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 September 30, 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, CA 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 October 31, 2000: 35,128,631


<PAGE>



                    nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

                                                                    Page

                                                                   Number

PART I.      FINANCIAL INFORMATION                                   3

  Item 1.      Financial Statements

        Consolidated Balance Sheets as of September 30,
          2000 (Unaudited) and December 31, 1999                     3

        Consolidated Statements of Operations
          (Unaudited) for the three and nine months
          ended September 30, 2000 and 1999                          4

        Consolidated Statements of Stockholders'
          Equity (Unaudited) for the nine months
          ended September 30, 2000                                   5

        Consolidated Statements of Cash Flows
          (Unaudited) for the nine months ended
          September 30, 2000 and 1999                                6

        Notes to Consolidated Financial Statements
          (Unaudited)                                                8


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


  Item 3.  Quantitative and Qualitative Disclosures about
           Market Risk                                              20

Part II.  OTHER INFORMATION                                         20


SIGNATURE                                                           22



<PAGE>



PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                            nSTOR TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                              (dollars in thousands)
<TABLE>
<CAPTION>

                                                        September 30,
                                                            2000        Dec. 31,
         ASSETS                                          (unaudited)      1999
         ------                                           ---------     --------
<S>                                                       <C>           <C>
Current assets:
  Cash and cash equivalents ........................       $    59       $   650
  Accounts receivable, net .........................         6,204         7,326
  Inventories ......................................         7,921         6,288
  Prepaid expenses and other .......................         1,490         1,637
                                                           -------       -------
     Total current assets ..........................        15,674        15,901

Property and equipment, net ........................         2,611         3,476
Goodwill and other intangible assets, net ..........        14,995        14,533
Other assets .......................................            58           131
                                                           -------       -------
                                                           $33,338       $34,041
         LIABILITIES                                       =======       =======
         -----------
Current liabilities:
  Bank line of credit ..............................       $ 5,621       $ 5,111
  Notes payable ....................................         1,800         1,585
  Deferred revenue .................................         2,641         2,426
  Accounts payable and other .......................        10,427        12,317
                                                           -------       -------
     Total current liabilities .....................        20,489        21,439

Long-term debt .....................................         5,100         6,329
                                                           -------       -------
     Total liabilities .............................        25,589        27,768
                                                           -------       -------

         STOCKHOLDERS' EQUITY
         --------------------
Preferred stock, $.01 par; shares authorized 1,000,000
 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 September
  30, 2000 and December 31, 1999; Series F, 872 and
  4,054; Series A, 0 and 1,667; Series C, 0 and 3,000;
  Series D, 2,000 and 2,700; Series E, 3,500                     -             -
Common stock, $.05 par; shares authorized 75,000,000;
  35,128,631 and 26,517,824 shares issued and outstanding
  at September 30, 2000 and December 31, 1999,
  respectively .....................................         1,755         1,331
Additional paid-in capital .........................        69,036        63,164
Deficit ............................................       (63,042)      (58,222)
                                                           -------       -------
     Total stockholders' equity ....................         7,749         6,273
                                                           -------       -------
                                                           $33,338       $34,041
                                                           =======       =======
</TABLE>

              See accompanying notes to consolidated financial statements.

<PAGE>

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

<TABLE>
<CAPTION>

                                                  Three Months         Nine Months
                                                Ended September 30,  Ended September 30,
                                                2000        1999     2000       1999
                                                  (unaudited)         (unaudited)
                                                ------------------   ------------------
<S>                                            <C>        <C>        <C>        <C>

Sales .....................................    $ 9,508    $17,546    $32,913    $28,355
Cost of sales ...............................    7,070     12,531     23,511     22,020
                                               -------    -------    -------    -------
    Gross profit ............................    2,438      5,015      9,402      6,335
                                               -------    -------    -------    -------
Operating expenses:
Selling, general and administrative..........    3,840      4,639     12,508      9,521
Research and development .....................     876        835      2,498      2,053
Depreciation and amortization ................   1,129      1,124      3,391      2,102
                                                ------    -------    -------    -------
     Total operating expenses                    5,845      6,598     18,397     13,676
                                                ------    -------    -------    -------
     Loss from operations ....................  (3,407)    (1,583)    (8,995)    (7,341)

Gain on sale of assets of Borg
  Adaptive Technologies (Note 2) ..............      -          -      5,575          -
Other (expense) income, net ...................   (294)       186         87        330
Interest expense ..............................   (327)      (650)      (941)    (1,451)
                                                ------    -------    -------    -------
Net loss ...................................... (4,028)    (2,047)    (4,274)    (8,462)

Preferred stock dividends .....................   (143)      (300)      (546)      (606)
Embedded dividends attributable to
  beneficial conversion privileges and
  warrants issued in connection with
  Convertible Preferred Stock .................      -         (6)         -       (332)
                                                ------     ------    -------    -------
Net loss applicable to common stock........... ($4,171)   ($2,353)   ($4,820)   ($9,400)
                                               =======    =======    =======    =======

Basic and diluted net loss per
  common share                                 ($  .12)   ($  .10)   ($  .15)   ($  .43)
                                               =======    =======    =======    =======
Average number of common shares
  outstanding, basic and diluted            34,696,761  22,692,189  31,978,121  21,895,876
                                            ==========  ==========  ==========  ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>



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

<TABLE>
<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
 1999                         26,517,824 $1,331 14,921 $   -  $63,164  ($58,222) $6,273

Issuance of common stock
 in connection with:
   Conversion of
   Convertible
   Preferred Stock
     Series A                  1,666,667     83 (1,667)    -      (83)               -
     Series C                  3,000,000    150 (3,000)    -     (150)               -
     Series D                    700,000     35   (700)    -      (35)               -
     Series F                  1,060,800     53 (3,182)    -      (53)               -

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

   Satisfaction of borrowings    296,296     15                    985            1,000

   Commitment to terminated
     executives                  123,479      -                      -                -

   Exercise of options and
     warrants                    635,589     32                  1,145            1,177

   Equity line of credit
     net of costs of $87         351,857     17                    684              701

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

Preferred stock dividends                                                  (546)   (546)

Net loss for the nine months
 ended September 30,  2000                                               (4,274) (4,274)
                                --------- ------ ------ -----  -------  ------- -------
Balances, September
30, 2000 (unaudited)           35,128,631 $1,755  6,372 $  -   $69,036 ($63,042) $7,749
                               ========== ====== ====== ====== =======  =======  ======

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

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

                                                           Nine Months
                                                        Ended September 30,
                                                        -------------------
                                                          2000       1999
                                                      (unaudited) (unaudited)
                                                        ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                             ($  4,274)  ($  8,462)
  Adjustments to reconcile net loss to net
    cash used by operating activities:
      Gain on sale of assets of Borg Adaptive
       Technologies                                       (5,575)         -
      Amortization of intangible assets                    1,918         879
      Depreciation                                         1,472       1,223
      Provision for losses on accounts receivable             32         883
      Provision for inventory obsolescence                   100         782
      Amortization of deferred financing costs and other      21         584
      Changes in assets and liabilities, net of effects
        from acquisitions:
          Decrease (increase) in accounts receivable         750        (669)
          (Increase)decrease in inventories               (2,119)        516
          Decrease in prepaid expenses and other             103          16
          Decrease in accounts payable and other            (772)       (942)
                                                        --------    --------
Net cash used by operating activities                     (8,344)     (5,190)
                                                        --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net proceeds from sale of assets of Borg Adaptive
    Technologies                                           7,013          -
  Additions to property and equipment                       (641)       (337)
  Cash paid for acquisitions                                (293)     (1,058)
                                                        --------    --------
Net cash provided (used) by investing activities           6,079      (1,395)
                                                        --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds (repayments) from revolving credit
    facilities                                              510       (2,267)
  Additions to other borrowings                           1,650        6,880
  Repayment on other borrowings                          (1,685)      (1,990)
  Issuance of preferred stock, net of transaction costs      -         1,962
  Proceeds from exercise of stock options and
    warrants                                              1,177        1,576
  Issuance of common stock, net of transaction costs        701        1,000
  Cash paid for preferred stock dividends                  (679)        (488)
                                                       --------     --------
Net cash provided by financing activities                 1,674        6,673
                                                       --------     --------
Net (decrease) increase in unrestricted cash and
  cash equivalents during the period                       (591)          88
Unrestricted cash and cash equivalents at the
  beginning of the period                                   650          147
                                                       --------     --------
Unrestricted cash and cash equivalents at the
  end of the period                                    $     59     $    235
                                                       ========     ========


<PAGE>

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

                                                             Nine Months
                                                         Ended September 30,
                                                       -----------------------
                                                          2000          1999
                                                      (unaudited)   (unaudited)
                                                      -----------  -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during period for interest                $    829     $     944
                                                        ========      ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

  NON-CASH INVESTING ACTIVITIES:
      Acquisitions (Note  2):
        Fair value of assets acquired                   $  2,938    $  27,940
        Liabilities assumed or incurred                      (45)     (21,882)
        Series F Convertible Preferred Stock issued           -        (4,654)
        Common stock issued                               (2,600)        (146)
        Warrants issued                                       -          (200)
                                                        --------     --------
          Cash paid                                     $    293    $   1,058
                                                        ========     ========

     NON-CASH FINANCING ACTIVITIES:
       Issuance of common stock in satisfaction of
         borrowings                                     $  1,000    $   1,290
                                                        ========     ========
       Issuance of preferred stock in satisfaction
         of borrowings                                  $     -     $   1,500
                                                        ========     ========


         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 for the interim  periods ended September 30,
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  enterprise-class  Storage Area  Network  (SAN)  solutions  for
computer  operating  systems including the Windows NT, UNIX and Linux platforms.
Designed  for  storage-intensive  environments  such as the  Internet  or  other
mission-critical  applications, the Company's products include Fibre Channel and
SCSI RAID-ready solutions,  non-RAID storage products, tape and advanced storage
management software solutions. The Company markets its products through a direct
sales force and a global network of reseller and original equipment manufacturer
(OEM) partners.

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 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.


<PAGE>

     The  following  table  presents an analysis  of the  Company's  outstanding
securities as of September 30, 2000, including 8,726,831 outstanding potentially
dilutive securities:

Common shares outstanding                                    35,128,631
Potentially dilutive securities:
  Convertible preferred stock              3,457,199
  Stock options and warrants               5,109,632
  Convertible notes                          160,000
                                           ---------
                                                              8,726,831
                                                             ----------
                                                             43,855,462
                                                             ==========


Recent Accounting Pronouncement

    In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS
No.  133   "Accounting   for  Derivative   Financial   Instruments  and  Hedging
Activities."  SFAS  No.  133  establishes  accounting  and  reporting  standards
requiring  that  every  derivative   instrument  (including  certain  derivative
instruments  embedded in other  contracts)  be recorded in the balance  sheet as
either an asset or a liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized  currently in earnings
unless  specific  hedge  accounting  criteria are met.  Special  accounting  for
qualifying  hedges  allows a  derivative's  gains and  losses to offset  related
results on the hedged item in the income statement,  and requires that a company
must formally document,  designate, and assess the effectiveness of transactions
that  receive  hedge  accounting.  SFAS No.  133, as amended by SFAS No. 137, is
effective for years  beginning  after June 15, 2000. We have not yet  quantified
the impact of adopting  SFAS No. 133 on our  financial  statements  and have not
determined  the timing of or method of its  adoption of SFAS No.  133.  However,
SFAS No. 133 could  increase  volatility  in  earnings  and other  comprehensive
income.


(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 776,119  shares of the  Company's
common  stock with an aggregate  value of $2.6 million  (based on the average of
the closing prices of the Company's stock during the ten (10) trading days ended
January 19, 2000). The shares were issued to four selling stockholders  pursuant
to   employment   agreements   or   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 (Note 4).
                                                     September 30,
                                                           2000         Dec. 31,
                                                       (unaudited)        1999
                                                        ---------      ---------
Accounts Receivable:
  Trade receivables ................................      $ 6,805       $ 8,759
  Less allowance for doubtful accounts .............         (810)       (1,604)
                                                          -------       -------
                                                            5,995         7,155
  Other receivables ................................          209           171
                                                          -------       -------
                                                          $ 6,204       $ 7,326
                                                          =======       =======

Inventories:
  Raw materials ....................................      $ 6,933       $ 4,942
  Work-in-process ..................................          227           454
  Finished goods ...................................          761           892
                                                          -------       -------
                                                          $ 7,921       $ 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  and slow moving  inventory  to estimated  net
realizable value.


Prepaid expenses  and  other:
  Prepaid service costs ............................      $ 1,355       $ 1,174
  Other ............................................          135           463
                                                          -------       -------
                                                          $ 1,490       $ 1,637
                                                          =======       =======

Property and Equipment:
  Computer equipment ...............................      $ 4,652       $ 4,075
  Computer software ................................          770           770
  Leasehold improvements ...........................          839           788
  Furniture, fixtures and office equipment .........          355           465
  Other ............................................          310           310
                                                          -------       -------
                                                            6,926         6,408
  Less accumulated depreciation
    and amortization ...............................       (4,315)       (2,932)
                                                          -------       -------
                                                          $ 2,611       $ 3,476
                                                          =======       =======

     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 $.5 million and $1.5 million
for the three and nine months ended  September 30, 2000,  respectively,  and $.3
million and $1.2 million for the three and nine months ended September 30, 1999,
respectively.


<PAGE>

                                                     September 30,
                                                          2000          Dec. 31,
                                                       (unaudited)        1999
                                                       ----------      ---------

Goodwill and Other Intangible Assets:
  Goodwill .......................................      $ 17,787       $ 15,497
  Intellectual assets ............................           347            347
                                                        --------       --------
                                                          18,134         15,844
  Less accumulated amortization ..................        (3,139)        (1,311)
                                                        --------       --------
                                                        $ 14,995       $ 14,533
                                                        ========       ========

     Goodwill  represents the excess cost of acquired  businesses  over the fair
value of net assets  acquired  and is  principally  amortized  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 $.6  million and $1.9  million for the three and nine months
ended September 30, 2000, respectively,  and $.1 million and $.9 million for the
three and nine months ended September 30, 1999, respectively.

Accounts payable and other:
  Accounts payable ...............................        $ 5,297        $ 8,072
  Accrued liabilities and other ..................          5,130          4,245
                                                          -------        -------
                                                          $10,427        $12,317
                                                          =======        =======


(4) Borrowings

Short-Term Debt

   Revolving Credit Facility ("Bank Line of Credit")

     The Bank Line of Credit,  as amended,  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.
Effective April 14, 2000 (see below), interest under the Bank Line of Credit was
increased  from prime (9.5% at September 30, 2000) plus .5 percent to prime plus
1.5 percent.  The Bank Line of Credit matures in April 2002, requires a facility
fee of .25% based on the average  unused portion of the maximum  borrowings,  is
collateralized  by  substantially  all of the Company's  assets and provides for
certain  financial  covenants,  including  minimum  net  worth  and  net  income
requirements. As of September 30, 2000, the outstanding balance of the Bank Line
of Credit was $5.6  million  and an  additional  approximately  $.4  million was
available based on eligible collateral.

     During the first quarter of 2000,  the Company was not in  compliance  with
the minimum net worth covenant of the Bank Line of Credit and, as a result,  was
in technical default. On March 29, 2000, the lender agreed to waive that default
and effective April 14, 2000, the Company and the lender agreed 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. The amended agreement was executed on September 14, 2000. At
September 30, 2000,  the Company was not in compliance  with the new minimum net
worth  and  net  income  requirements  and is in  technical  default  under  the
compliance  provisions  of the Bank Line of Credit.  The Company is currently in
discussions  with  the  lender  to amend  the  financial  covenants.  Management
believes it will be successful  in such  discussions,  however,  there can be no
assurance of this success nor that  management  would be successful in finding a
replacement lender with acceptable terms.

<PAGE>

   Notes Payable

      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 line of credit  facility which bore 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  and/or  a  company
controlled  by Mr.  Levy,  agreed to commit to a $2  million  revolving  line of
credit facility to the Company,  which was increased to $2.5 million,  effective
July 31, 2000 and to $3.3 million,  effective  October 11, 2000.  The commitment
matures on April 30, 2001.  Advances under this  commitment bear interest at 10%
per annum and amounted to $1.6 million as of September 30, 2000  (consisting  of
$1.7 million  advanced  and $.1 million  repaid).  As of October 31,  2000,  the
outstanding balance under this commitment was $2.6 million.

      Note Payable

     Other  current  borrowings  at September 30, 2000 include a note payable in
the amount of $.3 million  which bears  interest at 10% per annum and matures in
September 2001.

Long-Term Debt

     At September 30, 2000, long-term debt consisted of $5.1 million which bears
interest  at 9.5% per annum and  matures in June 2004.  On April 26,  2000,  the
Company  issued 296,296  shares of its common stock in full  satisfaction  of $1
million of debt which was scheduled to mature in September 2001.


(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 $14.3 million.
During  the nine  months  ended  September  30,  2000,  preferred  stock with an
aggregate  stated value of $7.9 million was converted into  6,427,467  shares of
the Company's  common  stock,  thereby  reducing the  aggregate  stated value at
September  30,  2000  to  $6.4  million,   convertible  into  3,457,199  shares,
consisting of the following:

Series D  preferred  stock,  with an  aggregate  stated  value of $2  million at
September 30, 2000,  accrues dividends at 8% per annum,  payable  quarterly,  is
convertible  at any time into an aggregate of 2,000,000  shares of the Company's
common stock,  and has an automatic  conversion  feature in which each share not
converted by October 2001 is automatically converted into common stock. Series E
and F  preferred  stock,  with an  aggregate  stated  value of $4.4  million  at
September 30, 2000,  currently  accrues  dividends at 9% (10% commencing June 8,
2001),  and is convertible at any time into an aggregate of 1,457,000  shares of
the Company's  common stock. At September 30, 2000, a company  controlled by Mr.
Levy held  Series E  preferred  stock  with an  aggregate  stated  value of $1.5
million convertible into 500,000 shares of the Company's common stock.

Series C preferred  stock with a stated  value of $3 million,  held by Mr. Levy,
accrued  dividends at 8% per annum,  payable  quarterly.  In accordance  with an
automatic  conversion  feature,  in July 2000, the Series C preferred  stock was
automatically converted into 3,000,000 shares of the Company's common stock.


<PAGE>

(6) COMMON STOCK

     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 120% of the average
of the closing  prices of the  Company's  common stock for the five trading days
before May 9, 2000.

     The Company registered for resale the securities to be sold pursuant to the
draw downs and warrants.

     As of September 30, 2000,  the Company has issued  351,857 shares of common
stock and received net proceeds of $.8 million  pursuant to this  agreement.  In
the accompanying  Statement of Stockholders'  Equity, the approximate $87,000 of
transaction  costs  incurred  to complete  this  agreement  has been  charged to
additional paid-in capital.


(7) 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, subject to the right of the Company to the use of all intellectual
property for its own use. 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.


 (8) 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.


<PAGE>

     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 September 30, 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.


(9) SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS

     The Company  operates  predominantly in one business  segment,  information
storage solutions,  including  external RAID subsystems.  During the nine months
ended September 30, 2000, no single  customer  accounted for greater than 10% of
the Company's  sales while during the nine months ended  September 30, 1999, one
customer accounted for 21% 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,
as well as legal  proceedings.  The economic risk associated with materials cost
fluctuations  and inventory  obsolescence  is  significant to us. The ability to
manage our inventories and deliver products to our customers 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.


<PAGE>

Overview

     We are a manufacturer and supplier of  high-availability,  high-performance
enterprise-class  SAN solutions  for computer  operating  systems  including the
Windows  NT,  UNIX  and  Linux   platforms.   Designed   for   storage-intensive
environments such as the Internet or other  mission-critical  applications,  our
products include Fibre Channel and SCSI RAID-ready  solutions,  non-RAID storage
products, tape and advanced storage management software solutions. We market our
products  through a direct  sales force and a global  network of  resellers  and
OEM's.

     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 June and July 1999, we acquired  approximately 76%
of the  outstanding  common  stock  of  Andataco,  Inc.  located  in San  Diego,
California and in November  1999, we acquired the remaining 24% of Andataco.  In
early  2000,  we  completed  the  consolidation  of our Lake Mary  manufacturing
operations  into our San Diego facility and moved our corporate  headquarters to
San Diego. As a result of the acquisition of Andataco, we believe that period to
period  comparisons  for the nine  months  ended  September  30, 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  adversely  affected as a result of this
transaction.

     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 776,000  shares of our common stock with an aggregate  value of $2.6 million
(based on the average of the closing  prices 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.

     In January 2000,  Larry Hemmerich  became our President and Chief Executive
Officer.  Substantially  all  of  our  current  management  team  was  recruited
subsequent to Mr. Hemmerich joining our company.



                              Results of Operations

          Three Months ended September 30, 2000 vs. September 30, 1999

     We reported a net loss of $4 million for the three months  ended  September
30, 2000 compared to a net loss of $2 million for the  corresponding  quarter in
1999.

Sales

     Net sales for the three months ended  September  30, 2000 were $9.5 million
as compared to $17.5 million for the 1999 quarter,  representing  a 46% decline.
During the current  third  quarter,  we focused on beginning to phase out of our
older technology  products while we transitioned our efforts to newer technology
solutions  centered on our new NexStor 2 U (3.5" high)  storage  enclosures  and
RAID systems. However, new product shipments increased at a slower pace than the
decrease in shipments of our older products.  This was primarily attributable to
delays  in  shipments  for  both  our  new  products  and  our  older  products,
principally  resulting from unexpected  supplier issues which we believe we have
now resolved.  In addition,  we are in the process of restructuring our domestic
sales force to be focused on the end-user, SAN solution area.

<PAGE>

Cost of Sales/Gross Margins

     Gross  margins  decreased to 26% for the three months ended  September  30,
2000 as compared to 29% for the 1999 quarter, primarily as a result of decreased
utilization of production capacity due to lower sales volumes. 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  decreased  by 17% to $3.8
million for the three months ended  September 30, 2000 from $4.6 million for the
same  quarter  in  1999.  The  most  significant  decrease  was $.6  million  in
administrative  costs as part of our continued  efforts to  streamline  expenses
following the relocation of our Lake Mary manufacturing operations to San Diego.

     Research and Development

     Research and development  expenses for the three months ended September 30,
2000 were $.9 million as compared  to $.8  million  for the three  months  ended
September 30, 1999,  principally due to additional  costs incurred in connection
with the  development of several new products which were  introduced  during the
third and fourth quarters of 2000. We believe that  considerable  investments in
research and development will be required to remain  competitive and expect that
these  expenses will continue to increase in future  periods.

     Depreciation and Amortization

     Depreciation  and  amortization  for each of the three month  periods ended
September 30, 2000 and 1999 was $1.1 million. Third quarter 2000 amounts include
additional  amortization  (over seven years) of (i) the $2.8 million of goodwill
associated with the January 2000 acquisition of the assets of OneofUs,  and (ii)
the $2.6 million  goodwill  associated with the November 1999 acquisition of the
minority  interests  of  Andataco.   These  increases  were  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.

Other Expense/Income, Net

     Other  expenses,  net,  for the three  months  ended  September  30,  2000,
amounted to $.3 million and relate  primarily to a supplier  settlement  reached
during the quarter.  During the quarter ended September 30, 2000,  other income,
net was $.2 million and primarily consisted of minority interests in Andataco.

Interest Expense

     Interest expense for the three months ended September 30, 2000 decreased to
$.3  million  as  compared  to $.7  million  in 1999,  primarily  as a result of
satisfying indebtedness of $6.6 million by issuing common stock ($5.5 million in
December 1999 and $1 million in April 2000).

Preferred Stock Dividends

     During the three  months  ended  September  30,  2000,  all  classes of our
convertible  preferred stock required  cumulative  dividends at 8%-9% per annum.
Preferred stock dividends  decreased 52% to $.1 million during 2000  principally
due to the conversion of $7.9 million of preferred stock to common stock in 2000
(see Note 5 to Consolidated Financial Statements).


<PAGE>


           Nine Months Ended September 30, 2000 vs. September 30, 1999

     For the nine months ended  September  30,  2000,  we reported a net loss of
$4.3  million as  compared  to an $8.5  million  net loss  during the nine month
period  ended  September  30, 1999.  The 2000 nine month period  included a $5.6
million gain on the Borg Sale recognized during the first quarter of 2000.

Sales

     Net sales for the nine months ended  September 30, 2000  increased to $32.9
million  from $28.4  million  for the same  period in 1999,  representing  a 16%
increase.  This  increase is  substantially  the result of a full nine months of
sales during 2000  attributable to the June 1999 Andataco  acquisition while the
1999 periods included only four months of Andataco sales. This increase has been
partially  offset by the  inability  of one of our  suppliers  to  deliver a key
component  during the second quarter for  integration  into recently  introduced
products, resulting in significant delays in initial shipments of those products
and in some cases lost revenue to our competitors.  Our new generation  products
began shipping in the third  quarter;  however,  the increased  shipments of our
newer technology  products have not exceeded the declining revenues of our older
products, which we have begun to phase out.

Cost of Sales/Gross Margins

     Gross  margins  increased  to 29% for the nine months ended  September  30,
2000,  as  compared to 22% for the same  period in 1999.  The  increase in gross
margins  is  primarily  the  result of the  utilization  of the  Andataco  sales
channels to market our products as well as economies  of scale  attributable  to
the level of fixed costs  inherent in our  operations  coupled with higher sales
revenues.  For example,  certain fixed costs have been reduced by the completion
in March 2000 of the consolidation of our Florida manufacturing  operations into
our San Diego  headquarters.  During the prior year's nine month period, cost of
sales  includes a $.8 million  provision for slow moving and obsolete  inventory
compared to $.1 million in the current year. 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 $12.5 million and $9.5
million for the nine months ended September 30, 2000 and 1999, respectively,  an
increase of 31%. These  increases are primarily the result of the acquisition of
Andataco, the most significant of which is employee compensation and the related
benefits.

  Research and Development

     Research and  development  expenses for the nine months ended September 30,
2000 increased 22% to $2.5 million over the same period in 1999, principally due
to additional  costs incurred in connection  with the development of several new
technology  products  introduced  during  2000.  We  believe  that  considerable
investments in research and development  will be required to remain  competitive
and expect that these expenses will continue to increase in future periods.


<PAGE>

  Depreciation and Amortization

     Depreciation  and amortization for the nine months ended September 30, 2000
was $3.4  million as compared to $2.1  million for 1999.  These  increases  were
primarily due to the additional  amortization (over seven years) attributable to
$14.7 million of goodwill associated with the 1999 Andataco acquisition and $2.8
million of goodwill  associated with the January 2000  acquisition of the assets
of OneofUs,  partially offset by reduced amortization  resulting from the fourth
quarter 1999  write-down of $4.6 million of goodwill  related to our 1996 Parity
acquisition. 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.

Other Expense/Income, Net

     Other income,  net,  decreased to $.1 million  during the nine months ended
September 30, 2000,  as compared to $.3 million for the 1999 period.  During the
2000 period,  other income  primarily  consisted of a cash  settlement  received
during June 2000 which was substantially offset by a supplier settlement reached
during  September 2000.  During the 1999 period,  a significant  amount of other
income was attributable to minority interests in Andataco.

Interest Expense

     Interest  expense for the nine months ended September 30, 2000 decreased to
$.9  million  as  compared  to $1.5  million in 1999,  primarily  as a result of
satisfying indebtedness of $6.6 million by issuing common stock ($5.5 million in
December 1999 and $1 million in April 2000). This reduction was partially offset
by  interest  attributable  to a $5.1  million  note  incurred  in the  Andataco
acquisition in June 1999.

Preferred  Stock Dividends

     During the nine months ended  September  30, 2000 and 1999,  all classes of
our  convertible  preferred  stock  required  cumulative  dividends at 8%-9% per
annum.  Preferred  stock  dividends  decreased by 10% to $.5 million during 2000
principally  due to the conversion of $7.9 million of preferred  stock to common
stock in 2000,  partially  offset by the  issuance of $8.7  million of preferred
stock in June 1999.

     During the nine months ended September 30, 1999, we recorded $.3 million as
an additional embedded dividend  attributable to: (1) the fair value at the date
of grant of warrants  issued in connection with the sale of Series E convertible
preferred stock (based on the  Black-Scholes  option-pricing  model) and (2) the
beneficial   conversion  privilege  on  Series  A  convertible  preferred  stock
representing  the difference  between the conversion price and the quoted market
price of common stock at the date of issuance.


                         Liquidity and Capital Resources

Consolidated Statements of Cash Flows

  Operating Activities

     Net cash used by  operating  activities  amounted to $8.3  million and $5.2
million for the nine months ended September 30, 2000 and 1999, respectively. The
most  significant  use of cash was our loss from  operations  (before changes in
assets and  liabilities)  of $6.3  million  and $4.1  million,  respectively.  A
significant  use of cash during 2000 was the net increase in  inventories in the
amount of $2.1 million  (principally  due to our  investment  in new  products),
which was  partially  offset by cash  provided  by net  collections  of accounts
receivable of $.8 million. During 2000 and 1999, we used cash of $.8 million and
$.9  million,  respectively,  in the  reduction  of  accounts  payable and other
liabilities.  During  1999,  cash  was also  used in the  increase  of  accounts
receivable  in the amount of $.7  million,  principally  due to the  significant
increase in our third quarter 1999 sales.


<PAGE>

  Investing Activities

     Net cash provided by investing  activities was  approximately  $6.1 million
for the nine months ended  September 30, 2000,  principally due to $7 million in
net cash  proceeds  from the Borg  Sale.  During  1999,  cash used by  investing
activities of $1.4 million was  principally  for the  acquisition of Andataco in
the amount of $1.1 million.

  Financing Activities

     Net  cash  provided  by  financing  activities  for the nine  months  ended
September 30, 2000 was $1.7 million which consisted  principally of $1.2 million
in proceeds  from the exercise of stock  options and warrants and $.7 million in
net  proceeds  from our equity draw down  facility  (see Note 6 to  Consolidated
Financial  Statements).  Net cash provided by financing  activities for the nine
months ended September 30, 1999 amounted to $6.7 million and primarily consisted
of net borrowings of $4.9 million from private investors, including $2.6 million
from Mr. Levy or a company controlled by Mr. Levy ($4.6 million advanced less $2
million  repaid in cash),  $1.6  million in proceeds  from the exercise of stock
options and  warrants,  and $3 million  from the  issuance  of common  stock and
convertible preferred stock,  partially offset by $2.3 million in net repayments
under  our  revolving  credit  facilities.  In  addition,  $1.5  million  of our
borrowings from Mr. Levy was satisfied by the issuance of convertible  preferred
stock.

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 net worth and net income requirements.

     During  the  first  quarter  of 2000,  we were not in  compliance  with the
minimum net worth covenant of the Bank Line of Credit and, as a result,  we were
in technical default. On March 29, 2000, the lender agreed to waive that default
and  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 from
prime +.5% to prime plus 1.5% and new minimum net worth and net income covenants
on a  consolidated  basis.  The amended  agreement was executed on September 14,
2000.  At September  30, 2000,  we were not in  compliance  with the minimum net
worth and net income  requirements  causing us to be in technical  default under
the  compliance  provisions  of the Bank Line of  Credit.  We are  currently  in
discussions  with the lender to amend the financial  covenants  which we believe
will be successful, however, there can be no assurance of success.

Financing Activities With Private Investors

     From late 1997 through September 30, 2000, we obtained net cash proceeds of
$28.8  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 $8.4 million.


<PAGE>

     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.

     Effective April 12, 2000, Mr. Levy and/or a company  controlled by Mr. Levy
agreed  to  commit  to  us  a $2  million  revolving  line  of  credit  facility
(subsequently  increased to $2.5  million,  effective  July 31, 2000 and to $3.3
million,  effective  October  11,  2000)  which  matures on April 30,  2001.  At
September 30, 2000,  net advances  under this facility  amounted to $1.6 million
($1.7  million  advanced  and $.1 million  repaid) and bear  interest at 10% per
annum. As of October 31, 2000, the outstanding balance under this commitment was
$2.6 million.

     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 receive  the settled
amount of the draw down less a 4% fee  payable  to the  placement  agent.  As of
September 30, 2000, we have issued  351,857  shares of common stock and received
$.7 million in net proceeds pursuant to this agreement.

     We believe  that amounts  expected to be  available  under the Bank Line of
Credit,  Mr. Levy's commitment and our equity line will be sufficient to satisfy
our  working  capital  needs  during  the  next  twelve  months,   as  presently
contemplated. If we are not successful in reaching an agreement with our lenders
regarding  financial  covenants  on our Bank  Line of  Credit,  there  can be no
assurance  that we will be able to find a  replacement  lender  with  acceptable
terms. In addition, 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.

 Item 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We  maintain a floating  interest  rate Bank Line of Credit  ($5.6  million
outstanding  balance at  September  30,  2000).  Therefore,  we are subject to a
certain amount of risk arising from increases to the prime rate.

Part II - OTHER  INFORMATION

Item 1. Legal  Proceedings -  Not applicable

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

     During the three months ended  September 30, 2000, we issued 315,200 shares
of our common stock in connection with our equity line of credit.

     These  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 -  None

Item 5. Other Information - Not applicable

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

   (a)   Exhibits:

(10.1) Assumption  and  Amendment  Agreement  dated  September  14, 2000 between
     Registrant and Wells Fargo Credit, Inc.

(10.2) Third  Amended and Restated  Line of Credit Note between  Registrant  and
     Wells Fargo Credit, Inc., dated September 14, 2000.

(10.3) Continuing Guaranty between Registrant and Wells Fargo Credit, Inc.

(10.4) Promissory Note dated July 31, 2000 between  Registrant and H. Irwin Levy
     in the amount of $2,500,000.

(10.5) Promissory  Note dated October 11, 2000 between  Registrant  and H. Irwin
     Levy in the amount of $2,550,000.

(10.6) Promissory  Note dated October 11, 2000 between  Registrant and MLL Corp.
     in the amount of $750,000.

(10.7) Revised  Employment  Agreement  between  Registrant and Larry  Hemmerich,
     President and Chief Executive Officer of Registrant.

(27) Financial Data Schedule

   (b)   Reports on Form 8-K:

     We were not  required  to file Form 8-K during the  quarter  for which this
report is filed.


<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
November 10, 2000                         ---------------------------
                                              Jack Jaiven
                                              Principal Financial and
                                              Accounting Officer