Plan").(1)
 10.14  Form of Incentive Stock Option under the Incentive Plan.(1)
 10.15  Form of Non-statutory Stock Option under the Incentive Plan.(1)
 10.16  Registrant's Employee Stock Purchase Plan.(1)
 10.17  Registrant's Non-Employee Directors' Stock Option Plan (the
        "Directors' Plan").(1)
 10.18  Form of Non-Statutory Stock Option under the Directors' Plan.(1)
 10.19  Registrant's Executive Severance Plan.(1)
 10.20  Fifth Amendment dated November 10, 1998 of Lease Agreement between
        the Company and Sun Life of Canada, dated January 5, 1989, as
        amended.(6)
 10.21  Lease Agreement between the Company and CalWest Industrial
        Properties, LLC , dated April 22, 1999.(6)
 10.22  Lease Agreement between the Company and Third Street Services, Inc.,
        dated June 9, 1998.(6)
 16.1   Letter from Ernst & Young LLP regarding change in certifying
        accountant.(1)
 23.1   Report of Independant Accountants on Financial Statement Schedule.
 23.2   Consent of Independent Accountants.
 27.1   Financial Data Schedule.