<PAGE>
 
================================================================================


                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
     EXCHANGE ACT OF 1934.

     FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999, OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
     EXCHANGE ACT OF 1934.

                 FOR THE TRANSITION PERIOD FROM ____TO ____.
                                        
                        COMMISSION FILE NUMBER: 0-10370
                                        

                                ANDATACO, INC.
                                --------------
             (Exact name of Registrant as specified in its charter)


               MASSACHUSETTS                           04-2511897
               -------------                           ----------
          (State or jurisdiction of                 (I.R.S. Employer
        incorporation or organization)             Identification No.)



                10140 MESA RIM RD., SAN DIEGO, CALIFORNIA 92121
             (Address of principal executive offices and Zip Code)



                                (619) 453-9191
             (Registrant's Telephone Number, including area code)



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


As of February 26, 1999, there were 23,819,399 shares of the Registrant's common
stock, $0.01 par value, issued and outstanding.


================================================================================
                                        
<PAGE>
 
ANDATACO, INC.

FORM 10-Q INDEX
--------------------------------------------------------------------------------

                                                                        PAGE NO.
PART I.  FINANCIAL INFORMATION

       Item 1. Consolidated Financial Statements
            
               Consolidated Balance Sheet at January 31, 1999 (unaudited)
                and October 31, 1998 ....................................   3
 
               Consolidated Statement of Operations (unaudited) for the
                three-month period ended January 31, 1999 and 1998.......   4
 
               Consolidated Statement of Cash Flows (unaudited) for the
                three-month period ended January 31, 1999 and 1998.......   5
 
               Notes to Consolidated Financial Statements (unaudited)....   6
 
     Item 2.   Management's Discussion and Analysis of Financial Condition
                and Results of Operations................................   8
 

PART II. OTHER INFORMATION
 
     Item 6.  Exhibits and Reports on Form 8-K...........................  13

              Signatures
<PAGE>
 
PART I - FINANCIAL INFORMATION

ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
ANDATACO, INC.

CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------

                                                JANUARY 31,    OCTOBER 31,
                                                    1999          1998
                                                ------------   -----------
                                                (unaudited)
Assets                                     
                                           
Current assets:                            
 Cash .......................................   $    23,000    $    23,000
 Accounts receivable, net ...................     7,625,000     10,628,000
 Inventories ................................     5,441,000      4,923,000
 Other current assets .......................       809,000        634,000
                                                -----------    -----------
  Total current assets ......................    13,898,000     16,208,000
                                           
Goodwill, net ...............................     5,575,000      5,993,000
Equipment and improvements, net .............     3,248,000      3,415,000
Other assets ................................        51,000         66,000
                                                -----------    -----------
                                                $22,772,000    $25,682,000
                                                ===========    =========== 
                                           
LIABILITIES AND SHAREHOLDERS' EQUITY       
                                           
Current liabilities:                       
 Accounts payable ...........................   $ 6,863,000    $ 7,853,000
 Accrued expenses ...........................     2,151,000      2,610,000
 Deferred revenue ...........................     1,957,000      2,259,000
                                                -----------    -----------
  Total current liabilities .................    10,971,000     12,722,000
                                                -----------    -----------
Long-term liabilities:                           
 Bank line of credit ........................     5,000,000      5,462,000
 Shareholder loan ...........................     5,196,000      5,196,000
                                                -----------    -----------
  Total long-term liabilities ...............    10,196,000     10,658,000
                                                -----------    -----------
Shareholders' equity:                            
 Common stock ...............................       238,000        238,000
 Additional paid in capital .................    10,107,000     10,107,000
 Accumulated deficit ........................    (8,740,000)    (8,043,000)
                                                -----------    -----------
  Total shareholders' equity ................     1,605,000      2,302,000
                                                -----------    -----------
                                                $22,772,000    $25,682,000
                                                ===========    =========== 



           See notes to unaudited consolidated financial statements.

                                       3
<PAGE>
 
ANDATACO, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                    Three Months Ended
                                                                       January 31,
                                                                   1999           1998
<S>                                                            <C>            <C> 
Sales .......................................................  $16,378,000    $21,760,000
Cost of sales ...............................................   11,872,000     14,975,000
                                                               -----------     ----------
  Gross profit ..............................................    4,506,000      6,785,000
                                                               -----------     ----------
Operating expenses:                                            
 Selling, general and administrative ........................    4,553,000      6,415,000
 Rent expense to shareholder ................................       83,000         83,000
 Research and development ...................................      322,000        441,000
                                                               -----------     ----------
  Total operating expenses ..................................    4,958,000      6,939,000
                                                               -----------     ----------
Loss from operations ........................................     (452,000)      (154,000)
                                                                
Interest expense ............................................      128,000        149,000
Interest expense to shareholder .............................      117,000        117,000
                                                               -----------     ----------
Net loss ....................................................  $  (697,000)   $  (420,000)
                                                               ===========     ==========

Net loss per share (basic and diluted) ......................  $     (0.03)   $     (0.02)
                                                               ===========     ==========
Shares used in computing net loss per share (basic and 
  diluted) ..................................................   23,819,399     23,819,399
                                                               ===========     ==========
</TABLE>                                                       


           See notes to unaudited consolidated financial statements.

                                       4
<PAGE>
 
ANDATACO, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      Three Months Ended
                                                                          January 31,
                                                                      -------------------
                                                                      1999           1998
                                                                  ------------   ------------
<S>                                                               <C>           <C>
Cash flows from operating activities:                           
 Net loss ......................................................  $ (697,000)   $  (420,000)
 Adjustments to reconcile net loss to net cash                        
  provided by operating activities:                     
   Depreciation and amortization ...............................     453,000        370,000
   Amortization of goodwill ....................................     418,000        418,000
 Changes in assets and liabilities:                               
   Accounts receivable ..........................................  3,003,000        380,000
   Inventories ..................................................   (518,000)       555,000
   Other assets .................................................   (160,000)        13,000
   Accounts payable .............................................   (990,000)      (517,000)
   Accrued expenses .............................................   (459,000)       331,000
   Deferred revenue .............................................   (302,000)       539,000
                                                                  ----------    -----------  
   Net cash provided by operating activities ...................     748,000      1,669,000
                                                                  ----------    -----------  
Cash flows from investing activities:                             
 Payments for purchases of property and equipment ..............    (286,000)      (159,000)
                                                                  ----------    -----------  
   Net cash used in investing activities .......................    (286,000)      (159,000)
                                                                  ----------    -----------  
Cash flows from financing activities:
 Payments under bank line of credit agreement, net .............    (462,000)    (1,500,000)
 Payments on notes payable .....................................           -        (28,000)
                                                                  ----------    -----------  
   Net cash used in financing activities .......................    (462,000)    (1,528,000)
                                                                  ----------    -----------  
Net decrease in cash ...........................................           -        (18,000)
Cash at beginning of period ....................................      23,000         41,000
                                                                  ----------    -----------  
Cash at end of period ..........................................  $   23,000    $    23,000
                                                                  ==========    ===========  
</TABLE>



           See notes to unaudited consolidated financial statements.

                                       5
<PAGE>
 
ANDATACO, INC.

Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

  The accompanying unaudited consolidated financial statements of Andataco, Inc.
("ANDA", or the "Company") have been prepared by the Company without audit
pursuant to the rules and regulations of the Securities and Exchange Commission
for Form 10-Q. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended October 31, 1998. In the opinion of management,
the accompanying unaudited consolidated financial statements contain all
adjustments, consisting of only normal recurring items, necessary for a fair
presentation of the Company's financial position as of January 31, 1999 and its
results of operations for the three-month periods ended January 31, 1999 and
1998. The interim financial information contained herein is not necessarily
indicative of the results to be expected for any other interim period or the
full fiscal year ending October 31, 1999.


NOTE 2 - BUSINESS COMBINATION

  On June 3, 1997 (the "Closing Date"), ANDA (formally IPL Systems, Inc.)
completed a business combination with ANDATACO of California, whereby ANDATACO
of California was merged with a wholly-owned subsidiary of ANDA (the "Merger").
Under the terms of the merger agreement, the shareholders of ANDATACO of
California were issued a total of 18,078,381 shares of ANDA Class A Common Stock
in exchange for all outstanding shares of capital stock of ANDATACO of
California. Although as a legal matter the Merger resulted in ANDATACO of
California becoming a wholly-owned subsidiary of ANDA, for financial reporting
purposes the Merger was treated as a recapitalization of ANDATACO of California
and an acquisition of ANDA by ANDATACO of California (reverse acquisition). The
financial reporting requirements of the Securities and Exchange Commission
require that the financial statements reported by ANDA subsequent to the Merger
be those of ANDATACO of California, which include the results of operations of
ANDA from the Closing Date.

  The acquisition of ANDA by ANDATACO of California was accounted for using the
purchase method. Accordingly, the purchase price was allocated to the estimated
fair market value of identifiable tangible and intangible assets acquired and
liabilities assumed.  Based upon an independent valuation, the Company allocated
$2,400,000 to acquired in-process research and development for which there is no
future alternative use and $400,000 to existing proprietary technology for which
technological feasibility had been established. As required by generally
accepted accounting principles, the amount allocated to in-process research and
development was recorded as a one-time charge to operations and the amount
allocated to existing technology was amortized over its estimated useful life.
The excess of the purchase price over the identifiable net assets acquired of
$8,362,000 was recorded as goodwill and is being amortized on a straight-line
basis over its estimated useful life of five years.

                                       6
<PAGE>
 
ANDATACO, INC.

Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------

NOTE 3 - NET LOSS PER SHARE

  Basic earnings per share is computed based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
is computed based on the weighted average number of shares of common stock
outstanding during the period increased by the weighted average number of common
stock equivalents outstanding during the period, using the treasury stock
method. Shares issuable upon exercise of outstanding stock options and warrants,
totaling 2,528,978 and 2,439,284 as of January 31, 1999 and 1998, respectively,
have been excluded from the computation of diluted earnings per share, as their
effect would be anti-dilutive.


 
NOTE 4 - INVENTORIES

<TABLE>
<CAPTION> 

                                                            JANUARY 31,    OCTOBER 31,
                                                               1999           1998
                                                            ----------     ----------
                                                            (unaudited)
<S>                                                         <C>            <C>
Inventories are comprised of the following:
  Purchased components ..............................       $4,929,000     $3,900,000
  Work in progress ..................................            9,000        280,000
  Finished goods ....................................          503,000        743,000
                                                            ----------     ----------
                                                            $5,441,000     $4,923,000
                                                            ==========     ==========
</TABLE>

                                       7
<PAGE>
 
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

  The following discussion should be read in conjunction with the unaudited
consolidated financial statements included elsewhere within this quarterly
report.  Fluctuations in annual and quarterly results may occur as a result of
factors affecting demand for the Company's products such as the timing of the
Company's and competitors' new product introductions and upgrades.  Due to such
fluctuations, historical results and percentage relationships are not
necessarily indicative of the operating results for any future period.

  The discussion contained in this report contains forward-looking statements
based on the current expectations of the Company's management.  Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected.  Factors that could cause or
contribute to such differences include but are not limited to, fluctuations in
the Company's operating results, continued new product introductions by the
Company, market acceptance of the Company's new product introductions, new
product introductions by competitors, technological changes in the computer
storage industry and other factors referred to herein, including but not limited
to, the factors discussed below and in the Company's Annual Report on Form 10-K.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.  The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements which may be made to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.

OVERVIEW

  ANDATACO designs, develops, manufactures, markets and supports high
performance, high availability information storage solutions for the open
systems markets in the Windows NT and UNIX environments including Sun
Microsystems, Inc., Hewlett-Packard Company, Silicon Graphics, Inc., and NT-
based computing systems.  The Company's fully integrated hierarchy of data
storage solutions includes fault-tolerant Redundant Array of Independent Disks
("RAID") and RAID-ready disk storage, tape backup and restore products and data
storage management software.  The Company also provides technical support and
professional services for its products.  The Company distributes internally
developed products and products from other manufactures through a network of
sales offices worldwide and through distributors in Europe, Asia, Latin America,
Canada and Australia.  The customers for the Company's products represent a
variety of industries and government agencies operating in distributed
client/server as well as centralized computing environments.  These customers
range in size from FORTUNE 1000 companies to small businesses, and from national
to local governments.

 GigaRAID High Availability Series

  ANDATACO's award winning Enterprise Storage Packaging ("ESP"), is the
framework of the Company's GigaRAID Series.  ESP combines, for the first time,
microprocessors and enclosures to provide the user industry-leading, modular and
building block packaging combined with proactive, storage management
functionality.  All critical components of the enclosure are monitored and a
"Call Home" feature alerts the user should any critical component go out of
specification.

  GigaRAID/AA, the newest member of the GigaRAID Series, is a family of RAID and
RAID-ready disk and tape storage systems that are combined with ANDATACO's ESP
to create more complete storage solutions. The GigaRAID/HA provides high
performance and availability for database/On-Line Transactional Processing
applications characterized by small block/random data processing. Other GigaRAID
Series products, including the GigaRAID/SX, offer high performance and
availability for certain data warehouse, seismic processing and video
applications characterized by large block, sequential processing.

  Historically, the reseller business or the sale of third party non-GigaRAID
products accounted for a substantial portion of the Company's revenues,
representing 37.2% of revenues in fiscal 1996 and declining

                                       8
<PAGE>
 
to 34.6% and 33.4% in fiscal 1997 and 1998, respectively. Although the Company
plans to continue to sell third party products, management's strategy is to
focus increased resources on the design, development, manufacturing and
marketing of internally developed and GigaRAID products. For the three months
ended January 31, 1998 and 1999, revenue from sales of internally developed and
GigaRAID products represented 42.2% and 59.5% of total revenue, respectively.

SUBSEQUENT EVENT
  
  On March 3, 1999, nStor Technologies, Inc. announced that it has entered into
an agreement to purchase all of the shares of the Company's common stock held by
the Company's principal shareholder.

RESULTS OF OPERATIONS

  The following table sets forth items in the Company's statement of operations
as a percentage of net sales for the periods presented.  The data has been
derived from the unaudited condensed consolidated financial statements.

<TABLE> 
<CAPTION> 
                                               THREE MONTHS ENDED
                                                    January 31,
                                               -----------------
                                               1999         1998
                                               ----         ----
<S>                                            <C>         <C> 
Sales....................................      100.0%      100.0%
Cost of sales............................       72.5        68.8
                                               -----       -----
Gross profit.............................       27.5        31.2
Operating expenses: 
  Selling, general and administrative ...       27.8        29.5
  Rent expense to shareholder ...........        0.5         0.4
  Research and development ..............        2.0         2.0
                                               -----       -----
 Total operating expenses ...............       30.3        31.9
                                               -----       -----
 Loss from operations....................       (2.8)       (0.7)
 Interest expense........................        1.5         1.2
                                               -----       -----
Net loss.................................       (4.3)%      (1.9)%
                                               =====       ===== 
</TABLE> 

First Quarter of Fiscal 1999 Compared to First Quarter of Fiscal 1998


  Sales. Sales for the three months ended January 31, 1999 were $16,378,000, a
decrease of 24.7% from sales of $21,760,000 for the same period in the prior
year. The decrease was primarily attributable to a decrease in sales of older
non-GigaRAID mass storage products including RAID Lite, RAPID-Tape, JBOD Disk
and JBOT Tape. Older non-GigaRAID mass storage product sales were $2,077,000 in
the first quarter of fiscal 1999 compared to $5,157,000 in the first quarter of
fiscal 1998.  In addition third-party product sales decreased by $3,114,000,
from $2,774,000 in the first quarter of fiscal 1999 compared to $5,888,000 in
the first quarter of fiscal 1998.  Although the Company experienced an increase
in sales of current internally designed and distributed GigaRAID products of
$562,000 over the same period in 1998, the increase was more than offset by the
decrease in the sales of non-GigaRAID mass storage and third-party products. The
decrease in non-GigaRAID mass storage and third-party product sales is
consistent with the Company's strategy to focus increased resources on
internally designed products, including the GigaRAID product family, capable of
producing higher margins. This is also consistent with the Company's transition
towards "owned solutions"  strategic technologies designed in-house to create
technical, time-to-market and gross margin advantages. By combining engineered
technology with selected products manufactured by its distribution and
development partners, the Company believes it provides a strong, sophisticated
product line targeted to fast-growing segments of the open systems storage
market.

  Gross Profit. Gross profit in the first quarter of fiscal year 1999 was
$4,506,000, representing approximately 27.5% of revenues, compared to $6,785,000
in the first quarter of fiscal 1998, which represented approximately 31.2% of
revenues. The decrease in gross profit as a percentage of sales was due
primarily to lower margins earned on the Company's current GigaRAID product
family during the first quarter of fiscal 1999 compared to the first quarter of
1998. The Company's current GigaRAID product

                                       9
<PAGE>
 
family sales accounted for 59.5% of revenues for the first quarter of fiscal
1999 as compared to 42.2% of revenues in the first quarter of fiscal 1998.

  Selling, General and Administrative Expense.  Selling, general and
administrative expenses consist primarily of the salaries, commissions and
benefits of sales, marketing and customer support personnel and administrative
and corporate services personnel, as well as consulting, advertising, promotion,
and certain merger related expenses (i.e. goodwill amortization). Selling,
general and administrative expenses were $4,553,000 and $6,415,000 for the
quarters ended January 31, 1999 and 1998, respectively.  The decrease in the
current period's selling, general and administrative expenses over such expenses
incurred in the comparable period of the prior fiscal year is due to decreased
compensation-related sales costs resulting from decreased staff and lower sales
volume.

  Research and Development Expense.  Research and development expenses consist
primarily of salaries, employee benefits, overhead and outside contractors. Such
expenses were $322,000 and $441,000 for the quarters ended January 31, 1999 and
1998, respectively.  The level of research and development expenses is
consistent with the Company's strategy to continue to focus resources on design
and development of in-house products and differentiating technologies for which
it believes there is a need in the market. However, there can be no assurance
that product development programs invested in by the Company will be successful
or that products resulting from such programs will achieve market acceptance.

  Interest Expense. The decrease in interest expense of $21,000 in the first
quarter of fiscal 1999 from $149,000 in the comparable period in fiscal 1998 is
primarily due to the reduction in the outstanding portion of the Company's bank
line of credit.

LIQUIDITY AND CAPITAL RESOURCES

  The Company's cash remained at $23,000 as of January 31,1999 and as of October
31, 1998.  Net working capital decreased $559,000 to $2,927,000 as of January
31, 1999 from that of October 31, 1998.  During the first quarter of fiscal
1999, the Company generated $748,000 from operating activities, which was
primarily used for investment in property and equipment of $286,000 and for
payments to reduce the bank line of credit of $462,000.

  The Company currently maintains a credit facility that permits borrowings of
the lesser of $10,000,000 or a percentage of eligible accounts receivable and
inventory ($6,384,000 available at January 31, 1999). As of January 31, 1999,
the Company had $5,000,000 outstanding under this credit line. The credit
facility expires on April 30, 2001; consequently borrowings under this line have
been classified as long-term.

  The Company believes that its projected income and its bank line of credit
will be sufficient to meet the Company's capital and operating requirements for
the next twelve months.  If sales are less than projected, or if the Company is
unable to generate adequate cash flows from its sales, the Company may need to
seek additional sources of capital and/or decrease its planned capital and
operating expenditures.

  A shareholder loan to the Company's president and principal shareholder is
unsecured, due in June 2004, with interest payable monthly at 9 percent per
annum.  This loan is subordinate to the bank line of credit.

INCOME TAXES

  The Company records a provision (benefit) for income taxes using the liability
method.  Current income tax expense or benefit represents the amount of income
taxes expected to be payable or refundable for the current year.  A deferred
income tax liability or asset is established for the expected future
consequences resulting from the differences between the financial reporting and
income tax bases of assets and liabilities and from net operating loss and
credit carryforwards.  Deferred income tax expense or benefit represents the net
change during the year in the deferred income tax liability or asset.  A
valuation allowance is established when necessary to reduce deferred tax assets
to the amounts expected to be more likely than not realized.

                                       10
<PAGE>
 
YEAR 2000

  Many current computer systems and software products were not designed to
handle any dates beyond the year 1999. As a result, computer systems and/or
software used by many companies may need to be modified prior to the Year 2000
in order to remain functional. Significant uncertainty exists in the hardware
and software industry concerning the potential effects associated with such
compliance.

  In mid-1997, the Company formed an internal task force to evaluate those areas
of the Company that may be affected by the Year 2000 problem and devised a plan
for the Company to become Year 2000 compliant in a timely manner (the "Plan").
The Plan focuses on three major areas: the Company's mission critical business
transaction systems; the products the Company sells; and the issues associated
with its business partners, including suppliers, customers and bankers.  To
date, the Company has executed approximately 95% of its Plan and anticipates
completing the remaining portions of the Plan by the end of the second calendar
quarter of 1999, while the evaluation and testing of certain ancillary PC office
and specialized PC applications will continue through 1999.

  Costs incurred directly related to the Year 2000 problem are expensed by the
Company during the period in which they are incurred. The Company has incurred
to date no incremental material costs associated with its efforts to become Year
2000 compliant, as a majority of the costs have occurred as a result of normal
upgrade procedures.  Costs incurred relating to the Year 2000 issue include the
time spent by employees reviewing and addressing Year 2000 risks and amounted to
$20,000 in fiscal 1998.

  Based on current information, the Company does not expect future costs to
address Year 2000 risks to be material.  However, there can be no assurances
that there will not be interruptions or other limitations of financial or
operating systems functionally or that the Company will not incur significant
costs to avoid such interruptions or limitations.  The Company's expectations
about future costs associated with the Year 2000 problem are subject to
uncertainties that could cause actual results to have a greater financial impact
than currently anticipated.  Factors that could influence the amount and timing
of future costs include but are not limited to the success of the Company's
suppliers in completing their respective plan of action for Year 2000
compliance.

 Mission Critical Business Transaction Systems

  The Company has completed a review of its critical business transaction
systems, and its Year 2000 compliance related to business transaction systems is
as follows:

  All of the Company's systems for processing business transactions are Year
2000 compliant and the Company expects that these systems will correctly process
transactions prior to and following 12:00 am January 1, 2000. This compliance
extends to the underlying hardware, operating systems, and other software on
which the Company's business systems operate. This compliance includes the
following transactions and related printed documents: accepting orders from
customers, fulfilling customer orders, 

                                       11
<PAGE>
 
invoicing customers, crediting customer accounts, applying customer payments,
refunding customers, placing orders with vendors, receiving vendor shipments,
processing vendor invoices and paying vendors.

  The Company is in the process of evaluating certain ancillary PC office
applications (e.g. word processing, spreadsheets, e-mail etc.) and specialized
PC applications including art, drawing and other creative department
applications, hardware design and other engineering department applications,
software development systems, bank account management, fixed asset management,
and stock option database management.  This effort will continue through 1999.

  Products the Company Sells

  The Company has also completed a review of all significant products the
Company sells for Year 2000 compliance.  All significant products that the
Company currently sells are Year 2000 compliant and the Company believes these
products will not produce date errors in changing from the year 1999 to 2000.
Any products the Company intends to sell in the future will be reviewed for Year
2000 compliance. The functionality of all of these products, however, are
dependent on the software compliance of the underlying operating systems.

 The Company's Business Partners

  The Company's suppliers (particularly sole-source and long lead-time
suppliers), key customers and other key business partners (e.g. bankers) may be
adversely affected by their respective failure to address the Year 2000 problem.
Should any of the Company's suppliers encounter Year 2000 problems that cause
them to delay manufacturing or shipments of key components to the Company, the
Company may be forced to delay or cancel shipments of its products, which would
have a material adverse effect on the Company's results of operations. Any
inability of the Company's key customers to become Year 2000 compliant which
would cause them to delay or cancel substantial purchase orders or delivery of
the Company's products would also have a material adverse effect on the
Company's results of operations. Additionally, any inability of the Company's
other key business partners, including the Company's bank, to become Year 2000
compliant could cause them to become unable to provide critical business
services, such as to provide funding on the Company's line of credit, and could
therefore also have a material adverse effect on the Company.

  The Company does not rely on any one significant customer (i.e. representing
greater than 10% of total revenue). However, it is unknown how customer spending
patterns may be impacted by Year 2000 programs. As customers focus on preparing
their businesses for the Year 2000 in the near term, capital budgets may be
spent on remediation efforts, potentially delaying the purchase and
implementation of new systems, thereby creating less demand for the Company's
products and services. This could adversely affect the Company's business.
Conversely, demand for the Company's products could accelerate as customers
focus on the need to protect their stored data by enhancing their capabilities.

  The Company has contacted all identified key vendors and obtained either a
statement of Year 2000 compliance or a status report on the progress achieved to
date on execution of their respective Year 2000 Plan. Based on this review, the
Company is satisfied that all identified key vendors have satisfactorily
addressed their Year 2000 issues with a plan of action as applicable and are, or
will be, Year 2000 compliant by the end of the third calendar quarter of 1999.

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<PAGE>
 
PART II - OTHER INFORMATION

ITEM 6:   EXHIBITS AND REPORTS ON FORM 8-K.
          ---------------------------------

     (a)  Exhibits

          27.1 Financial Data Schedule

     (b)  Reports on Form 8-K

          None


SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                           ANDATACO, INC.

     Date: March 15, 1999                  By:  /s/ Harris Ravine 
                                                -----------------
                                                Harris Ravine         
                                                Chief Executive Officer
                                                (on behalf of registrant and as
                                                its principal executive officer)


     Date: March 15, 1999                  By:  /s/ Diane Wong
                                                --------------
                                                Diane Wong
                                                Vice President of Finance and
                                                Corporate Controller
                                                (on behalf of registrant and as
                                                its principal financial officer)
 

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