<PAGE>
                                       1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q


__X___  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

        EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1999

                                       OR

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

For the transition period from ________________________________


                         Commission File Number: 0-8354

                            nSTOR TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its Charter)


          Delaware                                           95-2094565

(State of other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)


                                100 Century Blvd.
                            West Palm Beach, FL 33417
                     (Address of principal executive office)

                                 (561) 640-3103
                         (Registrant's telephone number)


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


  Number of shares outstanding of the Registrant's Common Stock,
  par value $.05 per share, as of July 31, 1999:  22,637,258



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                                       2



                    nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS





PART I.           FINANCIAL INFORMATION
                                                                    Page
                                                                   Number

  Item 1.         Financial Statements

         Consolidated Balance Sheets as of June 30,
           1999 (Unaudited) and December 31, 1998                       3
         Consolidated Statements of Operations
           (Unaudited) for the three and six months
           ended June 30, 1999 and 1998                                 4
         Consolidated Statements of Stockholders'
           Equity (Unaudited) for the six months
           ended June 30, 1999                                          5
         Consolidated Statement of Cash Flows
           (Unaudited) for the six months ended
           June 30, 1999 and 1998                                      6-7
         Notes to Consolidated Financial Statements
           (Unaudited)                                                 8-14



  Item 2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations           14-21


  Item 3.  Not applicable


Part II.  OTHER INFORMATION                                           21-23




SIGNATURES                                                               23




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                                       3


PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                            nSTOR TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

                                                           June 30,
                                                             1999       Dec. 31,
        ASSETS  (Notes 2 and 4)                          (unaudited)      1998
        ----------------------                            ---------     --------
Current assets:
  Cash and cash equivalents:
    Unrestricted .......................................     $   362     $   147
    Restricted .........................................          23          21
  Accounts receivable  (Note 3) ........................      11,032       2,462
  Inventories (Note 3) .................................       9,302       3,028
  Prepaid expenses and other ...........................       1,626         364
                                                             -------     -------
     Total current assets ..............................      22,345       6,022

Property and equipment, net  (Note 3) ..................       4,117       1,653
Goodwill and other intangible assets,
  net (Notes 2 and 3) ..................................      16,427       5,953
Restricted cash and other non-current
  assets  (Note 4) .....................................         658         500
                                                             -------     -------
                                                             $43,547     $14,128
              LIABILITIES                                    =======     =======
              -----------
Current liabilities:
  Current maturities of long-term debt (Note 4) ........     $   165     $   500
  Accounts payable and other ...........................      13,624       3,435
                                                             -------     -------
     Total current liabilities .........................      13,789       3,935
Long-term debt  (Note 4) ...............................      19,943       7,043
Minority interests .....................................          79        --
                                                             -------     -------
     Total liabilities .................................      33,811      10,978
                                                             -------     -------
Commitments and contingencies

         STOCKHOLDERS' EQUITY (Notes 2 and 5)
         ------------------------------------
Preferred  stock,  $.01 par;  shares  authorized
  1,000,000;  shares  issued and  outstanding at
  June 30, 1999 Series A, Series C, Series D,
  Series E and Series F Convertible Preferred Stock,
  1,667, 3,000, 2,700, 3,500 and 4,654 shares,
  respectively;  at December 31, 1998 - Series A,
  C and D Convertible  Preferred Stock, 1,667,
  3,000 and 2,700 shares, respectively                           -           -
Common stock, $.05 par; shares authorized 40,000,000;
  22,637,258 and 20,515,425 shares issued and outstanding
  at June 30, 1999 and December 31, 1998, respectively .      1,131       1,025
Additional paid-in capital .............................     53,937      40,409
Deficit ................................................    (45,332)    (38,284)
                                                           --------    --------
     Total stockholders' equity ........................      9,736       3,150
                                                           --------    --------
                                                           $ 43,547    $ 14,128
                                                           ========    ========

          See accompanying notes to consolidated financial statements.


<PAGE>
                                       4

                            nSTOR TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (dollars in thousands, except per share data)



                                          Three Months          Six Months
                                         Ended June 30,        Ended June 30,
                                       ------------------  ------------------
                                         1999      1998       1999      1998
                                            (unaudited)          (unaudited)
                                       --------  --------  --------  --------

Sales ................................ $  9,398  $  5,738  $ 10,809  $  9,344
Cost of sales ........................    8,166     4,727     9,489     7,685
                                       --------  --------  --------  --------
     Gross profit ....................    1,232     1,011     1,320     1,659
                                       --------  --------  --------  --------
Operating expenses:
  Selling, general and
  administrative .....................    3,447     2,500     4,882     4,693
  Research and development ...........      699       581     1,218     1,149
  Depreciation and amortization ......      583       349       978       630
                                       --------  --------  --------  --------
     Total operating expenses ........    4,729     3,430     7,078     6,472
                                       --------  --------  --------  --------
     Loss from operations ............   (3,497)   (2,419)   (5,758)   (4,813)

Interest and other income ............        8        24       108        40
Interest expense .....................     (491)     (319)     (801)     (481)
Minority interests ...................       36      --          36      --
                                       --------  --------  --------  --------
Net loss .............................   (3,944)   (2,714)   (6,415)   (5,254)

Preferred stock dividends ............     (174)      (60)     (306)      (60)
Embedded dividends attributable to
  beneficial conversion privileges and
  warrants issued in connection with
  Convertible Preferred Stock ........     (240)     (722)     (327)     (722)
                                       --------  --------  --------  --------

Net loss applicable to common stock .. ($ 4,358) ($ 3,496) ($ 7,048) ($ 6,036)
                                       ========  ========  ========  ========

Basic and diluted net loss per
  common share ....................... ($   .19) ($   .19) ($   .32) ($   .32)
                                       ========  ========  ========  ========

Average number of common shares
  outstanding, basic and diluted  22,488,906  18,670,477  21,838,532  18,670,477
                                  ==========  ==========  ==========  ==========




          See accompanying notes to consolidated financial statements.

<PAGE>
                                       5

<TABLE>

                            nSTOR TECHNOLOGIES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (dollars in thousands)

<CAPTION>
                                                  Preferred      Addi-
                                 Common Stock       Stock       tional
                              ----------------- -------------   Paid-In
                                Shares   Amount Shares Amount   Capital  Deficit  Total
                              ---------- ------ ------ -------  -------  ------- -------
<S>                           <C>        <C>    <C>    <C>      <C>      <C>     <C>

Balances, December
 31, 1998                     20,515,425 $1,025  7,367 $  -    $40,409 ($38,284) $ 3,150

Issuance of Convertible
 Preferred Stock:
   Series E                                      3,500    -      3,500             3,500
   Series F                                      4,654    -      4,654             4,654

Issuance of common stock in
 connection with:
   Satisfaction of borrowings   645,000      32                  1,258             1,290
   Exercise of options and
     warrants                   976,833      49                  1,505             1,554
   Other                        500,000      25                    975             1,000

Common stock warrants issued
 in connection with:
   Long-term debt                                                  791               791
   Acquisition                                                     200               200

Common stock options granted
 to non-employees                                                  318               318

Preferred stock dividends                                                  (306)    (306)

Embedded dividend attribut-
 able to beneficial conver-
 sion privilege of Series A
 Convertible Preferred Stock                                       176     (176)      -

Embedded  dividend  attributable
 to common stock warrants issued
 in connection
 with Series E Convertible
 Preferred Stock                                                   151     (151)      -

Net loss for the six
 months ended June 30, 1999                                              (6,415)  (6,415)
                              ---------- ------ ------ ------  -------  -------  -------
Balances, June 30,
 1999 (unaudited)             22,637,258 $1,131 15,521 $  -    $53,937 ($45,332) $ 9,736
                              ========== ====== ====== ======  =======  =======  =======



          See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>
                                       6

                            nSTOR TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
                                   Six Months
                                                         Ended June 30,
                                                       -------------------
                                                         1999       1998
                                                     (unaudited) (unaudited)
                                                      ---------   ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                            ($  6,415) ($  5,254)
  Adjustments to reconcile net loss to net
    cash used by operating activities:
      Depreciation and amortization                         978        630
      Provision for losses on accounts receivable           853        225
      Provision for inventory obsolescence                  707         -
      Amortization of deferred financing costs              284         86
      Amortization of deferred compensation                 116         -
      Minority interests and other                           94         -
      Changes in assets and liabilities,
      net of effects from acquisitions:
          (Increase) decrease in accounts receivable     (2,713)       193
          (Increase) decrease in inventories               (765)       395
          Decrease (increase) in prepaid expenses
            and other                                       140        (77)
           Decrease in accounts payable and other          (534)    (2,736)
                                                       --------   --------
Net cash used by operating activities                    (7,255)    (6,538)
                                                       --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                      (216)      (417)
  Cash paid for acquisitions                             (1,250)      (379)
                                                       --------   --------
Net cash used by investing activities                    (1,466)      (796)
                                                       --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds (repayments)on revolving
    credit facilities                                       363       (402)
  Additions to other borrowings                           5,407      6,315
  Repayment on other borrowings                          (1,100)    (1,865)
  Issuance of preferred stock, net                        2,000      3,245
  Proceeds from exercise of stock options
    and warrants                                          1,554         -
  Issuance of common stock                                1,000         -
  Cash paid for preferred stock dividends                  (288)        -
                                                       --------   --------
Net cash provided by financing activities                 8,936      7,293
                                                       --------   --------
Net increase (decrease) in unrestricted cash
  and cash equivalents during the period                    215        (41)

Unrestricted cash and cash equivalents at the
  beginning of the period                                   147         61
                                                       --------   --------
Unrestricted cash and cash equivalents at the
  end of the period                                     $   362   $     20
                                                       ========   ========

<PAGE>
                                       7

                            nSTOR TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
                                   (concluded)

                                                            Six Months
                                                         Ended  June 30,
                                                        -------------------
                                                          1999       1998
                                                      (unaudited) (unaudited)
                                                       ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during period for interest                  $   454   $    329
                                                       ========   ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

  NON-CASH INVESTING ACTIVITIES:
    Acquisitions (Note 2):
      Fair value of assets acquired                    $ 27,986   $    527
      Liabilities assumed                               (16,782)        -
      Acquisition Notes issued                           (5,100)        -
      Series F Convertible Preferred Stock issued        (4,654)        -
      Warrants issued                                      (200)      (148)
                                                       --------   --------
          Cash paid                                    $  1,250   $    379
                                                       ========   ========

  NON-CASH FINANCING ACTIVITIES:
    Issuance of common stock in satisfaction of
      borrowings  (Note 4)                             $  1,290   $     -
                                                       ========   ========

    Issuance of preferred stock in satisfaction
      of borrowings (Note 4)                           $  1,500   $     -
                                                       ========   ========




See accompanying notes to consolidated financial statements.


<PAGE>
                                       8


                            nSTOR TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


         Principles of Consolidation and Basis of Presentation

The   consolidated   financial   statements   include  the   accounts  of  nStor
Technologies,   Inc.  and  all  majority  owned  subsidiaries  (the  "Company").
Significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

In the opinion of management,  the unaudited  consolidated  financial statements
furnished  herein  include  all   adjustments,   consisting  only  of  recurring
adjustments  necessary for a fair  presentation of the results of operations for
the interim  periods  presented.  These interim  results of  operations  are not
necessarily  indicative  of  results  for  the  entire  year.  The  consolidated
financial  statements  contained  herein should be read in conjunction  with the
consolidated  financial  statements and related notes contained in the Company's
1998 Annual Report on Form 10-K/A.

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes required for complete financial statements.

Certain items in the consolidated  financial statements as of June 30, 1998 have
been   reclassified   to   conform   with  the   current   presentation.   These
reclassifications had no impact on operating results previously reported.

         Business

The Company is engaged as a  manufacturer  and supplier of  information  storage
solutions,  including  external  RAID  (Redundant  Array of  Independent  Disks)
subsystems,   Network  Attached  Storage,   data  storage  enclosures,   storage
management software solutions and AdaptiveRAID technology.

         Use of Estimates

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
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.


<PAGE>
                                       9

         Net Loss Per Common Share ("EPS")

The effect of including  potentially  dilutive securities in the EPS calculation
would  have  been  anti-dilutive.  Accordingly,  basic and  diluted  EPS for all
periods presented are equivalent.

As of  June  30,  1999,  outstanding  potentially  dilutive  securities  include
2,591,000  shares   underlying  stock  options,   10,084,667  shares  underlying
convertible  preferred stock,  2,420,133 shares underlying  warrants and 160,000
shares underlying convertible debt.


(2) ACQUISITION

On June 8, 1999,  the  Company  acquired  approximately  76% of the  outstanding
common stock of Andataco,  Inc.  ("Andataco")  from affiliates of W. David Sykes
("Mr. Sykes"),  Andataco's president (the "Andataco Acquisition").  In addition,
the Company  acquired a promissory note in the amount of $5.2 million payable by
Andataco  to  Mr.  Sykes.  The  aggregate  purchase  price  was  $10.5  million,
consisting  of: (i) $.5 million in cash,  (ii) $5.1 million in promissory  notes
("Acquisition  Notes" - Note 4),  (iii)  $4.7  million  of Series F  Convertible
Preferred  Stock  (Note 5) which is  convertible  into  1,551,333  shares of the
Company's  common  stock and (iv)  warrants  to purchase  155,133  shares of the
Company's  common stock,  exercisable upon issuance for three years at $3.30 per
share,  valued at $.2  million  on the date of closing  using the  Black-Scholes
option pricing model. In addition, the Company incurred transaction costs of $.7
million.  Andataco  is a  publicly  held  company  headquartered  in San  Diego,
California  which designs,  manufactures  and  distributes  information  storage
solutions for Windows NT and UNIX environments.

The  Andataco  Acquisition  was  accounted  for  using  the  purchase  method of
accounting with assets acquired and liabilities  assumed  recorded at their fair
values as of June 1, 1999,  the effective  acquisition  date, and the results of
Andataco's   operations  included  in  the  Company's   consolidated   financial
statements  from that date.  Allocation  of the  purchase  price of the Andataco
Acquisition  has been made on a preliminary  basis subject to adjustment  should
new or  additional  facts about the  business  become  known.  The excess of the
purchase  price  over  the  fair  value  of  net  assets   acquired   (goodwill)
approximated $10.8 million and is being amortized over seven years.

On July 16, 1999, the Company acquired 1,612,904 shares of newly issued Andataco
common stock from  Andataco for $.5 million in cash,  increasing  the  Company's
ownership  to  approximately  77% (Note 4(b)).  On August 5, 1999,  the Board of
Directors  of  Andataco  approved  the  Company's  proposed  acquisition  of the
remaining  approximately  23% of  Andataco's  outstanding  common  shares for an
aggregate  purchase  price of  approximately  $1.8 million,  to be paid with the
Company's  common  stock  based on the  average  closing  price for the ten days
immediately  prior to the  closing of the  proposed  acquisition.  The  proposed
acquisition  is  subject  to  various  conditions,  including  approval  by  the
stockholders of both companies.  The Company expects the closing to occur in the
fourth quarter of 1999.  There can be no assurance,  however,  that the proposed
acquisition will be consummated.


<PAGE>
                                       10

(3)  BALANCE SHEET COMPONENTS (in thousands)

Substantially all assets are pledged as collateral for indebtedness (Note 4).

                                                          June 30,      Dec.31,
                                                           1999           1998
                                                        (unaudited)
                                                          --------      -------
Accounts Receivable
   Trade receivables ................................     $ 12,545      $ 2,964
   Less allowance for doubtful accounts .............       (1,513)        (502)
                                                          --------      -------
                                                          $ 11,032      $ 2,462
                                                          ========      =======
Inventories
   Raw materials ....................................     $  7,774      $ 2,641
   Work-in-process ..................................          446           95
   Finished goods ...................................        1,082          292
                                                          --------      -------
                                                          $  9,302      $ 3,028
                                                          ========      =======


Inventories  are  stated  at the  lower  of  cost or  market,  with  cost  being
determined based on the first-in, first-out (FIFO) method. Reserves are recorded
as necessary  to reduce  obsolete  and slow moving  inventory  to estimated  net
realizable value.
                                                        June 30,        Dec.31,
                                                           1999           1998
                                                      (unaudited)
                                                         -------        -------
Property and Equipment
   Equipment .....................................       $ 3,556        $ 1,313
   Computer software .............................           749            729
   Furniture and fixtures ........................           505            288
   Leasehold improvements ........................           871            332
   Other .........................................           292            243
                                                         -------        -------
                                                           5,973          2,905
   Less accumulated depreciation .................        (1,856)        (1,252)
                                                         -------        -------
                                                         $ 4,117        $ 1,653
                                                         =======        =======

Property and equipment are stated at cost.  Depreciation  is provided  under the
straight-line method over the estimated useful lives, principally five years.

Goodwill and Other Intangible Assets
Goodwill ........................................       $ 17,392        $ 6,545
Intellectual assets .............................            347            347
                                                        --------        -------
                                                          17,739          6,892
Less accumulated amortization ...................         (1,312)          (939)
                                                        --------        -------
                                                        $ 16,427        $ 5,953
                                                        ========        =======
<PAGE>
                                       11


Goodwill  represents the excess cost of acquired  businesses over the fair value
of  net  assets  acquired.   Intellectual   assets  consist  of  trademarks  and
proprietary technology. Goodwill and intellectual assets are carried at cost and
are being  amortized  on a  straight-line  basis over  seven to  fifteen  years.
Amortization  of  intangible  assets was $251,000 and $373,000 for the three and
six months ended June 30, 1999, respectively,  and $119,000 and $225,000 for the
three and six months ended June 30, 1998, respectively.

(4)  LONG-TERM DEBT


(a) The Company's borrowings consisted of the following (in thousands):

                                                          June 30,      Dec.31,
                                                             1999          1998
                                                       (unaudited)
                                                          --------      -------
Asset based revolving credit facilities:
  Andataco Revolver  (Note 4(b)) ....................     $  6,131      $  --
  nStor Revolver  (Note 4(c)) .......................        1,932        1,738

Acquisition Notes, interest at 9.5%
  per annum, due July 2004  (Note 2) ................        5,100         --

Subordinated Notes (net of $795 and
  $287 unamortized discount) (Note 4(d)) ............        6,005        4,713

Notes convertible into 160,000 shares
  of common stock (net of $218 and $214
  unamortized discount), due in 2000 ................          610          592

Other (Note 4(e)) ...................................          330          500
                                                          --------      -------
                                                            20,108        7,543
Less current maturities .............................         (165)        (500)
                                                          --------      -------
                                                          $ 19,943      $ 7,043
                                                          ========      =======

(b)  Andataco Revolver

The Andataco Revolver provides for borrowings based on the lesser of $10 million
or: (i) 85% of eligible accounts receivable, as defined, plus (ii) the lesser of
$1.75 million or 23% of eligible  inventory,  as defined.  The Andataco Revolver
currently  bears interest at prime plus 1/2 percent (8.25% at June 30, 1999), is
guaranteed by Mr. Sykes and matures in December  2002.  Andataco pays a facility
fee of .25%  based on the  average  unused  portion of the  maximum  borrowings.
Advances under the Andataco  Revolver are  collateralized  by substantially  all
assets of  Andataco.  The  Andataco  Revolver  provides  for  certain  financial
covenants,  including Andataco maintaining a certain minimum working capital and
tangible net worth.  During the second quarter ended June 30, 1999, Andataco was
not in compliance  with the  financial  covenant  regarding  tangible net worth;
however,  effective  July 13,  1999,  the  lender  agreed to waive the  default,
subject to,  among other  things,  receipt  from nStor of a $.5 million  capital
contribution.  On July 16,  1999,  nStor  contributed  $.5  million in cash as a
capital contribution to Andataco.

<PAGE>
                                       12

(c)  nStor Revolver

The nStor Revolver  provides for borrowings based on the lesser of $5 million or
80% of eligible accounts receivable,  as defined, bears interest, based on prime
plus 2% (9-3/4% at June 30,  1999),  and matures on August 3, 2000.  The Company
pays a facility  fee equal to 1% per annum on the total  facility of $5 million.
Advances under the nStor Revolver are collateralized by substantially all assets
of  the  Company  (excluding  Andataco),  including  $.5  million  reflected  as
Restricted  Cash. The nStor Revolver  provides for certain  financial  covenants
including  current ratio and net worth  requirements,  limitations  on operating
losses for the six month period ending  December 31, 1998, and  restrictions  on
the  incurrence  of additional  debt,  capital  expenditures  and the payment of
dividends,  other than  preferred  stock  dividends.  At December 31, 1998,  the
Company  was not in  compliance  with  the  financial  covenant  concerning  the
Company's  operating  loss for 1998;  however,  effective  February 4, 1999, the
lender agreed to forbear from declaring a default.

(d)  Subordinated Notes

At June 30, 1999, the  Subordinated  Notes  amounted to $6.8 million  (including
$1.8  million   borrowed  from  unrelated   investors  in  January  1999).   The
Subordinated  Notes bear  interest at 8%-10% per annum,  mature on  September 5,
2000 and are subordinated to the nStor Revolver.  Of this amount,  $5 million is
collateralized by substantially all assets of the Company (excluding  Andataco).
The Subordinated Notes include $1 million held by H. Irwin Levy, Chairman of the
Board of Directors  and a principal  stockholder  of the  Company,  or companies
controlled by him (collectively,  "Mr. Levy"), $250,000 held by Bernard R. Green
a  director,  $125,000  held by a  company  controlled  by Mark  F.  Levy,  Vice
President and a director of the Company and Mr. Levy's son, and $125,000 held by
a company controlled by other members of Mr. Levy's family.

In  connection  with the  Subordinated  Notes,  the Company  issued  warrants to
purchase  2,266,668 shares of the Company's  common stock (including  600,000 in
1999). The warrants were valued under the Black-Scholes  option-pricing model as
of their respective dates of issuance at an aggregate of $1.2 million (including
$.8 million in 1999) and were recorded as a discount to the Subordinated  Notes,
of which  $185,000 and $284,000 was amortized as interest  expense for the three
and six months ended June 30, 1999, respectively,  and $122,000 was amortized as
interest for the three and six months ended June 30, 1998.

(e)  Other

Included in current  maturities  at December 31, 1998 was $.3 million due to Mr.
Levy.  The loan bore  interest at 10% per annum and was repaid by the Company in
February 1999.

In March 1999,  the Company  borrowed  $.8 million from Mr. Levy and $.5 million
from an unrelated  private investor,  respectively.  Both loans bore interest at
10% per annum and were  payable in  September  1999.  Effective  as of March 30,
1999,  the Company  issued  645,000 of the  Company's  common  stock  (including
395,000 shares to Mr. Levy) in satisfaction of both notes.

<PAGE>
                                       13

From April 1, 1999 through June 10, 1999,  Mr. Levy advanced an  additional  net
amount of $1.5 million to the Company (consisting of $2.3 million advanced, less
$.8 million repaid), with interest at 10% per annum. Effective June 8, 1999, the
Company issued Series E Convertible  Preferred Stock with a stated value of $1.5
million in satisfaction of those borrowings (Note 5).

In July and August 1999, Mr. Levy loaned an additional net amount of $.6 million
(consisting of $.7 million advanced, less $.1 million repaid) under a promissory
note which allows the Company to borrow up to $750,000, with interest at 10% per
annum, due 30 days from demand.


(5)  CONVERTIBLE PREFERRED STOCK

The Company has five classes of convertible  preferred  stock (Series A, C, D, E
and F) with an aggregate  stated value of $14.9 million  (including $4.5 million
held by Mr. Levy).  Series A, C and D preferred stock,  with an aggregate stated
value of $6.7 million,  accrues dividends at 8% per annum, payable quarterly, is
convertible  at any time into an aggregate of 7,366,667  shares of the Company's
common  stock,  and has  automatic  conversion  features in which each share not
converted  by  October  2001  (as to  2,700,000  shares)  and  July  2000 (as to
4,666,667 shares) is automatically  converted into common stock.  Series E and F
preferred  stock,  with an  aggregate  stated  value  of $8.2  million,  accrues
dividends  at 8%  through  June 7,  2000,  9%  commencing  June 8,  2000 and 10%
commencing  June 8, 2001,  and is  convertible  at any time into an aggregate of
2,718,000 shares of the Company's common stock.

In  connection  with the issuance of the Series E and F preferred  stock in June
1999,  the Company issued  warrants to purchase  271,799 shares of the Company's
common stock (including 50,000 to Mr. Levy),  exercisable upon issuance at $3.30
per share and expiring on June 8, 2002. The warrants  issued in connection  with
the  Series  E  preferred   stock   (116,666   shares)  were  valued  under  the
Black-Scholes  option-pricing  model  as of June 8,  1999 at  $151,000  and were
recorded as an additional embedded dividend. The warrants issued to Mr. Sykes in
connection with the Series F preferred  stock (155,133  shares) were also valued
under the  Black-Scholes  option-pricing  model at $200,000 and were included in
the acquisition costs of Andataco (Note 2).

(6)  INCOME TAXES

As of December 31, 1998, there were unused net operating loss carryforwards (the
"NOL's") for regular federal income tax purposes of approximately  $18.4 million
principally  expiring in 2012 and 2018, for which no financial statement benefit
had been recognized.  In addition,  the Company has research and development tax
credit  carryforwards of  approximately  $802,000 which expire from 2002 through
2018 and in conjunction  with the  Alternative  Minimum Tax ("AMT")  rules,  the
Company has available AMT credit  carryforwards  of approximately  $332,000,  at
December 31, 1998,  which may be used  indefinitely  to reduce  regular  federal
income taxes.

At October 31, 1998,  Andataco reported unused net operating loss  carryforwards
for regular  federal  income tax purposes of  approximately  $13.9 million which
expire  through  2018.  Due to a change of control,  nStor's  ability to utilize
these carryforwards is limited.

<PAGE>
                                       14


(7)  SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS

The Company operates predominantly in one business segment,  information storage
solutions,  including external RAID subsystems. During the six months ended June
30,  1999,  one  customer,  Silicon  Graphics,  Inc.,  accounted  for 22% of the
Company's sales.


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS


With the exception of discussion regarding historical information, "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
contains  forward  looking  statements.  Such  statements  are based on  current
expectations  subject to uncertainties and other factors which may involve known
and  unknown  risks that could  cause  actual  results of  operations  to differ
materially  from those  projected or implied.  Further,  certain forward looking
statements are based upon assumptions about future events which may not prove to
be accurate.

Risks and uncertainties  inherent in forward looking statements include, but are
not  limited  to,  our  future  cash  flows and  ability  to  obtain  sufficient
financing,  timing  and  volume  of sales  orders,  level of gross  margins  and
operating  expenses,  lack of market acceptance of our new product lines,  price
competition,  conditions in the technology  industry and the economy in general,
our  customers  and  vendors  ability to achieve  year 2000  functionality,  our
ability to effectively  integrate  Andataco's  operations  with ours, as well as
legal proceedings. The economic risk associated with materials cost fluctuations
and inventory  obsolescence is significant to our company. The ability to manage
our inventories through procurement and utilization of component materials could
have  a  significant  impact  on  future  results  of  operations  or  financial
condition.  Historical  results are not necessarily  indicative of the operating
results for any future period.

Subsequent  written and oral  forward  looking  statements  attributable  to our
company  or  persons  acting on our  behalf  are  expressly  qualified  in their
entirety by  cautionary  statements in this Form 10-Q and in other reports filed
by our company  with the  Securities  and  Exchange  Commission.  The  following
discussion  should  be read  in  conjunction  with  the  Consolidated  Financial
Statements and the Notes thereto included elsewhere in this filing.

Overview

nStor Technologies,  Inc. through our wholly-owned  operating subsidiary,  nStor
Corporation,  Inc. (collectively "nStor") and our 77% owned Andataco subsidiary,
is  engaged as a  manufacturer  and  supplier  of  high-performance  information
storage  solutions,  including  external RAID  (Redundant  Array of  Independent
Disks) subsystems,  Network Attached Storage,  data storage enclosures,  storage
management   software   solutions  and  AdaptiveRAID   technology.   We  design,
manufacture and sell high performance fault tolerant data storage solutions that
serve both the UNIX and NT platforms.

<PAGE>
                                       15

nStor's  activities in the  information  storage  industry have evolved  through
several acquisitions,  the first of which occurred in June 1996 when we acquired
certain assets associated with the RAID business from Seagate Peripherals,  Inc.
In  December  1996,  we  acquired  substantially  all the net  assets  of Parity
Systems, Inc. In April 1998, we acquired Borg Adaptive Technologies,  Inc. which
brought to our company the next generation of RAID technology,  AdaptiveRAID. In
June 1999,  we acquired  approximately  76% of the  outstanding  common stock of
Andataco  (Note 2). In July 1999 we acquired an additional  1,612,904  shares of
Andataco's  common stock  bringing our current  ownership to  approximately  77%
(Note 2). As a result of the  Andataco  Acquisition,  we believe  that period to
period  comparisons  for the three and six months ended June 30, 1999 may not be
meaningful.

Three Months Ended June 30, 1999 vs. June 30, 1998

Sales

Net sales for the three months ended June 30, 1999 were $9.4 million as compared
to $5.7 million for the three  months  ended June 30, 1998,  an increase of $3.7
million or 64%. A decline in nStor sales of $2.3 million was more than offset by
Andataco  sales of $6 million  for the month of June 1999.  The decline in nStor
sales  reflects  delays in the market  introduction  of certain  new  generation
products and our  elimination of non-storage  related  businesses  including our
memory and integrated system divisions.

Our overall sales are expected to increase significantly during the remainder of
fiscal 1999 primarily resulting from the Andataco Acquisition and a new Original
Equipment  Manufacturer  ("OEM") agreement (see below).  Through our affiliation
with  Andataco,  we expect to obtain  access to  additional  sales  distribution
channels  through which we  anticipate  increasing  sales of our new  generation
storage  systems  as well as  newly  developed  products.  However,  there is no
assurance that we will be successful in marketing our products  through Andataco
sales channels.

During  the  second  quarter,  we  entered  into  an  OEM  agreement  to  supply
high-performance  RAID storage  enclosures to Silicon  Graphics,  Inc.  (SGI), a
major  server  manufacturer.  We began  shipping  products  under SGI's  initial
purchase  order in May 1999.  During  June 1999,  nStor's  sales  (exclusive  of
Andataco)  increased to $2.5 million,  representing 71% of nStor's sales for the
quarter, primarily as a result of the SGI relationship.  The initial term of the
OEM agreement is for three years. A  discontinuation  or  significant  reduction
under this agreement could have a material adverse effect on nStor's business.


Cost of Sales/Gross Margins

Gross  margins  decreased  to 13% for the three  months  ended June 30,  1999 as
compared to 18% for the quarter ended June 30, 1998. Contributing to the overall
decrease was a $.6 million provision for slow moving inventory  (compared to $.3
million during the 1998 quarter) as well as the level of fixed costs inherent in
our operations coupled with lower nStor sales revenues.  Excluding the inventory
adjustment, overall gross margins were 19% and 23% during the quarter ended June
30, 1999 and 1998,  respectively.  Gross  margins  attributable  to Andataco net
sales were 24% for June 1999.  Our gross  margins  are  dependent,  in part,  on
product mix which fluctuates from time to time.


<PAGE>
                                       16

We anticipate  improved gross margins for the remainder of fiscal 1999 primarily
as a result of the Andataco  Acquisition and as nStor utilizes  Andataco's sales
channels to market our products.

Operating Expenses

     Selling, General and Administrative

Selling,  general and administrative expenses were $3.4 million and $2.5 million
for the three months ended June 30, 1999 and 1998, respectively,  an increase of
$.9  million or 38%.  This  increase  is  primarily  the result of the  Andataco
Acquisition,  which added $1.2  million in expenses  for the month of June 1999,
and a $.8 million provision for uncollectible  accounts receivable  (compared to
$.2 million in 1998),  partially  offset by a $1.1  million  reduction  in nStor
operating expenses. This reduction is primarily the result of the following: (i)
reduced  levels of salaries  and travel  costs  associated  with our  integrated
systems  division  which was phased out and sold in October  1998;  (ii) reduced
compensation  costs  resulting from a reduction in our work force as a result of
declining  sales prior to June 1999;  and (iii) lower sales  commissions  due to
decreased levels of sales. We expect selling,  general and administrative  costs
to increase during the remainder of fiscal 1999  principally due to the Andataco
Acquisition.  However,  this projected  increase  should be partially  offset by
certain  cost  savings  expected  to result  from the  integration  of nStor and
Andataco operations.

     Research and Development

Research and development expenses were $.7 million and $.6 million for the three
months ended June 30, 1999 and 1998, respectively.  We believe that considerable
investments in research and development  will be required to remain  competitive
and expect that these expenses will increase in future periods.

Research  and  development  costs are  expensed  as incurred  and may  fluctuate
considerably  from time to time  depending on a variety of factors.  These costs
are  substantially  incurred  in  advance  of  related  revenues,  or in certain
situations, may not result in generating revenues.

Interest Expense

Interest  expense  for the three  months  ended June 30, 1999  increased  to $.5
million from $.3 million in 1998 as a result of the increase in  borrowings  and
the amortization of financing costs arising from certain indebtedness ( Note 4).
Interest  expense is expected to increase  during the  remainder  of fiscal 1999
primarily as a result of the Andataco Acquisition (Notes 2 and 4).

Preferred Stock Dividends

For the quarter ended June 30, 1999, we recorded $89,000 as an embedded dividend
attributable to the beneficial  conversion privilege on our Series A Convertible
Preferred  Stock.  In  addition,  in  connection  with our Series E  Convertible
Preferred  Stock  issued in June  1999,  we  recorded  $151,000  as an  embedded
dividend attributable to the valuation of warrants to purchase 116,666 shares of
our common stock (Note 5). The aggregate embedded dividends amounted to $240,000
for the three  months  ended June 30, 1999 as  compared  to $722,000  during the
second  quarter of 1998,  which related to a series of preferred  stock that was
redeemed in October 1998.

<PAGE>
                                       17


For the three  months  ended  June 30,  1999,  all  classes  of our  convertible
preferred  stock  required  cash  dividends  at 8% per  annum  which  aggregated
$174,000.  For the  three  months  ended  June  30,  1998,  we had one  class of
preferred  stock which earned $60,000 in dividends.  We expect cash dividends to
increase during the remainder of fiscal 1999  principally due to $8.2 million of
preferred stock issued in June 1999 (Note 5).


Six Months Ended June 30, 1999 vs. June 30, 1998

Sales

Net sales for the six months ended June 30, 1999 were $10.8 million representing
an increase of $1.5  million or 16% over the six months  ended June 30,  1998. A
decline in nStor sales of $4.5 million was more than offset by Andataco's  sales
of $6 million for the month of June 1999.  The decrease in nStor sales  reflects
delays in  market  introduction  of  certain  new  generation  products  and our
elimination  of  non-storage   related  businesses   including  our  memory  and
integrated  systems  division  (approximately  $2.1  million  in 1998).  See the
quarterly  discussion  regarding SGI and Andataco for sales expectations for the
remainder of fiscal 1999.

Cost of Sales/Gross Margins

Gross margins for the six months ended June 30, 1999 were $1.3 million or 12% as
compared  to $1.7  million  or 18%  for the six  months  ended  June  30,  1998.
Contributing to the overall decrease was a $.7 million provision for slow moving
inventory  (compared to $.3 million in 1998) as well as the level of fixed costs
inherent in our operations  coupled with lower nStor sales  revenues.  Excluding
the  inventory  adjustment,  overall gross margins for the six months ended June
30, 1999 were 19% as compared to 21% in 1998.  Andataco's  gross margins for the
month of June 1999 were  24%.  Our gross  margins  are  dependent,  in part,  on
product mix which  fluctuates  from time to time.  See the quarterly  discussion
regarding our expectations for gross margins for the remainder of fiscal l999.

Operating Expenses

     Selling, General and Administrative

Selling,  general and administrative  expenses for the six months ended June 30,
1999,  were $4.9  million as compared to $4.7  million for the six months  ended
June 30, 1998.  This $.2 million or 4% increase is  primarily  the result of the
Andataco  Acquisition which added $1.2 million in expenses for the month of June
1999,  and  a  $.8  million  provision  for  uncollectible  accounts  receivable
(compared to $.2 million in 1998),  partially offset by a $1.8 million reduction
in nStor's operating  expenses.  The reduction in nStor expenses is attributable
to lower sales  commissions,  reduced  compensation  and related costs resulting
from an overall work force reduction, both of which were the result of declining
sales,  and the elimination of expenses  associated  with the integrated  system
division which was sold in October 1998.


<PAGE>
                                       18


     Research and Development

Research and development expenses were $1.2 million and $1.1 million for the six
months  ended June 30, 1999 and 1998,  respectively.  Research  and  development
costs are expensed as incurred and may fluctuate  considerably from time to time
depending  on a variety of factors.  These costs are  substantially  incurred in
advance  of  related  revenues,  or in  certain  situations,  may not  result in
generating revenues.

Interest Expense

Interest expense for the six months ended June 30, 1999 increased to $.8 million
from $.5  million  in 1998 as a result of the  increase  in  borrowings  and the
amortization of financing costs arising from certain indebtedness (Note 4).

Preferred Stock Dividends

For the six months  ended June 30,  1999,  we  recorded  $176,000 as an embedded
dividend  attributable  to the beneficial  conversion  privilege on our Series A
Convertible  Preferred  Stock.  In  addition,  in  connection  with our Series E
Convertible  Preferred  Stock  issued in June 1999,  we recorded  $151,000 as an
embedded dividend  attributable to the valuation of warrants to purchase 116,666
shares of our common stock (Note 5). The aggregate  embedded  dividends amounted
to  $327,000  for the six months  ended June 30,  1999 as  compared  to $722,000
during  the six  months  ended  June 30,  1998,  which  related  to a series  of
preferred stock that was redeemed in October 1998.

For the six months ended June 30, 1999, all classes of our convertible preferred
stock required cash dividends at 8% per annum which aggregated $306,000. For the
six months ended June 30, 1998, we had one class of preferred stock which earned
$60,000 in dividends.

                         Liquidity and Capital Resources


Consolidated Statements of Cash Flows

     Operating Activities

Net cash used by operating  activities amounted to $7.3 million and $6.5 million
for the six  months  ended  June  30,  1999  and  1998,  respectively.  The most
significant use of cash was our loss from  operations  (before changes in assets
and  liabilities)  of $3.4  million  and  $4.3  million,  respectively.  Another
significant  use of cash during 1999 was an increase in accounts  receivables in
the  amount of $2.7  million  principally  due to the  significant  increase  in
nStor's  June 1999  sales.  During  1998,  we used cash of $2.7  million  in the
reduction of accounts payable and other liabilities.

     Investing Activities

Net cash used by investing  activities  was  approximately  $1.5 million and $.8
million for the six months ended June 30, 1999 and 1998, respectively, with $1.2
million and $.4  million,  respectively,  used for  acquisitions  (see Note 2 to
Consolidated  Financial  Statements  for a  description  of  the  1999  Andataco
Acquisition).


<PAGE>
                                       19

         Financing Activities

Net cash provided by financing activities for the six months ended June 30, 1999
was $8.9 million and primarily  consisted of net borrowings of $4.3 million from
private  investors,  including $1.5 million from Mr. Levy which was satisfied by
the issuance of convertible  preferred stock,  $1.5 million in proceeds from the
exercise of stock options and  warrants,  $1 million from the issuance of common
stock,  and $2 million from the issuance of convertible  preferred  stock.  Cash
provided by financing activities for the six months ended June 30, 1998 amounted
to $7.3  million and  included  net  borrowings  of $4.4  million  from  private
investors,  including  $2.4  million  from Mr.  Levy,  and $3.2  million  in net
proceeds from the issuance of convertible preferred stock,  including $1 million
from Mr. Levy.

nStor Revolver

The nStor Revolver,  our asset based  revolving  credit  facility,  provides for
borrowings  based on the lesser of $5 million  or 80% of our  eligible  accounts
receivable,  as  defined  (Note 4).  The nStor  Revolver  provides  for  certain
financial   covenants  including  current  ratio  and  net  worth  requirements,
limitations  on operating  losses for the six month  period  ended  December 31,
1998,  and  restrictions  on the  incurrence  of  additional  debt  and  capital
expenditures and the payment of dividends, other than preferred stock dividends.
At December 31, 1998,  we were not in  compliance  with the  financial  covenant
concerning our operating loss for 1998; however,  effective February 4, 1999 the
lender agreed to forebear from declaring a default.


Indebtedness Resulting from the Andataco Acquisition

In  connection  with  the  Andataco  Acquisition,  we  issued  $5.1  million  in
promissory  notes due in July 2004.  In  addition,  Andataco  has an asset based
revolving  credit  facility (Note 4) which provides for borrowings  based on the
lesser of $10 million or (i) 85% of eligible  accounts  receivable,  as defined,
plus (ii) the lesser of $1.75 million or 23% of eligible inventory,  as defined.
The  Andataco  Revolver  provides  for certain  financial  covenants,  including
Andataco  maintaining a certain  minimum working capital and tangible net worth.
During the quarter ended June 30, 1999,  Andataco was not in compliance with the
financial  covenant regarding  tangible net worth;  however,  effective July 13,
1999,  the lender  agreed to waive the default,  subject to, among other things,
receipt  from nStor of a $.5 million  capital  contribution.  On July 16,  1999,
nStor contributed $.5 million in cash as a capital contribution to Andataco.


Financing Activities With Private Investors

Since late 1997,  and through June 30, 1999,  we have obtained net cash proceeds
of  approximately  $22.3 million  (including  $8.8 million during the six months
ended June 30,  1999) from  private  investors,  consisting  of $8.5  million of
convertible  preferred  stock,  $9.6 million of net borrowings  (including  $1.3
million  which we  satisfied by issuing  645,000  shares of our common stock and
$1.5 million which we satisfied by issuing  convertible  preferred stock),  $3.2
million from the exercise of warrants and options to purchase  2,428,832  shares
of our common stock and $1 million from the issuance of 500,000  shares of newly
issued common stock.  Of these amounts,  Mr. Levy has advanced or invested a net
amount of $6.8 million.


<PAGE>
                                       20

From July 1, 1999 through  August 13, 1999,  Mr. Levy advanced an additional net
amount of $.6 million  under a  promissory  note which allows us to borrow up to
$750,000, due 30 days from demand.

We believe that amounts expected to be available under lending arrangements with
financial  institutions  and from Mr.  Levy will be  sufficient  to satisfy  our
working capital needs for the  foreseeable  future,  as presently  contemplated.
There can be no assurance,  however,  that we may not require additional capital
beyond our current forecasted needs nor that any such additional  required funds
would be available on terms  acceptable  to us, if at all, at such time or times
as required by us.

Recent Developments - Proposed Acquisition

On August 5, 1999,  the Board of  Directors  of Andataco  approved  our proposed
acquisition of the remaining  approximately 23% of Andataco's outstanding common
shares for an aggregate purchase price of approximately $1.8 million, to be paid
with the Company's  common stock based on the average  closing price for the ten
days immediately prior to the closing of the proposed acquisition.  The proposed
acquisition  is  subject  to  various  conditions,  including  approval  by  the
stockholders  of both  companies.  We expect the  closing to occur in the fourth
quarter  of  1999.  There  can  be no  assurance,  however,  that  the  proposed
acquisition will be consummated.


                               Effect of Inflation

Inflation has not had an impact on our  operations  and we do not expect that it
will have a material impact in 1999.


                                 Year 2000 Issue

As many computer  systems,  software  programs and other equipment with embedded
chips or processors  (collectively,  "Information  Systems") use only two digits
rather than four to define the  applicable  year,  they may be unable to process
accurately  certain data,  during or after the year 2000. As a result,  business
and governmental  entities are at risk for possible  miscalculations  or systems
failures  causing  disruptions  in their business  operations.  This is commonly
known  as the  Year  2000  ("Y2K")  issue.  The  Y2K  issue  concerns  not  only
Information  Systems  used  solely  within a  company  but also  concerns  third
parties,  such as customers,  vendors and creditors,  using Information  Systems
that may interact with or affect a company's operations.

     Risks

If needed  remediations and conversions to the Information  Systems are not made
on a timely basis by our  materially-significant  customers or vendors, we could
be affected by business disruption,  operational problems, financial loss, legal
liability to third parties and similar risks, any of which could have a material
adverse  effect on our  operations,  liquidity or financial  condition.  Factors
which could cause material differences in results, many of which are outside our
control,  include,  but are not limited to, the accuracy of  representations  by
manufacturers of our Information  Systems that their products are Y2K compliant,
the ability of our  customers  and vendors to identify and resolve their own Y2K
issues and our ability to respond to unforeseen Y2K complications.


<PAGE>
                                       21

       Our State of Readiness

We have implemented a Y2K readiness  program with the objective of having all of
our significant  Information  Systems  functioning  properly with respect to Y2K
before  January 1, 2000.  The first  component of our  readiness  program was to
identify  our  internal  Information  Systems  that are  susceptible  to  system
failures  or  processing  errors as a result of the Y2K  issue.  This  effort is
substantially  complete  and no  significant  issues  requiring  remediation  or
replacement have been identified.  The review of our financial  systems has been
completed and no issues have been identified.

As to the second component of the Y2K readiness program,  we have identified our
significant customers, vendors and creditors that are believed, at this time, to
be critical to business  operations  subsequent to January 1, 2000.  Through the
use of questionnaires,  interviews and other available means we have ascertained
that we have no significant exposure to Y2K issues at this time. However,  there
can be no assurance  that the  representations  made to us by third  parties are
accurate or complete and there is a possibility that normal business  operations
could be disrupted.

The third  component  of our Y2K  readiness  program was the  evaluation  of our
existing products',  and planned future products' Y2K functionality.  All of the
date dependent  software which we have developed has been validated as being Y2K
compliant  using  commercially  acceptable  methods,  including:  expanding year
fields  to four  digits:  windowing;  and date  encoding  techniques.  Our other
products  have been  verified  as Y2K  compliant  based on the  absence  of date
dependencies in hardware, software and firmware code.

       Y2K Costs

Our total cost of these Y2K  compliance  activities  is not  expected  to exceed
$50,000.  The costs and time  necessary  to complete  the Y2K  modification  and
testing processes are based on management's  best estimates,  which were derived
utilizing  numerous   assumptions  of  future  events  including  the  continued
availability  of certain  resources,  third party  modification  plans and other
factors.  However,  there  can be no  assurance  that  these  estimates  will be
achieved and actual results could differ from the  estimates.  Our Y2K readiness
program is an ongoing  process and the estimates of costs and  completion  dates
for various  components of the Y2K readiness program described above are subject
to change.


Part II  -  OTHER INFORMATION


Item 1.  Legal Proceedings

In June 1998,  a Complaint  was filed in the  Supreme  Court of the State of New
York by AIBC Investment  Services Corp. ("AIBC") claiming that the Company and a
former officer and director, R. Daniel Smith, breached an agreement with AIBC in
which AIBC was allegedly  engaged as placement  agent in connection with raising
funds for the Company.  Effective June 3, 1999, the action was dismissed without
prejudice.

<PAGE>
                                       22


Item 2.  Changes in Securities and Use of Proceeds


On June 8, 1999, in a private  placement, the  Company issued an  aggregate of
3,500 shares of Series E Convertible Preferred Stock and warrants to purchase an
aggregate  of 116,666 shares of  common stock, to  Bernard A. Marden,  Hilcoast
Development Corp. and Herbert Gimelstob for an aggregate purchase price of  $3.5
million  (including  $1.5 million in satisfaction  of  debt (Part I,  Item 1,
Note 4)).  Such shares of Series E Convertible  Preferred Stock are convertible
into 1,166,667 shares of the Company's common stock.

Also, on June 8, 1999, the Company  issued 4,654 shares of Series F Convertible
Preferred Stock, and warrants to purchase 155,133 shares of common stock, to W.
David Sykes as part of the Andataco  Acquisition  (Part I, Item 1, Note 2), as
the  purchase  price for a promissory  note payable by  Andataco to Mr. Sykes in
the original principal amount of $5,196,000. Such shares of Series F Convertible
Preferred Stock are  convertible into an  aggregate of 1,551,333  shares of the
Company's common stock.

Both the Series E and F  Convertible  Preferred  Stock  accrue  dividends  at 8%
through June 7, 2000,  9%  commencing  June 8, 2000 and 10%  commencing  June 8,
2001.

Each of the warrants described above is exercisable commencing June 8, 1999 at
$3.30 per share.

The securities issued in the transactions  described above were intended to be
exempt from registration  pursuant to  Section 4(2) of the  Securities Act as an
offering to a limited number of persons.


Item 3.  Defaults Upon Senior Securities

                  Not applicable


Item 4.  Submission of Matters to a Vote of Security Holders

                  Not applicable


Item 5.  Other Information

                  Not applicable


Item 6.  Exhibits and Reports on Form 8-K:

   (a)   Exhibits:

      (27)  Financial Data Schedule


   (b) Reports on Form 8-K:

The Company filed Form 8-K and Form 8-K/A during the quarter ended June 30, 1999
as follows:

(i) A report on Form 8-K dated June 8, 1999 and filed June 23,  1999,  reporting
under  item 2 -  Acquisition  or  Disposition  of Assets,  in which the  Company
announced its acquisition of 76% of the common stock of Andataco, Inc.


<PAGE>
                                       23


(ii) A report on Form 8-K/A dated June 8, 1999 and filed July 2, 1999, reporting
under item - 2 Acquisition or Disposition of Assets, in which the aforementioned
8-K was amended.









                                    SIGNATURE


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


                                 nSTOR TECHNOLOGIES, INC.
                                       (Registrant)



                                   /s/ Jack Jaiven
August 13, 1999               _______________________________
                                Jack Jaiven
                                Principal Financial and
                                Accounting Officer