<PAGE>   1
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    ---------

                                    FORM 10-Q

                                    ---------


   (Mark One)

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

                FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

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

                 FOR THE TRANSITION PERIOD FROM _____ TO _____

                                    1-11578
                            (Commission file number)

                                   ---------

                                   DISC, INC.
             (Exact name of registrant as specified in its charter)

                                   ---------

               California                               77-0129625
    (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)               Identification Number)

          372 Turquoise Street
          Milpitas, California                            95035

             (Address of principal executive offices and zip code)

                                 (408) 934-7000
               Registrant's telephone number, including area code

      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 [ ]

      The number of shares outstanding of the registrant's common stock as of
April 15, 2001 was 3,846,033.

================================================================================

<PAGE>   2

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                   DISC, INC.
                                  BALANCE SHEET
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                  March 31, 2001    December 31, 2000
                                                  --------------    -----------------
<S>                                                <C>                <C>
ASSETS
Current assets:
  Cash                                             $    799,000       $    128,000
  Accounts receivable                                 1,349,000          1,784,000
  Inventories                                         1,485,000          1,465,000
  Prepaids and deposits                                 190,000             76,000
                                                   ------------       ------------
        Total current assets                          3,823,000          3,453,000

Property and equipment, net                             432,000            432,000
                                                   ------------       ------------
                                                   $  4,255,000       $  3,885,000
                                                   ============       ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                               $    875,000       $  1,159,000
    Borrowings under credit line                        505,000                 --
    Accrued expenses and other liabilities              740,000            630,000
                                                   ------------       ------------
        Total current liabilities                     2,120,000          1,789,000
                                                   ------------       ------------

Shareholders' equity:
Convertible Preferred Stock; no par value:
  10,000,000 shares authorized; 5,212,611
  and 5,141,573 shares issued and outstanding        22,192,000         20,892,000
Common Stock; no par value: 40,000,000
  Shares authorized; 3,846,033
  and 3,841,053 shares issued and outstanding        12,166,000         12,160,000
  Accumulated deficit                               (32,223,000)       (30,956,000)
                                                   ------------       ------------
        Total shareholders' equity                    2,135,000          2,096,000
                                                   ------------       ------------
                                                   $  4,255,000       $  3,885,000
                                                   ============       ============
</TABLE>

       See the accompanying condensed notes to these financial statements.

<PAGE>   3

                                   DISC, INC.
                             STATEMENT OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                  Three Months Ended March 31,
                                                 -----------------------------
                                                     2001              2000
                                                 -----------       -----------
<S>                                              <C>                <C>
Net sales                                        $ 1,562,000        $ 1,615,000
                                                 -----------        -----------
Costs and expenses:
   Cost of sales                                   1,404,000          1,374,000
   Research and development                          372,000            280,000
   Marketing and sales                               752,000            493,000
   General and administrative                        278,000            272,000
                                                 -----------        -----------
        Total cost and expenses                    2,806,000          2,419,000
                                                 -----------        -----------
Loss from operations                              (1,244,000)          (804,000)
Interest and other expense, net                      (23,000)           (27,000)
                                                 -----------        -----------
Net loss                                         $(1,267,000)       $  (831,000)
                                                 ===========        ===========
Basic and diluted net loss per share             $     (0.33)       $     (0.22)
                                                 ===========        ===========
Weighted and average common shares
for  basic and diluted net loss per
share calculations                                 3,844,000          3,772,000
                                                 ===========        ===========
</TABLE>

       See the accompanying condensed notes to these financial statements.

<PAGE>   4

                                   DISC, INC.
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                        Three Months ended March 31,
                                                       -----------------------------
                                                          2001              2000
                                                       -----------       -----------
<S>                                                    <C>               <C>
Cash flows from operating activities:
  Net loss                                             $(1,267,000)      $  (831,000)
  Adjustments to reconcile net loss to cash
    used in operating activities:
    Depreciation expense                                    76,000            62,000
  Changes in assets and liabilities:
    Accounts receivable                                    435,000           480,000
    Inventories                                            (20,000)         (277,000)
    Prepaid and deposits                                  (114,000)          (36,000)
    Accounts payable                                      (284,000)         (212,000)
    Accrued expenses and other liabilities                 110,000            33,000
                                                       -----------       -----------
Cash used in operating activities                       (1,064,000)         (781,000)
                                                       -----------       -----------
Cash flows used in investing activities for
  capital expenditures                                     (76,000)          (35,000)
                                                       -----------       -----------

Cash flows from financing activities:
  Borrowings (repayments) under line of
  credit                                                   505,000          (286,000)
  Proceeds from issuance of Common Stock                     6,000            72,000
  Proceeds from issuance of Preferred Stock              1,300,000           820,000
                                                       -----------       -----------
Cash provided by financing activities                    1,811,000           606,000
                                                       -----------       -----------
Net increase (decrease) in cash                            671,000          (210,000)
Cash at beginning of period                                128,000         1,126,000
                                                       -----------       -----------
Cash at end of period                                  $   799,000       $   916,000
                                                       ===========       ===========

Supplemental disclosure of cash flow information:
  Cash paid during the period for interest             $    23,000       $    27,000
                                                       ===========       ===========
</TABLE>

             See the accompanying condensed notes to these financial statements.

<PAGE>   5

                                   DISC, INC.
                     CONDENSED NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY

We have prepared the unaudited financial statements pursuant to the rules and
regulations of the Securities and Exchange Commission. We have condensed or
omitted certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles pursuant to these rules and regulations. In our opinion, the
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the financial position,
operating results and cash flows for the periods presented. These financial
statements should be read in conjunction with the financial statements and
accompanying notes for the years ended December 31, 2000 and 1999 included in
the our Annual Report on Form 10-K. The results of operations for the interim
periods are not necessarily indicative of the results that may be expected for
any other period or for the fiscal year, which ends December 31, 2001.

During the first quarter of 2001, we received $1,300,000 of equity financing
from our largest investor. Our investor also agreed to provide up to an
additional $2,600,000 of equity financing to us, if needed. We believe that this
committed investment, together with cash generated from operations and
borrowings from our factoring agreement with a financial institution, which
allows us to sell the lesser of $1,500,000 or 85% of eligible accounts
receivable, will be sufficient to meet our operating requirements at least
through the end of 2001, although we anticipate that we will continue to incur
net losses for the foreseeable future. The ability to sustain our operations for
a significant period after December 31, 2001 will depend on our ability to
significantly increase sales or raise significant additional equity or debt
financing.


NOTE 2 -- INVENTORIES

The components of inventory were as follows:

<TABLE>
<CAPTION>
                                    March 31,     December 31,
                                      2001            2000
                                   ----------     ------------
<S>                                <C>             <C>
Purchased component parts and
subassemblies                      $  830,000      $  811,000
Work-in-process                       491,000         574,000
Finished goods                        164,000          80,000
                                   ----------      ----------
                                   $1,485,000      $1,465,000
                                   ==========      ==========
</TABLE>


NOTE 3 -- RELATED PARTY TRANSACTIONS

During the quarter ended March 31, 2001, we issued $1,300,000 in principal
amount of subordinated convertible debentures to MK GVD Fund under a 1996
convertible debenture purchase agreement with MK GVD Fund, as amended. On March
30, 2001, the debentures were converted into 71,038 shares of our Series BB
preferred stock, and warrants to purchase 177,595 shares of our common stock at
an exercise price of $2.29 per share. The sales of the convertible debentures
and preferred stock were deemed to be exempt from registration under the
Securities Act of 1933, as amended, in reliance on Section 4 (2) of the
Securities Act or Regulation D promulgated under the Securities Act, as
transactions by an issuer not involving a public offering. The conversion price
of the debentures is 85% of the lower of the average closing price of our common
stock for the five trading days ended three days prior to the end of the quarter
or the closing bid price on the last day of the quarter in which the convertible
debentures are issued, but not to exceed $2.50 per share as converted into
common stock. Under the agreement, MK GVD Fund also agreed to provide up to an
additional $2,600,000 to us, if needed.


NOTE 4 -- COMPREHENSIVE INCOME (LOSS)

For the periods presented, there were no elements of comprehensive income(loss),
except for the net losses.

<PAGE>   6

NOTE 5 -- RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. We adopted SFAS 133 in the first quarter of
2001 and it did not have a material effect on our financial condition or results
of operations.


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

RESULTS OF OPERATIONS

Sales of $1,562,00 for the three months ended March 31, 2001, were relatively
flat compared to sales of $1,615,000 for the three months ended March 31, 2000,
despite severe product shortages. Technology transitions in both the DVD-RAM and
magneto-optical segments of our product offering did not allow us to meet
customer demands. Although availability of the 9.1 GB magneto-optical drives
improved during the quarter, the supply of media used in these drives was
severely limited. This media shortage impacted shipments for the quarter and we
believe caused some customers to delay their system purchases. In addition, the
DVD-RAM segment of our business was halted due to the delayed release of the
4.7GB DVD-RAM drives. Our suppliers for both the magneto-optical and DVD-RAM
products have indicated that these problems will be resolved during the second
quarter of 2001. The general sales cycles for distribution of the our products
are similar to those of most businesses selling products designed for use as
part of large systems, and range from three to six months for value added
resellers and small system integrators and from one to two years for original
equipment manufacturers, product integrators and large system integrators.

Cost of sales, as a percentage of sales, increased to 90% for the three month
period ended March 31, 2001, as compared to 85% for the comparable 2000 period,
primarily due a higher material cost due to product mix. Our relatively low
gross margins reflect our low levels of net sales, which have resulted in
unabsorbed manufacturing costs and high costs of materials due to the inability
to achieve purchasing economies of scale. We expect that, if product sales
increase, costs of sales per unit of product will decrease because fixed
manufacturing costs will be distributed over the larger sales volume, and
material costs will decrease as the result of volume purchases.

For the three months ended March 31, 2001, research and development expenses
were $372,000 compared to $280,000 for the comparable period of 2000. The
increase was primarily due to an increase in headcount necessitated by our
network attach storage program. We believe that research and development
expenses will increase moderately in 2001 due to new projects currently under
development.

Marketing and sales expenses were $752,000 for the three months ended March 31,
2001 compared to $493,000 for the comparable period in 2000. The increase is
primarily due to an increase in our sales and marketing headcount. We believe
that marketing and sales expenses will increase during the remainder of 2001 as
we have added significant resources in marketing and business development to
allow us to address new markets and expand our customer base.

General and administrative expenses were $278,000 for the three months ended
March 31, 2001, compared to $272,000 for the comparable period in 2000 and are
expected to remain relatively constant during the remainder of 2001.


LIQUIDITY AND CAPITAL RESOURCES

During the three month period ended March 31, 2001, we used $1,064,000 of cash
in operations, primarily to fund operating losses. During the first quarter of
2001, we received $1,300,000 of equity financing from our largest investor (see
Note 3 Related Party Transactions in Condensed Notes to Financial Statements).
Our investor also agreed to provide up to an additional $2,600,000 of equity
financing to us, if needed. We believe that this committed investment together
with borrowing from our factoring agreement with a financial institution, which
allows us to sell

<PAGE>   7

the lesser of $1,500,000 or 85% of eligible accounts receivable, and cash
generated from operations will be sufficient to meet our operating requirements
at least through the end of 2001, although we anticipate that we will continue
to incur net losses for the foreseeable future. The ability to sustain our
operations for a significant period after December 31, 2001 will depend on our
ability to significantly increase sales or raise significant additional equity
or debt financing. There is no assurance that we will be able to increase sales
or raise significant additional equity or debt financing on a timely basis or at
all. In particular, we expect to require increasing amounts of cash to finance
our efforts to increase sales, which we plan to achieve by increasing selling
efforts to large system integrators and OEMs by hiring additional sales and
sales support staff and by making evaluation units available. In addition, we
intend to expand its current network of resellers. We expect that it will
require cash to finance purchases of inventory in anticipation of possible
increases in sales upon increased market acceptance of our products.


RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet and measurement of
those instruments at fair value. We adopted SFAS 133 in the first quarter of
2001 and it did not have a material effect on our financial condition or results
of operations.


"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

This quarterly report on Form 10-Q contains certain forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and we intend
that these forward-looking statements are subject to the safe harbors created by
those provisions. These forward-looking statements include statements relating
to:

-     the existence and development of our technical and manufacturing
      capabilities,

-     future research and development projects,

-     anticipated increased sales,

-     potential future decreases in manufacturing costs,

-     expected increases in information technology expenditures,

-     changes in customers' businesses,

-     increased manufacturing, sales and business development resources,

-     future general and administrative expenses,

-     expected sales cycles, and

-     the need for, and availability of, additional financing.

The forward-looking statements included in this quarterly report on Form 10-Q
are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions
regarding our business, which involve judgments with respect to, among other
things, future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, our business and operations of are subject to substantial risks which
increase the uncertainty inherent in such forward-looking statements (see
"Additional Factors that May Affect Future Operating Results and the Market
Price of our Stock" on page 7 of our annual report on Form 10-K for the year
ended December 31, 2000). In light of the significant uncertainties inherent in
the forward-looking information included in this quarterly report on Form 10-Q,
the inclusion of such information should not be regarded as a representation by
us or any other person that our objectives or plans will be achieved.

<PAGE>   8

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS AND THE MARKET PRICE OF OUR
STOCK

Our future operating results, and stock price, may be affected by a number of
factors, many of which are beyond our control. These factors include the
following:


OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE FOR A NUMBER OF
REASONS, WHICH MAY CAUSE OUR STOCK PRICE TO FLUCTUATE.

Our quarterly operating results have varied in the past and are likely to vary
significantly in the future due to several factors, including:

-     the size and timing of significant customer orders;

-     shifts in product or distribution channel mix;

-     increased competition and pricing pressure;

-     timing of new product announcements and releases by us or our competitors;

-     new product developments by storage device manufacturers;

-     the rate of growth in the data storage market;

-     market acceptance of new and enhanced versions of our products;

-     timing and levels of our operating expenses;

-     gain or loss of significant customers or distributors; and

-     personnel changes

Our quarterly revenue and operating results have been affected by seasonal
trends. These trends often result in lower revenue in the first quarter of each
fiscal year compared to the fourth quarter of the previous fiscal year due to
customer purchasing and budgetary practices.

Operating results in any period should not be considered indicative of the
results investors can expect for any future period. We cannot assure you that we
will be able to increase or even sustain our recent levels of quarterly revenue
and net sales, as normalized for unusual or one-time items, or that we will
attain or maintain profitability in any future period. Any unfavorable change in
the factors described above or any other factors could adversely affect our
operating results for a particular quarter. In addition, it is likely that in
some future quarters our operating results will be below the expectations of
public market analysts and investors. In any of these events, the price of our
common stock would likely decline.


OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.

The market price of our common stock has experienced fluctuations and is likely
to fluctuate significantly in the future. Our stock price can fluctuate for a
number of reasons, including:

      -     announcements about us or our competitors;

      -     quarterly variations in operating results;

      -     the introduction of new technologies or products;

      -     changes in product pricing policies by us or our competitors;

<PAGE>   9

      -     comments regarding us and the data storage market made on Internet
            bulletin boards; and

      -     changes in earnings estimates by analysts or changes in accounting
            policies.

In addition, stock markets have experienced extreme price and volume volatility
in recent years. This volatility has had a substantial effect on the market
prices of securities of many smaller public companies for reasons frequently
unrelated or disproportionate to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market price
of our common stock.


IF OUR SECURITIES ARE DELISTED FROM NASDAQ, THE TRADING MARKET AND PRICES OF OUR
SECURITIES WOULD BE HARMED.

The trading of our common stock on the NASDAQ System is conditioned upon our
meeting certain asset, revenues and stock price tests. If we fail any of these
tests, our common stock may be delisted from trading on the NASDAQ System, which
could materially adversely affect the trading market and prices for those
securities. In addition, low price stocks are subject to additional risks
including additional state regulatory requirements and the potential loss of
effective trading markets.


COMPETITION IN THE COMPUTER INFORMATION STORAGE MARKET MAY LEAD TO REDUCED
MARKET SHARE, DECLINING PRICES AND REDUCED PROFITS.

The markets for data storage solutions are intensely competitive, fragmented and
characterized by rapidly changing technology and evolving standards. These
conditions could render our products less competitive or obsolete and could harm
our business, financial condition and ability to market our products. Some of
our competitors have significantly more financial, technical, manufacturing,
marketing and other resources than we have. As a result, our competitors may be
able to respond more quickly than we can to new or changing opportunities,
technologies, standards or customer requirements. Competitors may develop
products and technologies that are less expensive or technologically superior to
our products. In addition, our competitors may manufacture and market their
products more successfully than we do our products. Competition from computer
companies and others diversifying into the field is expected to increase as the
market develops. We may face substantial competition from new entrants in the
industry and from established and emerging companies in related industries.
There is significant price competition in the markets in which we compete, and
we believe that pricing pressures are likely to continue. Certain competitors
may reduce prices in order to preserve or gain market share. This pricing
pressure could result in significant price erosion, reduced gross profit margins
and loss of market share, any of which could negatively affect our business,
financial condition and operating results.


THE STORAGE DEVICE MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL EVOLUTION, AND
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP NEW PRODUCTS.

The market for our products is characterized by rapidly changing technology and
evolving industry standards and is highly competitive with respect to timely
innovation. At this time, the data storage market is particularly subject to
change with the emergence of Fibre Channel protocol and new storage solutions
such as storage area networks, or SANs, and network attached storage, or NAS,
devices. The introduction of new products embodying new or alternative
technology or the emergence of new industry standards could render our existing
products obsolete or unmarketable. Our future success will depend in part on our
ability to anticipate changes in technology, to gain access to such technology
for incorporation into our products and to develop new and enhanced products on
a timely and cost-effective basis. Risks inherent in the development and
introduction of new products include:

      -     the difficulty in forecasting customer demand accurately;

      -     the possibility that sales of new products may cannibalize sales of
            our current products;

      -     delays in our initial shipments of new products;

      -     competitors' responses to our introduction of new products; and

<PAGE>   10

      -     the desire by customers to evaluate new products for longer periods
            of time before making a purchase decision.

In addition, we must be able to maintain the compatibility of our products with
significant future device technologies, and we must rely on producers of new
device technologies to achieve and sustain market acceptance of those
technologies. Development schedules for high-technology products are subject to
uncertainty, and we may not meet our product development schedules. We have in
the past experienced delays in the introduction of some new products. If we are
unable, for technological or other reasons, to develop products in a timely
manner or if the products or product enhancements that we develop do not achieve
market acceptance, our business will be harmed.


WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES.

We have experienced significant operating losses since our inception, and as of
March 31, 2001 had an accumulated deficit of $32,223,000. We expect to continue
to incur net losses for the foreseeable future, and our ability to sustain our
operations for a significant period after December 31, 2001 will depend on our
ability to significantly increase sales or raise significant additional debt or
equity financing. There can be no assurance we will be able to increase sales or
that additional financing will be available on acceptable terms, or at all.


ANY INABILITY TO MEET OUR FUTURE CAPITAL REQUIREMENTS WOULD LIMIT OUR ABILITY TO
GROW.

We may need, or could elect, to seek additional funding in the future. In the
event we need to raise additional funds, we may not be able to do so on
favorable terms, if at all. We have a commitment from our largest investor to
invest up to $2,600,000 during 2001, if needed, to help fund our capital
requirements. However there can be no assurance that this investor, or any of
our other investors, will be willing to make similar commitments in the future.
Further, if we issue equity securities, shareholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of our existing securities. If we cannot raise funds on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements.

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL SHAREHOLDERS MAY PREVENT OTHER INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.

As of April 20, 2001, our executive officers, directors and principal
shareholders beneficially owned, in the aggregate, over 90% of our outstanding
common stock and preferred stock, on an as-if-converted basis. As a result,
these shareholders, if acting together, will be able to exercise control over
all matters requiring shareholder approval, including the election of directors
and approval of significant corporate transactions. This concentration of
ownership could disadvantage other shareholders with interests different from
those of our officers, directors and principal shareholders. For example, our
officers, directors and principal shareholders could delay or prevent an
acquisition or merger even if the transaction would benefit other shareholders.
Due to the forgoing and other factors, past results are a much less reliable
predicator of future results than is the case in many older, more stable and
less dynamic industries. In addition, the securities of many high technology
companies, including DISC, have historically been subject to extensive price and
volume fluctuations that may affect the market price of their common stock.


BECAUSE WE OPERATE WITH LITTLE BACKLOG, OUR OPERATING RESULTS COULD BE ADVERSELY
AFFECTED IF WE DO NOT ACCURATELY ANTICIPATE FUTURE SALES LEVELS.

Historically, we have operated with little order backlog and, due to the nature
of our business, do not anticipate that we will have significant backlog in the
future. Consequently, a large portion of our revenue in each quarter results
from orders placed during that quarter. Because of the relatively large dollar
size of orders from our distributors and original equipment manufacturers, or
OEMs, delay in the placing of a small number of orders by a small number of
purchasers could negatively affect our operating results for a particular
period. In addition, our operating expense

<PAGE>   11

levels are, in the short term, largely fixed and are based, in part, on
expectations regarding future revenue. Thus, our operating results could be
disproportionately affected if we do not receive the expected number of orders
in a given quarter and our net sales falls below our expectations.


WE DEPEND ON CERTAIN KEY SUPPLIERS.

We do not possess proprietary optical disk, high-density disk or other storage
technologies and, consequently, we depend on a limited number of third-party
manufacturers to supply us with the devices that we incorporate into our
products. In some cases, these manufacturers are sole-source providers of the
device technology. Our suppliers have in the past been, and may in the future
be, unable to meet our supply needs, including our needs for timely delivery,
adequate quantity and high quality. We do not have long-term contracts with any
of our significant suppliers. If these suppliers were to decide to pursue the
disc library market directly, they may cease supplying us with disc drives and
media, in which case we may be unable to obtain adequate supplies of disc drives
and media at acceptable prices, if at all. The partial or complete loss of any
of our suppliers could result in significant lost sales, added costs and
production delays or may otherwise harm our business, financial condition,
operating results and customer relationships.


WE HAVE A CONCENTRATED CUSTOMER BASE, AND THEREFORE THE LOSS OF A SINGLE
CUSTOMER COULD NEGATIVELY AFFECT OUR OPERATING RESULTS.

The majority of our end users purchase our products from distributors,
value-added resellers, or VARs, original equipment manufacturers, or OEMs, and
systems integrators, or SIs. We have no long-term orders with any of our
significant customers or distributors. Generally we sell products pursuant to
purchase orders. In addition, our distributors carry competing product lines
which they may promote over our products. A distributor may not continue to
purchase our products or market them effectively. Moreover, certain of our
contracts with our distributors contain "most favored nation" pricing provisions
which mandate that we offer our products to these customers at the lowest price
offered to other similarly situated customers. Our operating results could be
adversely affected if any of the following factors were to occur relating to one
or more of our significant resellers:

-     the reduction, delay or cancellation of orders or the return of a
      significant amount of products;

-     the loss of one or more of such resellers; or

-     any financial difficulties of those resellers that result in their
      inability to pay amounts owed to us.


WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

California is in the midst of an energy crisis that could disrupt our operations
and increase our expenses. In the event of an acute power shortage, that is,
when power reserves for the state of California fall below certain critical
levels, California has on some occasions implemented, and may in the future
continue to implement, rolling blackouts throughout California. We currently do
not have backup generators or alternate sources of power in the event of a
blackout, and our current insurance does not provide coverage for any damages we
or our customers may suffer as a result of any interruption in our power supply.
If blackouts interrupt our power supply, we would be temporarily unable to
continue operations at our California facilities. Any such interruption in our
ability to continue operations at our facilities could damage our reputation,
harm our ability to retain existing customers and to obtain new customers, and
could result in lost revenue, any of which could substantially harm our business
and results of operations.

Furthermore, the deregulation of the energy industry instituted in 1996 by the
California government has caused power prices to increase. Under deregulation,
utilities were encouraged to sell their plants, which traditionally had produced
most of California's power, to independent energy companies that were expected
to compete aggressively on price. Instead, due in part to a shortage of supply,
wholesale prices have skyrocketed over the past year. If wholesale prices
continue to increase, the operating expenses associated with our facilities are
located in California will likely increase which would harm our results of
operations.


WE MAY BE SUED BY OUR CUSTOMERS FOR PRODUCT LIABILITY CLAIMS AS A RESULT OF
FAILURES IN OUR DATA STORAGE PRODUCTS.

<PAGE>   12

We face potential liability for performance problems of our products because our
end users employ our storage technologies for the storage and backup of
important data. Although we maintain general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed. Any imposition of liability that is
not covered by insurance or is in excess of our insurance coverage could harm
our business.

A NUMBER OF KEY PERSONNEL ARE CRITICAL TO THE SUCCESS OF OUR BUSINESS.

Our future success depends in large part on our ability to retain certain key
executives and other personnel, some of whom have been instrumental in
establishing and maintaining strategic relationships with key suppliers and
customers. We do not have any employment agreements with our employees. Our
future growth and success will depend in large part on our ability to hire,
motivate and retain highly qualified management, technical, operations and sales
and marketing personnel. Competition for such personnel is intense in the
high-technology industry, particularly in the San Francisco Bay area. We may not
be able to retain our existing personnel or attract additional qualified
personnel in the future. In addition, companies in our industry whose employees
accept positions with competitors frequently claim that their competitors have
engaged in unfair hiring practices. We may receive such claims in the future as
we seek to hire qualified personnel, and such claims could result in litigation.
Regardless of the merits of these claims, we could incur substantial costs in
defending ourselves against these claims.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are not exposed to significant market risk related to fluctuations in
interest rates, as we are not expected to have a significant amount of interest
income in fiscal 2001. In addition, we do not use derivative financial
instruments of any kind and all of our transactions are in U.S. currency.

                           PART II -- OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits.

      10.1  Sixteenth Amendment to Convertible Debenture Purchase Agreement
            dated March 30, 2001

      (b)   Reports on Form 8-K

We did not file any reports on Form 8-K during the quarter ending March 31,
2001.


<PAGE>   13

                                   SIGNATURES

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.

                                        DISC, INC.


Dated May 15, 2001                      By: /s/ J. Richard Ellis
                                            ------------------------------------
                                            J. Richard Ellis
                                        President and Chief Executive Officer
                                            (Principal Executive Officer)

Dated May 15, 2001                     By: /s/ Henry Madrid
                                           -------------------------------------
                                           Henry Madrid
                                           Vice President of Finance and
                                           Chief Financial Officer
                                           (Principal Financial and
                                           Accounting Officer)

<PAGE>   14

                                INDEX TO EXHIBITS


EXHIBIT
NUMBER
-------

DESCRIPTION
-----------

   10.1

Sixteenth Amendment to Convertible Debenture Purchase Agreement dated March 30,
2001