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, 2002

                                       OR

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

          For the transition period from ___________ to ______________


                         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 offices)

                                 (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, 2002: 115,049,920


<PAGE> 2


                   nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES

                               TABLE OF CONTENTS


                                                               Page
                                                              Number
PART I.  FINANCIAL INFORMATION

  Item 1.  Financial Statements

     Consolidated Balance Sheets as of March 31,
       2002 (Unaudited) and December 31, 2001                    3
     Consolidated Statements of Operations
       (Unaudited) for the three months ended
       March 31, 2002 and 2001                                   4
     Consolidated Statement of Shareholders'
       (Deficit) Equity (Unaudited) for the three
       months ended March 31, 2002                               5
     Consolidated Statements of Cash Flows
       (Unaudited) for the three months ended
       March 31, 2002 and 2001                                   6
     Notes to Consolidated Financial Statements
       (Unaudited)                                               7-14

  Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of
           Operations                                            14-18

  Item 3.  Quantitative and Qualitative Disclosures              18
              about Market Risk


Part II.  OTHER INFORMATION

   Item 1. - Item 3.  Not Applicable                             18-19

   Item 4.     Submission of Matters to a Vote of
                Security Holders                                 19

   Item 5.     Not Applicable                                    19

   Item 6.     Exhibits and Reports on Form 8-K                  19


SIGNATURE                                                        20


<PAGE> 3


PART 1  -  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

                                                        Mar. 31,
                                                          2002       Dec. 31,
                                                       (unaudited)     2001
             ASSETS                                     ---------   ---------
             ------
Current assets:
  Cash and cash equivalents                              $ 1,028     $   857
  Marketable securities                                        -       4,255
  Accounts receivable, net of $243 and $209
     in allowance for doubtful accounts                    1,198       1,925
  Inventories                                                865       1,364
  Prepaid expenses and other                                 120         211
                                                         -------     -------
     Total current assets                                  3,211       8,612

Property and equipment, net of $5,876 and
  $5,641 of accumulated depreciation                       1,183       1,367
Goodwill net of $808 in accumulated
  amortization for both periods                            1,989       1,989
                                                         -------     -------
                                                         $ 6,383     $11,968
                                                         =======     =======
             LIABILITIES
             -----------
Current liabilities:
  Bank line of credit                                    $   979     $ 2,991
  Other borrowings                                         1,100       1,100
  Accounts payable and other                               4,210       3,790
                                                         -------     -------
     Total current liabilities                             6,289       7,881

Long-term debt                                             3,600       3,600
                                                         -------     -------
     Total liabilities                                     9,889      11,481
                                                         -------     -------

  SHAREHOLDERS' (DEFICIT) EQUITY (Note 2)
  ----------------------------------------
Preferred stock, $.01 par; 1,000,000 shares
  authorized                                                   -           -
Common stock, $.05 par; 200,000,000 shares authorized;
  115,049,920 issued and outstanding at March 31, 2002
  and 114,603,144 shares assumed issued and
  outstanding at December 31, 2001                         5,752       5,729
Additional paid-in capital                                94,890      94,104
Deficit                                                 (104,148)    (99,346)
                                                         -------     -------
     Total shareholders' (deficit) equity                 (3,506)        487
                                                         -------     -------
                                                         $ 6,383     $11,968
                                                         =======     =======


          See accompanying notes to consolidated financial statements.


<PAGE> 4


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

                                                   Three Months
                                                  Ended March 31,
                                                --------------------
                                                  2002       2001
                                                ---------  ---------

Sales                                            $ 1,559    $ 6,218
Cost of sales                                      1,675      4,505
                                                 -------    -------
     Gross (loss) margin                            (116)     1,713
                                                 -------    -------
Operating expenses:
  Selling, general and administrative              1,530      3,308
  Research and development                           737      1,079
  Depreciation and amortization                      243        483
                                                 -------    -------
     Total operating expenses                      2,510      4,870
                                                 -------    -------
Loss from operations                              (2,626)    (3,157)

Realized losses on marketable securities          (1,329)         -
Fair value of option granted to customer            (670)         -
Interest expense                                    (137)      (326)
Other (expense) income, net                          (40)        38
                                                 -------    -------
Net loss                                          (4,802)    (3,445)

Preferred stock dividends                              -       (185)
                                                 -------    -------
Net loss available to common stock               $(4,802)   $(3,630)
                                                 =======    =======
Basic and dilutive net loss per common share     $  (.04)   $  (.10)
                                                 =======    =======

Weighted average number of common shares
  considered outstanding, basic and dilutive   114,940,708  35,478,489
                                               ===========  ==========


                 See accompanying notes to consolidated financial statements.


<PAGE> 5


                            nSTOR TECHNOLOGIES, INC.
            CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
                             (dollars in thousands)
                                   (unaudited)

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

Balances, December 31, 2001   114,603,144  $5,729   $94,104   $(99,346)  $   487

Issuance of common stock
  in satisfaction of accrued
  dividends on Series D
  convertible preferred stock     446,776      23       116                  139

Fair value of option granted
  to customer                                           670                  670

Net loss for the three
 months ended March 31, 2002                                    (4,802)
(4,802)

                              -----------  ------   -------  ---------  --------
Balances, March 31, 2002      115,049,920  $5,752   $94,890  $(104,148) $(3,506)
                              ===========  ======   =======  =========  ========


          See accompanying notes to consolidated financial statements.


<PAGE> 6


                            nSTOR TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                                              Three Months
                                                             Ended March 31,
                                                          --------------------
                                                             2002       2001
                                                               (unaudited)
                                                          ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                ($ 4,802)  ($ 3,445)
  Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
      Proceeds from the sale of marketable securities        2,926          -
      Realized losses on the sale of marketable securities   1,329          -
      Fair value of option granted to customer                 670          -
      Depreciation                                             243        383
      Amortization of goodwill                                   -        100
      Provision for uncollectible accounts                      34          -
      Provision for inventory obsolescence                      70          -
      Changes in assets and liabilities:
        Decrease in accounts receivable                        693        428
        Decrease in inventories                                429        928
        Decrease in prepaid expenses and other                  91        118
        Increase (decrease) in accounts payable and other      559     (1,618)
                                                           --------   --------
Net cash provided by (used in) operating activities          2,242     (3,106)
                                                           --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                          (59)       (79)
                                                           --------   --------
Net cash used in investing activities                          (59)       (79)
                                                           --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net repayments on bank line of credit                     (2,012)      (270)
  Additions to other borrowings                                  -      4,392
  Cash paid for preferred stock dividends                        -        (60)
                                                           --------   --------
Net cash (used in) provided by financing activities         (2,012)     4,062
                                                           --------   --------
Net increase in unrestricted cash and cash
  equivalents during the period                                171        877

Unrestricted cash and cash equivalents at the
  beginning of the period                                      857         37
                                                          ---------   --------
Unrestricted cash and cash equivalents at the
  end of the period                                       $  1,028        914
                                                          =========   ========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during period for interest                    $    126    $   225
                                                          ========    ========


          See accompanying notes to consolidated financial statements.


<PAGE> 7


                            nSTOR TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Principles of Consolidation

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.

        Basis of Presentation

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
Form 10-K for the year ended December 31, 2001.

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.

The accompanying  consolidated  financial statements have been prepared assuming
that the  Company  will  continue  as a going  concern.  This  contemplates  the
realization of assets and the  satisfaction  of liabilities in the normal course
of business. The Company has experienced  substantial net losses of $14 million,
$21.9 million, and $18.7 million for the years ended December 31, 2001, 2000 and
1999,  respectively,  and $4.8 million for the quarter  ended March 31, 2002. In
addition,  the Company has negative working capital and a shareholders'  deficit
at March 31, 2002. These matters,  among others,  raise  substantial doubt about
the Company's ability to continue as a going concern.

During 2001,  the Company  shifted its sales and  marketing  strategy to provide
greater technical,  marketing and sales support to expand the Company's indirect
customer channel base (original  equipment  manufactures  (OEMs),  resellers and
system integrators). As part of this strategy, during 2001 and 2002, the Company
has  significantly  reduced its direct sales personnel and related costs, and is
currently focusing its direct sales team to targeted markets as well as existing
customers.  Further  personnel  reductions have been  implemented to reflect the
Company's lower sales levels and provide certain cost efficiencies.

Since  January 1, 2001,  and through May 14, 2002,  the Company  obtained  $19.3
million of equity and debt financing from private  investors.  Of these amounts,
$12.1 million was received in 2001 from Maurice Halperin, the Company's Chairman
of the Board since  August 15, 2001 and a principal  shareholder,  or  companies
controlled  by Mr.  Halperin  (collectively  "Mr.  Halperin"),  consisting of $6
million  in cash  and $6.1  million  in  marketable  securities  (see  Note 2 to
Consolidated Financial  Statements).  From November 2001 through March 2002, the
Company  received  $4  million  in cash  from the sale of all of the  marketable
securities (see Note 3 to Consolidated  Financial  Statements).  Equity and debt
financing  obtained  from January 2001 through May 14, 2002 also  included  $3.8
million  from H. Irwin  Levy,  the  Company's  Vice-Chairman  of the Board and a
principal shareholder,  or companies controlled by Mr. Levy (collectively,  "Mr.
Levy").


<PAGE> 8


Since the fourth  quarter of 2000,  the Company has not been in compliance  with
its minimum net worth and net income  covenants under its bank credit  facility.
On February 4, 2002, the bank advised the Company that the outstanding principal
balance  exceeded  the  Company's  borrowing  base by $1.1  million and demanded
immediate  payment of this  over-advance.  Subsequent to that date,  the Company
reduced the outstanding  principal  balance to an amount which no longer exceeds
the Company's  borrowing base. The bank has advised the Company that it does not
intend to renew the credit  facility,  but agreed to an extension from April 30,
2002, its maturity  date, to May 30, 2002. The Company is currently  negotiating
with a  replacement  lender and expects to be able to complete a new bank credit
facility during the second quarter of 2002;  however,  there can be no assurance
that it will be successful in obtaining  such a facility on terms  acceptable to
the Company,  if at all. As of April 30, 2002,  the  outstanding  balance of the
Bank Line of Credit had been reduced to $430,000.

Effective  April 30, 2002, the Company  entered into a promissory  note with Mr.
Levy under which the Company may borrow up to $750,000, on a revolving basis, at
8% per annum,  payable  quarterly,  and maturing  April 30, 2003.  As of May 14,
2002, the Company had borrowed $350,000 under this facility.

The Company  believes that it has sufficient cash and other financial  resources
to effectively  operate until it achieves  positive cash flows from  operations,
which is expected to occur during the second half of 2002; however,  there is no
assurance  that the Company will be able to achieve  positive  cash flows in the
future or that additional financial resources will not be required.

The consolidated  financial statements do not include any adjustments to reflect
the possible future effects of the  recoverability  and classification of assets
or the  amounts  and  classification  of  liabilities  that may result  from the
inability of the Company to continue as a going concern.

        Business

The Company is a  designer,  developer  and  manufacturer  of  attached  and SAN
(Storage Area Network)  ready data  enclosures and Storage  Management  Software
used in storage solutions for computing  operations.  The Company's product line
supports a variety of operating systems,  including Windows NT and Windows 2000,
Sun Solaris,  Linux,  SGI IRIX and  Macintosh.  Designed  for storage  intensive
environments such as the Internet or other  mission-critical  applications,  the
Company's products are offered in Fibre Channel,  Fibre-to-SCSI  (Small Computer
Systems Interface), and SCSI architectures.

        Use of Estimates

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


<PAGE> 9


        Reclassifications

Certain  prior year amounts have been  reclassified  to conform with the current
year's presentation.  These reclassifications had no impact on operating results
previously reported.

        Net Loss Per Common Share ("EPS")

Basic EPS is  calculated  by dividing the net loss  available to common stock by
the weighted  average  number of common shares  considered  outstanding  for the
period, without consideration for common stock equivalents. Diluted EPS includes
the effect of potentially  dilutive securities.  For the periods presented,  the
effect  of  potentially   dilutive  securities  would  have  been  antidilutive.
Accordingly, basic and dilutive EPS for those periods are the same.

Effective  January 11, 2002,  the Company  issued an aggregate of 76,884,122 new
common shares (the "New Common Shares") pursuant to shareholder  approval of the
Halco Investment (see Note 2 to Consolidated  Financial  Statements).  The Halco
investment was completed on November 20, 2001, subject to shareholder  approval;
accordingly the calculation of basic and diluted EPS assumes that the New Common
Shares were issued as of November 20,  2001.  As part of the issuance of the New
Common Shares, all of the Company's convertible preferred stock was converted to
common stock.

(2)  HALCO INVESTMENT

On November 20, 2001 (the "Closing Date"),  the Company  completed a transaction
in which Halco Investments L.C. (Halco),  a company  controlled by Mr. Halperin,
acquired a 34% equity interest in, and made certain loans to, the Company for an
aggregate  investment  of $12.1 million (the Halco  Investment).  On the Closing
Date,  Halco  acquired  8,970 shares of the  Company's  newly  created  Series K
Convertible Preferred Stock (the "Series K Preferred Stock"), with a face amount
of  $8,970,000,  and the Company  issued a $3.1  million,  5-year,  8% note (the
"Halco  Note").  Halco  invested  $6 million in cash and  marketable  securities
having a quoted  market value of $6.1  million,  based on the closing  price for
such securities on November 19, 2001.

Mr. Halperin first  submitted an investment  proposal to the Company on June 26,
2001.  The Company  subsequently  negotiated the terms of the offer from July to
November 2001, during which time, Halco made short-term working capital loans to
the Company in the aggregate  amount of $5 million at an interest rate of 8% per
annum. Of that amount,  at the Closing Date, $3.1 million was converted into the
Halco Note and the  remaining  amount was  applied to the cash paid by Halco for
the Series K Preferred Stock. In connection with Mr. Halperin's proposal and the
interim financing  provided by Halco, on August 15, 2001, the Company's board of
directors  elected Mr.  Halperin as Chairman,  replacing the then Chairman,  Mr.
Levy, who became Vice Chairman and who is continuing to serve as Chief Executive
Officer of the Company.


<PAGE> 10


In connection with and as conditions to the Halco Investment, it was agreed that
an aggregate of 76,884,122  New Common Shares were to be issued as follows:  (i)
the Series K Preferred Stock, owned by Halco, was to be automatically  converted
into 39,000,000  shares of the Company's  common stock,  based upon a conversion
price of $.23 per share, upon approval of the Company's  shareholders;  (ii) all
of the holders of the Company's  other  convertible  preferred stock (the "Other
Preferred  Stock") agreed to convert their shares of preferred stock into common
stock  (20,877,432  shares of common stock,  including  10,752,527 to Mr. Levy);
(iii) the  Company and the holders of the Other  Preferred  Stock  agreed to the
issuance of: (a) 12,993,072 shares of common stock,  including  6,651,488 to Mr.
Levy,  to induce  those  holders  to  convert  their  shares,  all of which were
entitled to periodic  dividends,  into shares of common  stock,  which had never
received a dividend  (the  "Inducement  Shares"),  and (b)  3,263,618  shares of
common  stock,  including  1,658,064 to Mr.  Levy,  (the  "Dividend  Shares") in
satisfaction of an aggregate of $1.5 million of accrued dividends (including $.7
million  to Mr.  Levy) on the date of  conversion  (the  Inducement  Shares  and
Dividend Shares were based upon a conversion price of $.45 per share);  and (iv)
Mr. Levy agreed to the receipt of 750,000  shares of the Company's  common stock
in exchange for $.3 million owed by the Company to Mr. Levy (the "Note  Shares")
based upon a conversion price of $.40 per share.

On the Closing  Date,  shareholders  who owned in excess of 50% of the Company's
voting stock  executed  proxies to vote in favor of the foregoing  transactions.
However, formal shareholder approval of the transactions was required before the
Company could issue the common stock  necessary for the conversion of the Series
K Preferred  Stock,  the Note  Shares,  the  Inducement  Shares and the Dividend
Shares,  and for an increase in the number of  authorized  common shares from 75
million to 200 million. On January 10, 2002,  shareholder  approval was received
and the  Company  issued the New  Common  Shares  effective  January  11,  2002.
Accordingly,  to appropriately  reflect the financial position of the Company in
the accompanying consolidated financial statements,  the foregoing transactions,
as shown in the  following  table,  were assumed to have occurred as of November
20, 2001, the Closing Date of the Halco Investment.


<TABLE>
<CAPTION>

          Balances at January 10, 2002                               New Common Shares
   (Considered Converted to New Common Shares                 Issued Effective January 11, 2002
          at December 31, 2001)                        (Considered Outstanding at December 31, 2001)
------------------------------------------------------------------------------------------------------
                         Aggregate Accrued                                                   Total
Preferred   Number of   Stated Value  Dividends     Conversion    Inducement   Dividend    New Common
  Series     Shares         (in thousands)            Shares        Shares       Shares      Shares
---------   ---------   -----------------------     ----------    ----------   ---------   -----------
<S>         <C>         <C>           <C>           <C>           <C>          <C>         <C>

   E          3,500        $ 3,500    $  405         1,166,666     1,166,666     899,665     3,232,997
   H          5,100          5,100       383         7,083,333     4,250,000     850,776    12,184,109
   I          9,092          9,092       681        12,627,433     7,576,406   1,513,177    21,717,016
   K          8,970          8,970         -        39,000,000             -           -    39,000,000
                           --------   ------        ----------    ----------   ---------   -----------
                           $26,662    $1,469        59,877,432    12,993,072   3,263,618    76,134,122
                           ========   ======        ==========    ==========   =========
Note Shares                                                                                    750,000
                                                                                           -----------
Total New Common Shares issued effective January 11, 2002                                   76,884,122

Common shares outstanding at December 31, 2001                                              37,719,022
                                                                                           -----------
Common shares outstanding at January 11, 2002
 (considered outstanding at December 31, 2001)                                             114,603,144
                                                                                           ===========

</TABLE>


<PAGE> 11


(3)   TRADING MARKETABLE SECURITIES

In connection with the Halco  Investment  (see Note 2 to Consolidated  Financial
Statements) on November 20, 2001,  the Company  received  marketable  securities
with a quoted  market value of $6.1  million,  including  approximately  434,000
shares of American  Realty  Investors  Inc.  ("ARL"),  a New York Stock Exchange
listed company, with a quoted market value of $5.2 million. Through December 31,
2001, the Company received net cash proceeds of $1,047,000  principally from the
sale  of all  of the  non-ARL  securities,  and  realized  a  gain  of  $86,000.
Unrealized losses at December 31, 2001 on the ARL shares were $897,000.

Due to ARL's low trading volume, the Company's ability to sell or borrow against
the ARL holdings had been  extremely  limited.  From November 2001 through March
19,  2002,  the Company  had been able to sell only 56,300  shares in the public
market, generating cash proceeds of $442,000. To assist in funding the Company's
working  capital  requirements,  in February  and March 2002,  the Company and a
company controlled by Mr. Levy, Hilcoast Development Corp.  ("Hilcoast") entered
into  agreements  whereby  Hilcoast  purchased  195,000  shares  of ARL  with an
aggregate  quoted value of $1,470,000 on the  respective  purchase  dates for an
aggregate  purchase  price of  $1,240,000.  In  connection  therewith,  Hilcoast
granted the Company four month options to  repurchase  all or a portion of those
shares based on the price Hilcoast paid plus 10% per annum (the  "Options").  In
February and March 2002, the Company sold 183,000  shares,  representing  all of
its remaining  holdings in ARL, to Mr. Halperin for an aggregate  purchase price
of $1,278,000,  which approximated ARL's quoted value on the respective purchase
dates. As a result of the first quarter ARL sales,  the Company  realized a loss
of $1.3 million.

In April 2002, the Company  exercised the Options and received net cash proceeds
of $206,000, which will be reflected as a realized gain on marketable securities
in the second quarter.

(4)  GOODWILL

Goodwill,  representing the excess of the cost of an acquired  business over the
fair value of net assets acquired,  is carried at cost and, through December 31,
2001,  was amortized  under the straight  line method over seven years.  In July
2001, the Financial Accounting Standards Board issued SFAS No. 142 ("SFAS 142"),
Goodwill and Other Intangible Assets, which addresses how intangible assets that
are acquired  individually  or with a group of other assets  should be accounted
for upon their  acquisition.  SFAS No. 142 also addresses how goodwill and other
intangible  assets  should  be  accounted  for after  they  have been  initially
recognized in the financial  statements.  SFAS 142 is effective for fiscal years
beginning  after  December  15,  2001.  Effective  January 1, 2002,  the Company
implemented  SFAS  142  which   discontinued  the  amortization  of  unamortized
goodwill.  The  carrying  amount of goodwill is  approximately  $2 million as of
March 31,  2002.  Amortization  of goodwill  amounted to $100,000  for the three
months ended March 31, 2001.  The Company is currently  assessing any impairment
issues related to SFAS 142.


<PAGE> 12


(5)  BORROWINGS

  Revolving Credit Facility (Bank Line of Credit)

At  December  31,  2001,  the Bank Line of  Credit,  as  amended,  provided  for
borrowings  based on the lesser of $10 million or: (i) 85% of eligible  accounts
receivable, as defined, plus (ii) the lesser of $1.25 million or 20% of eligible
inventory,  as defined,  (collectively,  the "Borrowing Base"). The Bank Line of
Credit bore interest at prime (4.75% at March 31, 2002) plus 2.5%, was scheduled
to  mature on April 30,  2002,  requires  a  facility  fee of .25%  based on the
average  unused  portion  of  the  maximum   borrowing,   is  collateralized  by
substantially  all of the Company's  assets,  and provides for certain financial
covenants, including minimum net worth and net income requirements.

Since the fourth  quarter of 2000,  the Company has not been in compliance  with
its minimum net worth and net income requirements under the Bank Line of Credit.
On February 4, 2002, the bank advised the Company that the outstanding principal
balance  exceeded the  Borrowing  Base by $1.1 million  (principally  due to the
bank's decision to discontinue  financing the Company's eligible  inventory) and
demanded  immediate  payment of the  over-advance.  Subsequent to that date, the
Company reduced the outstanding  principal  balance to an amount which no longer
exceeds the Borrowing  Base.  Effective  February 4, 2002,  the bank applied the
following amendments to the Bank Line of Credit: (1) an increase in the interest
rate to prime plus 3.5%, (2) a decrease in the overall facility to $3.5 million;
and (3) a reduction in the  inventory  borrowing  limit to $900,000 with further
reductions of 2% of eligible  inventory per week,  effective  February 12, 2002.
The bank has also  advised the Company that it does not intend to renew the Bank
Line of Credit, but agreed to an extension of the maturity date to May 31, 2002.
The Company is currently negotiating with a replacement lender and expects to be
able to complete a new bank credit  facility  during the second quarter of 2002;
however,  there is no assurance  that it will be successful in obtaining  such a
facility on terms  acceptable  to the Company,  if at all. As of April 30, 2002,
the outstanding balance of the Bank Line of Credit had been reduced to $430,000.

    Other Borrowings

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

                                         March 31,         December 31,
                                       ------------       ------------
                                           2002                 2001
                                       ------------       ------------
Current:

Notes payable, interest at 10% per
  annum, maturing on December 15,
  2002, including $650,000 to Mr. Levy      $1,100             $1,100
                                            ======             ======
Long-term:

Halco Note, interest only at 8% per
  annum, payable quarterly, maturing
  on November 20, 2006                      $3,100             $3,100

Other notes payable, interest
  only at 8% per annum, payable
  monthly, maturing on June 6, 2003            500                500
                                            ------             ------
                                            $3,600             $3,600
                                            ======             ======


<PAGE> 13


(6)  FAIR VALUE OF OPTION GRANTED TO CUSTOMER

Effective  March 1, 2002, the Company  entered into a Reseller  Agreement with a
wholly-owned  subsidiary  ("Pacific") of Pacific  Electric Wire & Cable Company,
Ltd. The  Agreement  grants  Pacific the right to market and sell the  Company's
products  for a period  of two (2)  years in  Mainland  China  and  Taiwan on an
exclusive basis,  and in the United States and Europe on a non-exclusive  basis.
The  exclusivity  right is conditioned  upon minimum  purchases by Pacific of $5
million  through  February 28, 2003 and $10 million during the subsequent  year,
and upon the parties  agreeing,  by the end of May 2002,  on  specific  purchase
prices to be paid by Pacific.

In  connection   with  its  efforts  to  develop  further   strategic   business
relationships with Pacific, effective March 1, 2002, the Company granted Pacific
an option to purchase  up to thirty  (30)  million  newly  issued  shares of the
Company's  common  stock for a  purchase  price of $.40 per share,  expiring  on
November  30,  2002.  The option was valued at  $670,000 as of the date of grant
based on the Black-Scholes option-pricing model and other provisions of SFAS 123
and  related  EITF  guidance.  This  amount  was  recorded  as an expense in the
accompanying Statement of Operations for the three months ended March 31, 2002.

(7)  INCOME TAXES

Income taxes are provided on the liability  method  whereby  deferred tax assets
and  liabilities  are recognized for the expected tax  consequences of temporary
differences   between  the  tax  bases  and  reported   amounts  of  assets  and
liabilities.  Deferred tax assets and liabilities are computed using enacted tax
rates  expected  to apply to  taxable  income  in the  years in which  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and liabilities from a change in tax rates is recognized in income in the
period that includes the enactment date.

The Company provides a valuation  allowance for certain deferred tax assets,  if
it is more likely than not that the Company will not realize tax assets  through
future operations.

As of December 31, 2001, there were unused net operating loss carryforwards (the
"NOL's") for regular federal income tax purposes of approximately  $54.8 million
and for California tax purposes of  approximately  $11.5 million,  expiring from
2012 through 2021 and 2002 through 2011, respectively.  In addition, the Company
has research and  development tax credit  carryforwards  of  approximately  $1.2
million,  which  expire  from  2002  through  2018 and in  conjunction  with the
Alternative  Minimum Tax ("AMT")  rules,  the Company has  available  AMT credit
carryforwards of approximately  $.8 million,  at December 31, 2001, which may be
used indefinitely to reduce regular federal income taxes.

The usage of approximately $8 million of the NOL's and  approximately $2 million
of the California NOL's is limited annually to approximately  $.4 million due to
an acquisition, which caused a change in ownership for income tax purposes under
Internal Revenue Code Section 382.

At March 31, 2002 and December 31, 2001,  a 100%  valuation  allowance  has been
provided on the total deferred  income tax assets because it is more likely than
not that the NOL's will not be realized based on recent operating results.


<PAGE> 14


(8)  SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS

The Company operates predominantly in one business segment,  information storage
solutions.  The Company's customers include end users, OEMs, systems integrators
and value added resellers.  Financial  instruments which potentially subject the
Company to concentrations of credit risk are primarily accounts receivable.  The
Company performs ongoing credit evaluations of its customers, generally requires
no collateral  and maintains  allowances  for potential  credit losses and sales
returns.  During the three months ended March 31, 2002,  sales to two customer's
accounted  for 27% and 17% of sales.  During the three  months  ended  March 31,
2001,  no  single  customer  accounted  for  more  than 10% of  sales.  Sales to
geographic areas other than the United States have not been significant.


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

Forward-Looking Statements

With  the  exception  of  the  discussion  regarding   historical   information,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  contains  forward-looking  statements.  Such statements  inherently
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from the  forward-looking  statements.  Factors  that would cause or
contribute to such differences include, but are not limited to, our inability to
increase sales to current  customers and to expand our customer base,  continued
acceptance  of our  products  in the  marketplace,  timing  and  volume of sales
orders,  our inability to improve the gross margin on our products,  competitive
factors,  dependence upon third-party vendors, our future cash flows and ability
to obtain sufficient financing,  level of operating expenses,  conditions in the
technology  industry  and the economy in general,  legal  proceedings  and other
risks  detailed in our periodic  report filings with the Securities and Exchange
Commission

The  economic  risk  associated  with  material  cost  fluctuations,   inventory
obsolescence and 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 file 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 report.

Business

We are a designer,  developer and  manufacturer of direct attached and SAN ready
data  storage   enclosures  and  Storage   Management   Software  for  computing
operations.  Our product line supports a variety of operating systems, including
Windows NT and Windows 2000, Solaris,  Linux, SGI IRIX and Macintosh  platforms.
Designed  for  storage-intensive  environments  such as the  Internet  or  other
mission-critical  applications,  our  products  are  offered  in Fibre  Channel,
Fibre-to-SCSI and SCSI architectures.


<PAGE> 15


                              Results of Operations

Three Months Ended March 31, 2002 vs. March 31, 2001

We incurred a net loss of $4.8 million for the three months ended March 31, 2002
as compared to a net loss of $3.4 million for the corresponding quarter in 2001.
Included in the 2002 net loss were $1.3 million of realized losses on marketable
securities  and a $670,000  charge for the fair value of an option  granted to a
customer.

Sales

Net  sales for the three  months  ended  March  31,  2002 were $1.6  million  as
compared to $6.2 million for the three months ended March 31, 2001. The decrease
reflects the economic  downturn which has caused  customer  delays in purchasing
technology  and other  equipment.  During the quarter ended March 31, 2002,  our
revenues  consisted of $.4 million in direct sales to end users and $1.2 million
in  indirect  sales to OEMs,  value-added  resellers  (VARs)  and other  channel
business.  During the prior year's first quarter, our revenues consisted of $3.9
million,  $1.4 million and $.9 million  attributable  to direct sales,  indirect
sales and service revenues,  respectively. In August 2001, we sold substantially
all of our service revenue business; accordingly, we expect our service revenues
in 2002 to continue to be insignificant.

In  order to take  advantage  of the  opportunities  available  in the  indirect
business  channels,  during 2001 we shifted our sales and marketing  strategy to
provide  greater  technical,  marketing and sales support to our indirect  sales
function.  As part of this  strategy,  since  January  2001 we have  reduced our
direct sales  personnel  and related  costs,  and are currently  refocusing  our
direct sales force to targeted markets as well as existing large customers.

Cost of Sales/Gross Margins

Gross margins  decreased to a negative 7.4% for the three months ended March 31,
2002 as compared to a positive  27.5% for the quarter ended March 31, 2001.  The
decrease in gross  margin  percentage  was  primarily  due to economies of scale
attributable  to the level of fixed costs  inherent in our operations as well as
the  price  we paid  for  materials,  coupled  with  significantly  lower  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 $1.5 million and $3.3 million
for the three  months  ended  March 31,  2002 and 2001,  respectively.  The $1.8
million  decrease was primarily the result of our overall work force  reduction,
partially offset by $.2 million,  principally attributable to excess capacity in
our manufacturing and office facilities.


<PAGE> 16


        Research and Development

Research and development expenses were $737,000 for the three months ended March
31,  2002 and $1.1  million  for the three  months  ended  March 31,  2001.  The
decrease was primarily attributable to costs incurred in 2001 as a result of the
development  of  our  NexStor   product  line.  We  believe  that   considerable
investments in research and development will be required to remain competitive.

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 incurred in advance of related revenues,  or in certain situations,  may not
result in generating revenues.

        Depreciation and Amortization

Depreciation  and  amortization  was  $243,000 and $483,000 for the three months
ended  March  31,  2002  and  2001,  respectively.  The  decrease  reflects  the
discontinuation  of amortization of goodwill  pursuant to the  implementation of
SFAS 142  effective  January  1,  2002  (see  Note 4 to  Consolidated  Financial
Statements) and a decrease of $140,000 in depreciation.  During the three months
ended March 31, 2001, amortization of goodwill amounted to $100,000.

        Interest Expense

Interest  expense  decreased  from $326,000 for the three months ended March 31,
2001 to  $137,000  for the  corresponding  quarter  of  2002.  The  decrease  is
attributable to lower average borrowings and lower interest rates.

        Preferred Stock Dividends

Preferred  stock  dividends  were  $185,000 for the three months ended March 31,
2001.  Effective November 20, 2002, all of the Company's  remaining  convertible
preferred  stock was converted to common stock pursuant to the Halco  Investment
(see Note 2 to Consolidated  Financial Statements).  Accordingly,  there were no
preferred stock dividends in 2002.


                         Liquidity and Capital Resources

The accompanying  consolidated  financial statements have been prepared assuming
that we will continue as a going concern.  This  contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.  We
have experienced substantial net losses of $14 million, $21.9 million, and $18.7
million for the years ended December 31, 2001, 2000 and 1999, respectively,  and
$4.8 million for the quarter ended March 31, 2002. In addition, we have negative
working  capital and a shareholders'  deficit at March 31, 2002.  These matters,
among others,  raise  substantial doubt about our ability to continue as a going
concern.

During  2001,  we shifted our sales and  marketing  strategy to provide  greater
technical,  marketing and sales support to expand our indirect  customer channel
base (OEMs, resellers and system integrators).  As part of this strategy, during
2001 and 2002,  we have  significantly  reduced our direct sales  personnel  and
related  costs,  and are  currently  focusing  our direct sales team to targeted
markets as well as existing  customers.  Further personnel  reductions have been
implemented  to  reflect  our  lower  sales  levels  and  provide  certain  cost
efficiencies.


<PAGE> 17


Since January 1, 2001,  and through May 14, 2002,  we obtained  $19.3 million of
equity and debt  financing  from  private  investors.  Of these  amounts,  $12.1
million was received in 2001 from Mr. Halperin  consisting of $6 million in cash
and $6.1 million in marketable securities (see Note 2 to Consolidated  Financial
Statements).  From  November  2001 through March 2002, we received $4 million in
cash  from  the  sale  of  all  of  the  marketable  securities  (see  Note 3 to
Consolidated  Financial  Statements).  Equity and debt  financing  obtained from
January 2001 through May 14, 2002 also included $3.8 million from Mr. Levy.

Since  the  fourth  quarter  of 2000,  we have not been in  compliance  with our
minimum net worth and net income  covenants under our bank credit  facility.  On
February 4, 2002,  the bank advised us that the  outstanding  principal  balance
exceeded our borrowing  base by $1.1 million and demanded  immediate  payment of
this over-advance. Subsequent to that date, we reduced the outstanding principal
balance to an amount which no longer  exceeds our borrowing  base.  The bank has
advised us that it does not intend to renew the credit  facility,  but agreed to
an extension  from April 30, 2002,  its maturity  date,  to May 30, 2002. We are
currently  negotiating  with a  replacement  lender  and  expect  to be  able to
complete a new bank credit facility during the second quarter of 2002;  however,
there  can be no  assurance  that we  will be  successful  in  obtaining  such a
facility  on terms  acceptable  to us,  if at all.  As of April  30,  2002,  the
outstanding balance of the Bank Line of Credit had been reduced to $430,000.

Effective  April 30, 2002, we entered into a promissory note with Mr. Levy under
which we may  borrow up to  $750,000,  on a  revolving  basis,  at 8% per annum,
payable  quarterly,  and  maturing  April 30, 2003.  As of May 14, 2002,  we had
borrowed $350,000 under this facility.

We  believe  that we have  sufficient  cash and  other  financial  resources  to
effectively operate until we achieve positive cash flows from operations,  which
is  expected  to occur  during the  second  half of 2002;  however,  there is no
assurance  that we will be able to achieve  positive cash flows in the future or
that additional financial resources will not be required.


                      Consolidated Statements of Cash Flows

        Operating Activities

Net cash provided by operating activities amounted to $2.2 million for the three
months ended March 31, 2002. This amount consists of $.5 million from operations
(before  changes in assets and  liabilities),  (including  $2.9  million of cash
proceeds  from the  sale of  marketable  securities)  and an  aggregate  of $1.7
million from the reduction of accounts  receivable and inventory and an increase
in accounts  payable and other  liabilities.  During the 2001 quarter,  net cash
used in operating activities amounted to $3.1 million principally  consisting of
a loss from operations (before changes in assets and liabilities).  In addition,
$1.4 million in cash was provided by the  reduction in accounts  receivable  and
inventory  and was offset by a $1.6 million  reduction  of accounts  payable and
other liabilities.


<PAGE> 18


        Investing Activities

Net cash used by investing activities was insignificant during both periods.

        Financing Activities

Net cash used in financing  activities for the three months ended March 31, 2002
was $2 million  consisting  of a reduction in our Bank Line of Credit.  Net cash
provided  by  financing  activities  for the three  months  ended March 31, 2001
amounted to $4.1  million and  primarily  consisted  of  financing  from private
investors.


                   Critical Accounting Policies and Estimates

Revenue from the sale of products is  recognized  as of the date  shipments  are
made to customers, net of an allowance for returns.

We have recorded  goodwill that arose from an  acquisition  in 2000.  This asset
will be tested for possible impairment at least on an annual basis in accordance
with  SFAS No.  142,  "Goodwill  and  Other  Intangible  Assets"  (see Note 4 to
Consolidated Financial Statements).

The  preparation  of  financial   statements,   in  conformity  with  accounting
principles generally accepted in the United States,  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 these estimates.
Results for the interim  periods  presented  in this report are not  necessarily
indicative of results that may be reported for any other  interim  period or for
the entire fiscal year.


                               Effect of Inflation

During recent years, inflation has not had an impact on our operations and we do
not expect that it will have a material impact in 2002.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We maintain a floating  interest rate Bank Line of Credit ($430,000  outstanding
balance at April 30, 2002).  Therefore,  we are subject to a market risk arising
from increases to the prime rate.


Part II  -  OTHER INFORMATION

Item 1.  Legal Proceedings

Not applicable


<PAGE> 19


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

Not applicable

Item 3.  Defaults Upon Senior Securities

Not applicable

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

On January 10, 2002, the Company held a Special Meeting of Stockholders.  At the
meeting,  the  shareholders  approved all matters  considered with the following
vote distributions:

Item                                       Affirmative      Negative     Abstain
----                                       -----------      --------     -------

The issuance of: (i) 39 million shares
of common stock to Halco Investments L.C.
upon  conversion  of Series K  Convertible
Preferred  Stock;  (ii) 16.3 million
shares of common  stock to all other
preferred  stockholders  to induce them to
convert  their  preferred  stock and any
accrued  dividends  thereon into common
stock;  and (iii) .75 million shares of
common stock in exchange for $.3 million
of indebtedness of the Company.             33,783,931       766,683      64,667

Increase in the number of authorized
shares of common stock from 75 million
to 200 million                              33,752,959       783,139      79,183

Elimination of Series J Convertible
Preferred Stock                             33,773,820       184,684      76,871

Approve and adopt the 2001 Stock Option
Plan                                        33,025,878       926,261      83,236


Item 5.  Other Information

Not applicable

Item 6.  Exhibits and Reports on Form 8-K

(a)     Exhibits:

10.1    Promissory Note for $750,000 between Registrant and Hilcoast Development
        Corp., dated April 30, 2002

(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> 20


                                    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)


May 13, 2002           /s/  Thomas L. Gruber
                       ------------------------------------------
                      Thomas L. Gruber, Acting President,
                      Chief Operating and Financial Officer