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 March 31, 2000

                                       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. )


                              10140 Mesa Rim Road
                          San Diego, California 92121
                    (Address of principal executive office)

                                 (858) 453-9191
                        (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 April 30, 2000: 31,703,024


<PAGE>



                   nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

                               TABLE OF CONTENTS



PART I.   FINANCIAL INFORMATION
                                                          Page
                                                         Number

  Item 1. Financial Statements

     Consolidated Balance Sheets as of March 31,
       2000 (Unaudited) and December 31, 1999              3
     Consolidated Statements of Operations
       (Unaudited) for the three months ended
       March 31, 2000 and 1999                             4
     Consolidated Statement of Stockholders'
       Equity for the three months ended
       March 31, 2000 (Unaudited)                          5
     Consolidated Statements of Cash Flows
       (Unaudited) for the three months ended
       March 31, 2000 and 1999                            6-7
     Notes to Consolidated Financial Statements
       (Unaudited)                                        8-14

  Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of
           Operations                                    15-20

  Item 3.  Not applicable


Part II.  OTHER INFORMATION                                21



SIGNATURE                                                  22

<PAGE>

PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

                                                         Mar. 31,
                                                           2000      Dec. 31,
                                                       (unaudited)     1999
             ASSETS                                     ---------   ---------
Current assets:
  Cash and cash equivalents                              $ 2,612     $   650
  Accounts receivable                                      7,737       7,326
  Inventories                                              6,561       6,288
  Prepaid expenses and other                               1,379       1,637
                                                         -------     -------
     Total current assets                                 18,289      15,901

Property and equipment, net                                3,118       3,476
Goodwill and other intangible assets, net                 16,300      14,533
Other assets                                                  67         131
                                                         -------     -------
                                                         $37,774     $34,041
                                                         =======     =======
             LIABILITIES
Current liabilities:
  Bank line of credit                                    $ 5,200     $ 5,111
  Director loan                                               -        1,585
  Convertible notes                                          624         629
  Accounts payable and other                              12,387      14,114
                                                         -------     -------
     Total current liabilities                            18,211      21,439

Long-term debt                                             6,337       6,329
                                                         -------     -------
     Total liabilities                                    24,548      27,768
                                                         -------     -------

             STOCKHOLDERS' EQUITY
Preferred stock, $.01 par; 1,000,000 shares
  authorized, in order of preference:
   Convertible Preferred Stock (aggregate liquidation
   value $1,000 per share except for Series A which
   is $600 per share) issued and outstanding at
   March 31, 2000 and December 31, 1999; Series F,
   936 and 4,054; Series A, 0 and 1,667; Series C,
   3,000; Series D, 2,000 and 2,700; Series E, 3,500          -           -
Common stock, $.05 par; shares authorized 75,000,000;
  shares issued and outstanding 31,404,228 and
  26,517,824 at March 31, 2000 and December 31, 1999,
  respectively                                             1,569       1,331
Additional paid-in capital                                67,440      63,164
Deficit                                                  (55,783)    (58,222)
                                                         -------     -------
     Total stockholders' equity                           13,226       6,273
                                                         -------     -------
                                                         $37,774     $34,041
                                                         =======     =======

              See accompanying notes to consolidated financial statements.
<PAGE>

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


                                                   Three Months
                                                  Ended March 31,
                                                --------------------
                                                  2000       1999
                                                    (unaudited)
                                                ---------  ---------

Sales                                            $12,540    $ 1,411
Cost of sales                                      8,969      1,323
                                                 -------    -------
     Gross profit                                  3,571         88
                                                 -------    -------
Operating expenses:
  Selling, general and administrative              4,497      1,435
  Research and development                           616        519
  Depreciation and amortization                    1,116        395
                                                 -------    -------
     Total operating expenses                      6,229      2,349
                                                 -------    -------
     Loss from operations                         (2,658)    (2,261)

Gain on sale of assets of Borg Adaptive
  Technologies (Note 6)                            5,575         -
Interest and other income                             31        100
Interest expense                                    (298)      (310)
                                                 -------    -------
Net income (loss)                                  2,650     (2,471)


Preferred stock dividends                           (211)      (132)
Embedded dividend attributable to
  beneficial conversion privilege of
  Convertible Preferred Stock                         -         (87)
                                                 -------    -------
Net income (loss) available to common stock      $ 2,439   ($ 2,690)
                                                 =======    =======
Net income (loss) per share:
  Basic                                          $   .08   ($   .13)
                                                 =======    =======
  Dilutive                                       $   .07   ($   .13)
                                                 =======    =======

Shares used in computing net income
  (loss) per share:
  Basic                                        29,556,462 21,182,665
                                               ========== ==========
  Dilutive                                     40,118,016 21,182,665
                                               ========== ==========


          See accompanying notes to consolidated financial statements.
<PAGE>

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

                                        Preferred     Addi-
                       Common Stock       Stock       tional
                    ----------------- -------------  Paid-In
                      Shares   Amount Shares Amount  Capital  Deficit   Total
                    ---------- ------ ------ ------  -------  -------  -------

Balances, December
 31, 1999           26,517,824 $1,331  14,921  $ -   $63,164  ($58,222) $6,273

Issuance of common
 stock in connec-
 tion with:

  Conversion of
   Convertible
   Preferred Stock:
     Series A        1,666,667    83  (1,667)    -       (83)               -
     Series D          700,000    35    (700)    -       (35)               -
     Series F        1,039,300    52  (3,118)    -       (52)               -

  Acquisition of
   OneofUs             776,119    39                   2,561             2,600

  Exercise of
   options and
   warrants            580,839    29                   1,067             1,096

  Commitment to
   terminated
   executives          123,479     -                      -                 -

Compensation
 expense resulting
 from modifications
 to stock options
 and warrants in
 connection with the
 sale of the assets
 of Borg Adaptive
 Technologies                                                    818      818

Preferred stock
 dividends                                                      (211)    (211)

Net income for the
 three months ended
 March 31, 2000                                                 2,650    2,650
                    ---------- ------ ------ ------  -------  -------  -------
Balances, March 31,
 2000 (unaudited)   31,404,228 $1,569  9,436 $   -   $67,440 ($55,783) $13,226
                    ========== ====== ====== ======  =======  =======  =======
          See accompanying notes to consolidated financial statements.


<PAGE>

                            nSTOR TECHNOLOGIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                                             Three Months
                                                            Ended March 31,
                                                          -------------------
                                                            2000       1999
                                                              (unaudited)
                                                          --------   --------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                       $  2,650  ($  2,471)
  Adjustments to reconcile net income (loss) to
  net cash used in operating activities:
      Gain on sale of assets of Borg Adaptive
        Technologies                                        (5,575)        -
      Depreciation and amortization                          1,116        395
      Amortization of deferred financing costs                  -          99
      Amortization of deferred compensation                     -          28
      Provision for losses on accounts receivable               15         30
      Provision for inventory obsolescence                      -          75
      Other                                                     -         128
      Changes in assets and liabilities (net of effects
from acquisition):
        (Increase) decrease in accounts receivable            (337)       119
        Increase in inventories                               (273)      (761)
        Decrease (increase) in prepaid expenses and other      205       (281)
        Decrease in accounts payable and other              (1,978)      (361)
                                                          --------   --------
Net cash used in operating activities                       (4,177)    (3,000)
                                                          --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net proceeds from sale of assets of
    Borg Adaptive Technologies                               7,013         -
  Cash paid for acquisition                                    (68)        -
  Additions to property and equipment                         (148)      (129)
                                                          --------   --------
Net cash provided by (used in) investing activities          6,797       (129)
                                                          --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (repayments) on bank lines of credit           89       (994)
  Additions to other borrowings                                 -       3,100
  Repayment on other borrowings                             (1,585)      (300)
  Proceeds from exercise of stock options and warrants       1,096      1,554
  Cash paid for preferred stock dividends                     (258)      (157)
                                                          --------   --------
Net cash (used in) provided by financing activities           (658)     3,203
                                                          --------   --------
Net increase in unrestricted cash and cash
  equivalents during the period                              1,962         74

Unrestricted cash and cash equivalents at the
  beginning of the period                                      650        147
                                                          --------   --------
Unrestricted cash and cash equivalents at the
  end of the period                                       $  2,612   $    221
                                                          ========   ========
<PAGE>

                     nSTOR TECHNOLOGIES, INC.
              CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (in thousands)
                           (continued)

                                                             Three Months
                                                            Ended March 31,
                                                          -------------------
                                                            2000       1999
                                                        (unaudited) (unaudited)
                                                          --------   ---------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during period for:
    Interest                                              $   279     $   206
                                                          =======     =======

NON-CASH INVESTING ACTIVITIES:
  Acquisitions:
   Fair value of assets acquired                          $ 2,944     $   -
   Liabilities assumed or incurred                           (276)        -
   Common stock issued                                     (2,600)        -
                                                          -------     -------
   Cash paid                                              $    68     $   -
                                                          =======     =======

NON-CASH FINANCING ACTIVITIES:
  Issuance of common stock in satisfaction of
    borrowings                                            $   -       $ 1,290
                                                          =======     =======
  Embedded dividend attributable to beneficial
    conversion privilege of Series A
    Convertible Preferred Stock                           $   -       $    87
                                                          =======     =======
  Deferred financing costs arising from
    issuance of warrants under borrowings                 $   -       $   560
                                                          =======     =======
  Granting of options:
    Outside director                                      $   -       $   266
    Legal settlement                                          -            52
                                                          -------     -------
                                                          $   -       $   318
                                                          =======     =======




          See accompanying notes to consolidated financial statements.
<PAGE>



                            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  wholly-owned  subsidiaries  (collectively,   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
1999 Annual Report on Form 10-K.

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 March 31, 1999 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  high-availability,
high-performance  Internet  storage and  customized  Storage Area Network  (SAN)
solutions,  including  external  RAID  (Redundant  Array of  Independent  Disks)
solutions,  tape  backup  products  and  advanced  storage  management  software
solutions for the UNIX, Windows NT and Linux computer operating systems.

     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.

     Net Income (Loss) Per Common Share ("EPS")

Basic EPS is calculated  by dividing the net income  (loss)  available to common
stock by the weighted  average number of shares  outstanding  during the period.
Diluted EPS includes the effect of potentially dilutive  securities.  During the
three months ended March 31, 1999, the effect of including  potentially dilutive
<PAGE>

securities would have been antidilutive. Accordingly, basic and dilutive EPS for
that period is equivalent.  The  calculation of diluted EPS for the three months
ended March 31, 2000 follows (in thousands except per share data):

Net income available to common stock                         $      2,439
Preferred stock dividends                                             211
                                                              -----------
Net income available to common stock
  plus assumed conversions, diluted                          $      2,650
                                                              ===========

Weighted average shares                                        29,556,462
Weighted common stock equivalents                              10,561,554
                                                              -----------
Total weighted average shares, diluted                         40,118,016
                                                              ===========

Net income per share, diluted                                 $      0.07
                                                              ===========

As of March 31, 2000,  there were 11,799,580  outstanding  potentially  dilutive
securities, consisting of:

     Convertible preferred stock                   6,478,699
     Stock options                                 3,440,748
     Warrants                                      1,720,133
     Convertible notes                               160,000
                                                  ----------
                                                  11,799,580
                                                  ==========

(2) ACQUISITION OF ASSETS OF ONEOFUS COMPANY, LTD.

On January 19, 2000,  the Company  acquired  substantially  all of the assets of
OneofUs  Company  Limited  (OneofUs)  for an  aggregate  purchase  price of $2.9
million, consisting of $.3 million cash and short-term liabilities,  and 776,119
shares of the  Company's  common stock with an  aggregate  value of $2.6 million
(based on the average  market price of the  Company's  stock during the ten (10)
trading days ended  January 19,  2000).  The shares were issued to three selling
stockholders   pursuant  to  employment  agreements  and  to  a  fourth  selling
stockholder   in  connection   with  a   confidentiality,   noncompetition   and
nonsolicitation agreement.  OneofUs was a Taiwan-based,  privately-held designer
of high  performance  Fibre Channel RAID  controllers and storage  solutions for
open systems and the SAN market.

The  acquisition of OneofUs has been accounted for using the purchase  method of
accounting with assets acquired and liabilities  assumed  recorded at their fair
values as of the date of acquisition.  Allocation of the purchase price 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 $2.8 million and is being
amortized over seven years.
<PAGE>

(3)  BALANCE SHEET COMPONENTS (in thousands)

Substantially all assets are pledged as collateral for indebtedness.  See Note 4
to Consolidated Financial Statements.

                                            Mar.31,    Dec.31,
                                             2000       1999
                                            ------     ------
Accounts Receivable

   Trade receivables                        $9,173     $8,759
   Less allowance for doubtful accounts     (1,587)    (1,604)
                                            ------     ------
                                             7,586      7,155
   Other receivables                           151        171
                                            ------     ------
                                            $7,737     $7,326
                                            ======     ======

Inventories

   Raw materials                            $5,407     $4,942
   Work-in-process                             258        454
   Finished goods                              896        892
                                            ------     ------
                                            $6,561     $6,288
                                            ======     ======

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 inventory to estimated net realizable value.

Prepaid expenses and Other

   Prepaid service costs                    $1,224     $1,174
   Other                                       155        463
                                            ------     ------
                                            $1,379     $1,637
                                            ======     ======

Property and Equipment

   Computer equipment                       $4,170     $4,075
   Computer software                           770        770
   Leasehold improvements                      791        788
   Furniture, fixtures
     and office equipment                      355        465
   Other                                       314        310
                                            ------     ------
                                             6,400      6,408
   Less accumulated depreciation            (3,282)    (2,932)
                                            ------     ------
                                            $3,118     $3,476
                                            ======     ======
<PAGE>

Property and equipment are stated at cost.  Depreciation  is provided  under the
straight-line  method over the estimated  useful lives,  principally five years.
Leasehold  improvements are amortized on a straight-line  basis over the shorter
of the useful life of the asset or the lease term. Depreciation and amortization
of property and equipment amounted to $472,000 and $273,000 for the three months
ended March 31, 2000 and 1999, respectively.

                                            Mar.31,    Dec.31,
                                             2000       1999
                                            ------     ------
Goodwill and Other Intangible Assets

   Goodwill                                $17,818     $15,497
   Intellectual assets                         347         347
                                            ------     -------
                                            18,165      15,844
   Less accumulated amortization            (1,865)     (1,311)
                                            ------     -------
                                           $16,300     $14,533
                                            ======     =======

Goodwill  represents the excess cost of acquired  businesses over the fair value
of net assets  acquired  and is being  amortized  principally  over seven years.
Intellectual  assets  consist of trademarks and  proprietary  technology and are
being  amortized over 15 years.  Amortization  of goodwill and other  intangible
assets  amounted to $643,000  and  $122,000 for the three months ended March 31,
2000 and 1999, respectively.

Accounts payable and other

   Accounts payable                        $ 6,584     $ 8,072
   Deferred revenue                          2,333       2,426
   Other                                     3,470       3,616
                                           -------     -------
                                           $12,387     $14,114
                                           =======     =======

(4)  BORROWINGS


Short-Term Debt

  Revolving Credit Facility ("Bank Line of Credit")

The Bank Line of  Credit  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 Bank Line
of Credit  currently bears interest at prime plus 1/2 percent (9.0% at March 31,
2000),  matures in April 2002 and  requires a facility  fee of .25% based on the
average unused portion of the maximum  borrowings.  Advances under the Bank Line
of Credit are  collateralized by a significant  portion of the Company's assets.
The Bank Line of Credit  provides  for certain  financial  covenants,  including
minimum  working  capital and tangible net worth  requirements.  As of March 31,
2000, the outstanding balance of the Bank Line of Credit was $5.2 million and an
additional   approximately   $1.1  million  was  available   based  on  eligible
collateral.
<PAGE>

At February 29, 2000 and March 31 2000,  the Company was not in compliance  with
the minimum  tangible net worth  covenant of the Bank Line of Credit.  Effective
March  29,  2000,  the  lender  agreed to waive the  default  for both  periods.
Effective  April 14, 2000,  the Company  agreed with the lender to amend certain
terms of the Bank Line of Credit,  including an increase in the interest rate to
prime  plus  1.5% and new  minimum  net  worth  and net  income  covenants  on a
consolidated basis. All other significant  provisions of the Bank Line of Credit
remain the same.

     Director Loans

At December 31, 1999, current  borrowings  included $1.6 million due to H. Irwin
Levy,  Chairman of the Board of  Directors  and a principal  stockholder  of the
Company  ("Mr.  Levy"),  representing  the  maximum  amount  available  under  a
revolving  basis with  interest at 10% per annum,  due 30 days from  demand.  In
January 2000, the promissory note was paid off and satisfied in full.  Effective
April 12,  2000,  Mr.  Levy agreed to commit to a $2 million  revolving  line of
credit  facility to the Company,  which matures on the earlier of April 30, 2001
or when the Company  executes  the amended Bank Line of Credit.  Advances  under
this commitment will bear interest at 10% per annum.

     Convertible Notes

Convertible  Notes with a face amount of $400,000 have been discounted  based on
an effective  interest rate of 12% and include accrued  interest of $224,000 and
$222,000 at March 31, 2000 and December 31,  1999,  respectively,  mature in May
2000 and are convertible into 160,000 shares of the Company's common stock.

Long-Term Debt

At March 31, 2000 and  December  31,  1999,  long-term  debt  consisted  of $5.1
million  which bears  interest  at 9.5% per annum and matures in June 2004,  and
$1.2 million  which bears  interest at 10% per annum and which was  scheduled to
mature in September  2001. On April 26, 2000,  the Company issued 296,296 shares
of its common  stock in full  satisfaction  of $1 million of the $1.2 million of
notes.

     (5)  CONVERTIBLE PREFERRED STOCK

At December 31,  1999,  the Company had five  classes of  convertible  preferred
stock (Series A, C, D, E and F) with an aggregate stated value of $14.9 million.
During the quarter  ended March 31, 2000,  convertible  preferred  stock with an
aggregate  stated value of $4.8 million was converted into  3,405,967  shares of
the Company's common stock.  Series C and D preferred  stock,  with an aggregate
stated  value of $5.0  million at March 31,  2000,  accrues  dividends at 8% per
annum,  payable  quarterly,  is  convertible  at any time into an  aggregate  of
5,000,000  shares of the Company's  common stock,  and has automatic  conversion
features in which each share not converted by July 2000 (as to 3,000,000 shares)
and October 2001 (as to 2,000,000 shares) is automatically converted into common
stock.  Series E and F preferred  stock,  with an aggregate stated value of $4.4
<PAGE>

million at March 31, 2000,  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 1,479,000 shares of the Company's common stock. At
December 31, 1999 and March 31, 2000,  Mr. Levy or companies  controlled  by Mr.
Levy held  convertible  preferred  stock with an aggregate  stated value of $4.5
million convertible into 3,500,000 shares of the Company's common stock.

(6)   GAIN ON SALE OF ASSETS OF BORG ADAPTIVE TECHNOLOGIES

On January 10, 2000,  the Company sold  substantially  all of the assets of Borg
Adaptive  Technologies,  Inc., a  wholly-owned  subsidiary of the Company,  to a
wholly-owned  subsidiary  of QLogic  Corporation,  for $7  million  cash (net of
approximately  $.5 million of transaction  costs - the "Borg Sale").  The assets
included  all of the  intellectual  property  rights  relating to the  Company's
Adaptive  RAID  technology,  including  software,  patents and  trademarks,  and
certain  tangible  assets,  including  test  and  office  equipment  and  tenant
improvements.  In connection with the Borg Sale, the Company  recorded a gain of
$5.6  million,  net of  compensation  expense  of  $.8  million  resulting  from
modifications to certain stock options and warrants.


(7)  INCOME TAXES

The  Company  accounts  for  income  taxes in  accordance  with SFAS 109,  which
requires  recognition  of deferred tax assets and  liabilities  for the expected
future tax  consequences  of events  that have been  included  in the  financial
statements  or tax  returns.  Under  the SFAS 109 asset  and  liability  method,
deferred tax assets and  liabilities  are  determined  based upon the difference
between the financial  statement and tax bases of assets and  liabilities  using
enacted  tax rates in  effect  for the  year(s)  in which  the  differences  are
expected to reverse.

As of December 31, 1999, there were unused net operating loss carryforwards (the
"NOL's") for regular  federal income tax purposes of  approximately  $36 million
and California  tax purposes of  approximately  $4.7 million  expiring from 2012
through 2019 and 2001 through 2004,  respectively.  In addition, the Company has
research and development tax credit  carryforwards of approximately $1.4 million
which  expire from 2002  through 2019 and in  conjunction  with the  Alternative
Minimum Tax ("AMT") rules, the Company has available AMT credit carryforwards of
approximately $.8 million,  at December 31, 1999, which may be used indefinitely
to reduce regular federal income taxes.

The usage of  approximately  $8 million of the  federal  NOL  carryforwards  and
approximately $2 million of the California NOL carryforwards is limited annually
to  approximately  $.4 million due to an  acquisition  which  caused a change in
ownership for income tax purposes.

At March 31, 2000 and December 31, 1999,  a 100%  valuation  allowance  has been
provided on the Company's deferred tax assets because it is more likely than not
that loss  carryforwards will not be realized based on recent operating results.
Accordingly,  no income tax  provision  was  required on the  Company's  pre-tax
income for the three months ended March 31, 2000.
<PAGE>

(8)  SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS

The Company operates predominantly in one business segment,  information storage
solutions,  including  external RAID  subsystems.  During the three months ended
March 31, 2000, one customer accounted for 11.4% of the Company's sales.  During
the three months ended March 31, 1999,  no customer  accounted for more than 10%
of the Company's sales.

(9)  SUBSEQUENT EVENTS

On May 9, 2000, the Company entered into an agreement with a private  investment
group  granting  the Company a one-year  $15 million  equity line or equity draw
down  facility.  The agreement  does not obligate the Company to draw any of the
funds.  Once per draw down  period,  the  Company may request a draw of up to $5
million,  subject to a formula based on average stock price and average  trading
volume, setting the maximum amount of any request for any given draw. The amount
of money that the investment group will provide to the Company and the number of
shares the Company will issue to the  investment  group in return for that money
is settled on a weekly basis during a 22 day trading  period  following the draw
request  based on a formula  as  defined in the stock  purchase  agreement.  The
investment  group  receives a 7%  discount  to the  market  price for the 22 day
period and the Company  receives  the settled  amount of the draw down less a 4%
fee payable to the placement agent.

In connection with this agreement,  the Company granted the investment group and
the  placement  agent three year  warrants to purchase an  aggregate  of 220,000
shares of the  Company's  common stock at an exercise  price of $3.60 per share,
representing the average of the closing prices of the Company's common stock for
the five trading days before May 9, 2000.

The Company intends to register for resale the securities to be sold pursuant to
the draw downs and warrants.
<PAGE>


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  or demand for our new  product
lines, price competition,  conditions in the technology industry and the economy
in general,  as well as legal  proceedings.  The economic risk  associated  with
material cost fluctuations and inventory  obsolescence is significant to us. 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 us or
persons  acting on our behalf  are  expressly  qualified  in their  entirety  by
cautionary  statements in this Form 10-Q and in other reports we have filed 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

We  are a  manufacturer  and  supplier  of  high-availability,  high-performance
Internet  storage  and  customized  SAN  solutions,   including   external  RAID
solutions,  tape  backup  products  and  advanced  storage  management  software
solutions for a variety of operating  systems,  including  UNIX,  Windows NT and
Linux.

Our 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 in Lake Mary,  Florida,  from Seagate
Peripherals, Inc. In December 1996, we acquired substantially all the net assets
of Parity Systems, Inc. In June and July 1999, we acquired  approximately 76% of
the outstanding common stock of Andataco, Inc. and in November 1999, we acquired
the remaining 24% of Andataco.  As a result of the  acquisition of Andataco,  we
believe that period to period  comparisons  for the quarter ended March 31, 2000
may not be meaningful.


In January 2000,  we completed the Borg Sale,  consisting of the sale of certain
patented  technology  referred to as Adaptive  RAID for $7 million  cash (net of
approximately  $.5 million of  transaction  costs).  We do not  anticipate  that
future revenues will be materially affected as a result of this transaction.
<PAGE>

On January 19, 2000, we acquired  substantially all of the assets of OneofUs for
an aggregate purchase price of $2.9 million,  consisting of $.3 million cash and
short-tem  liabilities  and 776,000 shares of our common stock with an aggregate
value of $2.6  million  (based on the average  market  price of our common stock
during  the ten (10)  trading  days  ended  January  19,  2000).  OneofUs  was a
Taiwan-based,  privately-held  designer of high  performance  Fibre Channel RAID
controllers and storage solutions for open systems and the SAN market.


Three Months Ended March 31, 2000 vs. March 31, 1999

We reported net income of $2.7 million for the three months ended March 31, 2000
as compared to a net loss of $2.5 million for the corresponding quarter in 1999.
The 2000 quarter included a $5.6 million gain on the Borg Sale.

Sales

Net sales for the three  months  ended  March 31,  2000 were  $12.5  million  as
compared to $1.4 million for the three months ended March 31, 1999,  an increase
of $11.1 million.  The increase was principally  attributable to the acquisition
of Andataco in June 1999 and delays  during 1999 in the market  introduction  of
certain products.

Cost of Sales/Gross Margins

Gross  margins  increased  to 28.5% for the three months ended March 31, 2000 as
compared to 6.2% for the quarter  ended March 31,  1999.  The  increase in gross
margin  percentage  was primarily  due to the  utilization  of Andataco's  sales
channels to market our products,  in addition to economies of scale attributable
to  the  level  of  fixed  costs  inherent  in  our   operations   coupled  with
significantly higher sales revenues.  Our gross margins are dependent,  in part,
on product mix which fluctuates from time to time.


Operating Expenses

     Selling, General and Administrative

Selling,  general and administrative expenses were $4.5 million and $1.4 million
for the three months ended March 31, 2000 and 1999, respectively, an increase of
$3.1  million.  The  increase  is  primarily  the result of the  acquisition  of
Andataco.  The most significant  increase resulted from compensation and related
benefits of additional employees associated with Andataco.

     Research and Development

Research and  development  expenses  were $.6 million for the three months ended
March 31, 2000 and $.5 million for the three  months  ended March 31,  1999.  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.  This increase will be partially offset by reduced  expenditures
as a result of the Borg Sale.
<PAGE>

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.


   Depreciation and Amortization

Depreciation  and  amortization  was $1.1  million and $.4 million for the three
months ended March 31, 2000 and 1999,  respectively.  The increase was primarily
due to the acquisition of Andataco which added $.3 million of  depreciation  and
$.5 million of  amortization  of goodwill  for the three  months ended March 31,
2000. In addition,  amortization of goodwill increased by $.1 million due to the
acquisition of OneofUs,  which was offset by reduced amortization resulting from
the fourth  quarter 1999  write-down of $4.6 million of goodwill  related to our
1996  acquisition of Parity Systems,  Inc. The Parity goodwill was determined to
have been impaired  because of our inability to generate future operating income
from the assets acquired in the Parity acquisition.


Interest Expense

Interest expense for the three months ended March 31, 2000 decreased  $12,000 as
a result of a $188,000 decrease in interest expense and related  amortization of
financing costs arising from $5.6 million of indebtedness  that was satisfied in
1999 by the  issuance  of common  stock,  which  was more  than  offset by a net
increase in average  borrowings  principally  attributable to the acquisition of
Andataco.


Preferred Stock Dividends

During  the three  months  ended  March 31,  2000 and 1999,  all  classes of our
convertible  preferred stock required cumulative dividends of 8% per annum which
aggregated  $.2  million  and  $.1  million,   respectively.  The  increase  was
attributable  to the issuance of convertible  preferred  stock with an aggregate
stated value of $8.2 million in June 1999, partially offset by the conversion of
preferred  stock with an  aggregate  stated  value of $5.4  million  into common
stock, principally during the first quarter of 2000.

EITF 98-5  addresses  accounting for preferred  stock which is convertible  into
common  stock at a discount  from the market  rate at the date of  issuance.  In
accordance with this EITF, a preferred  stock  dividend,  attributable to such a
beneficial  conversion  privilege should be recorded for the difference  between
the conversion  price and the quoted market price of common stock at the date of
issuance. Accordingly, during the three months ended March 31, 1999, we recorded
$87,000  as an  additional  embedded  dividend  attributable  to the  beneficial
conversion privilege on our convertible preferred stock.

<PAGE>

                        Liquidity and Capital Resources

Consolidated Statements of Cash Flows

     Operating Activities

Net cash used by  operating  activities  amounted to $4.2 million and $3 million
for the three months ended March 31, 2000 and 1999, respectively.  These amounts
included  losses from operations  (before changes in assets and  liabilities) of
$1.8  million  and $1.7  million,  respectively.  In  addition,  during the 2000
quarter,  we used $2 million in cash,  principally from the Borg Sale, to reduce
accounts payable and other liabilities.

     Investing Activities

Net cash  provided by investing  activities  was $6.8  million  during the three
months ended March 31, 2000,  principally  resulting from the Borg Sale.  During
the prior  year's  first  quarter,  we used $.1 million of net cash in investing
activities.

     Financing Activities

Net cash used in financing  activities for the three months ended March 31, 2000
was $.7 million and primarily  consisted of repayment in full of $1.6 million of
borrowings  to Mr. Levy,  partially  offset by $1.1 million in proceeds from the
exercise  of  stock  options  and  warrants.  Net  cash  provided  by  financing
activities  for the three months  ended March 31, 1999  amounted to $3.2 million
and included net  borrowings of $2.8 million from private  investors,  including
$.8 million  from Mr. Levy,  and $1.6  million in proceeds  from the exercise of
stock options and warrants,  partially offset by net repayments of $1 million on
our bank line of credit.

Borrowings

In  connection  with the  acquisition  of  Andataco,  we issued $5.1  million in
promissory  notes due in July 2004. In addition,  our asset based revolving Bank
Line of Credit (see Note 4 to Consolidated  Financial  Statements)  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.  This facility provides for certain financial covenants,
including minimum working capital and tangible net worth requirements.

At  February  29,  2000 and March 31 2000,  we were not in  compliance  with the
minimum tangible net worth covenant of the Bank Line of Credit.  Effective March
29, 2000,  the lender  agreed to waive the default for both  periods.  Effective
April 14,  2000,  we agreed with the lender to amend  certain  terms of the Bank
Line of Credit including an increase in the interest rate to prime plus 1.5% and
new minimum net worth and net income  covenants  on a  consolidated  basis.  All
other significant provisions of the Bank Line of Credit remain the same.

<PAGE>

Financing Activities With Private Investors

From late 1997 through  March 31, 2000,  we obtained net cash  proceeds of $26.3
million from private  investors,  consisting of sales of  convertible  preferred
stock and common  stock,  net  borrowings  and the exercise of stock options and
warrants to purchase shares of our common stock.  Of these amounts,  Mr. Levy or
companies  controlled  by Mr.  Levy  advanced  or  invested a net amount of $6.8
million.

On January 10, 2000,  we completed  the Borg Sale and received net cash proceeds
of  approximately $7 million,  net of  approximately  $.5 million of transaction
costs, of which $1.6 million was used to repay  short-term  notes payable to Mr.
Levy. We do not anticipate that future revenues will be materially affected as a
result of this transaction.

Effective April 12, 2000, Mr. Levy agreed to commit to us a $2 million revolving
line of credit  facility  which matures on the earlier of April 30, 2001 or when
we execute our amended Bank Line of Credit.  Advances  under this  facility will
bear interest at 10% per annum.

On May 9, 2000,  we entered into an agreement  with a private  investment  group
granting us a one-year $15 million equity line or equity draw down facility. The
agreement  does not  obligate  us to draw any of the  funds.  Once per draw down
period, we may request a draw of up to $5 million, subject to a formula based on
average stock price and average  trading  volume,  setting the maximum amount of
any request for any given draw.  The amount of money that the  investment  group
will  provide  to us and the  number of shares we will  issue to the  investment
group in return  for that money is  settled  on a weekly  basis  during a 22 day
trading  period  following the draw request based on a formula as defined in the
stock purchase  agreement.  The  investment  group receives a 7% discount to the
market price for the 22 day period and we will receive the settled amount of the
draw down less a 4% fee payable to the placement agent.

We believe that amounts  expected to be available under the Bank Line of Credit,
our equity line and our  available  cash  balances will be sufficient to satisfy
our working capital needs during 2000, as presently  contemplated.  There can be
no  assurance  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.

                              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 2000.

                               Year 2000 Issue

As many computer  systems,  software  programs and other equipment with embedded
chips or processors  (collectively  referred to as 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.
<PAGE>

We have not experienced any material disruption in our business or operations as
a  result  of Y2K  issues.  However,  there  is no  assurance  that we will  not
experience interruptions in the future.
<PAGE>

Part II  -  OTHER INFORMATION

Item 1.  Legal Proceedings
               Not applicable

Item 2.  Recent Sales of Unregistered Securities and Use of Proceeds

Effective  January 19,  2000,  we issued  776,119  shares of our common stock in
connection  with the acquisition of  substantially  all of the assets of OneofUs
Company Limited.

Pursuant to a letter  agreement  dated  January 20, 2000,  between us and Harris
Ravine, the former Chief Executive Officer of Andataco,  we issued 80,000 shares
of our common stock to Mr. Ravine.

In connection with a termination agreement dated January 26, 2000 between us and
our former  President,  Lawrence F.  Steffann,  we issued  43,479  shares of our
common stock.

All of the foregoing  issuances were exempt from registration under section 4(2)
of the Act

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:

2.1  Asset Purchase  Agreement,  dated as of November 30, 1999, by and among the
     Registrant,  nStor  Taiwan,  Inc.,  OneofUs  Company  Limited  and  certain
     shareholders of OneofUs.

10.1 Form of Employment Agreement between Registrant and Johan Olstenius, Stuart
     Campbell and Fahim Ahmed in connection  with the  acquisition of the assets
     of OneofUs Company Limited.

10.2 Employment Agreement between Registrant and Larry Hemmerich.

27.1 Financial Data Schedule

   (b)   Reports on Form 8-K:

         A report on Form 8-K dated and filed January 14, 2000, reporting
         under Item 2 - Acquisition or Disposition of Assets, in which we
         announced the disposition of substantially all of the assets of
         Borg Adaptive Technologies, Inc.

<PAGE>

                                   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
May 12, 2000              ---------------------------
                          Jack Jaiven
                          Principal Financial and
                          Accounting Officer

<PAGE>