<PAGE>   1
 
================================================================================
 
                                 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 QUARTER ENDED JUNE 30, 1997
 
                                       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 0-22015
 
                            ------------------------
 
                            STORAGE DIMENSIONS, INC.
 
<TABLE>
<S>                                           <C>
                   DELAWARE                                     77-0324887
           (STATE OF INCORPORATION)                       (IRS EMPLOYER ID NO.)
</TABLE>
 
                1656 MCCARTHY BLVD., MILPITAS, CALIFORNIA 95035
                         (ADDRESS OF PRINCIPAL OFFICES)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-0710
 
                            ------------------------
 
     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
June 30, 1997 was 7,845,001, $0.005 par value.
 
================================================================================
<PAGE>   2
 
                            STORAGE DIMENSIONS, INC.
 
                                   FORM 10-Q
 
                               TABLE OF CONTENTS
 
                        PART I -- FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>          <C>                                                                          <C>
Item 1.      Condensed Consolidated Financial Statements (Unaudited)....................     2
             Condensed Consolidated Balance Sheets......................................     3
             Condensed Consolidated Statements of Income................................     4
             Condensed Consolidated Statements of Cash Flows............................     5
             Notes to Condensed Consolidated Financial Statements.......................     6
Item 2.      Management's Discussion and Analysis of Financial Condition and Results of      8
             Operations.................................................................
 
                                 PART II -- OTHER INFORMATION
 
Item 1.      Legal Proceedings..........................................................    16
Item 2.      Change in Securities.......................................................    16
Item 3.      Defaults in Senior Securities..............................................    16
Item 4.      Submission of Matters to a Vote of Security Holders........................    16
Item 5.      Other Information..........................................................    16
Item 6.      Exhibits and Reports on Form 8-K...........................................    16
</TABLE>
 
                                        2
<PAGE>   3
 
                            STORAGE DIMENSIONS, INC.
 
                                   FORM 10-Q
 
                         PART I - FINANCIAL INFORMATION
 
  ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
                            STORAGE DIMENSIONS, INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                        JUNE 30,     DECEMBER 31,
                                                                          1997           1996
                                                                        --------     ------------
<S>                                                                     <C>          <C>
                                             ASSETS
Current assets:
  Cash and cash equivalents...........................................  $  5,590       $  1,682
  Accounts receivable, net............................................    14,165         11,939
  Inventories.........................................................     6,863          6,304
  Prepaid and other...................................................       716            858
                                                                         -------        -------
          Total current assets........................................    27,334         20,783
Property and equipment, net...........................................     2,051          2,115
                                                                         -------        -------
Total assets..........................................................  $ 29,385       $ 22,898
                                                                         =======        =======
                              LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................................  $  4,384       $  5,061
  Accrued liabilities.................................................     3,967          3,580
  Short-term borrowings...............................................       187          9,629
                                                                         -------        -------
          Total current liabilities...................................     8,538         18,270
Total stockholders' equity............................................    20,847          4,628
                                                                         -------        -------
Total liabilities and stockholders' equity............................  $ 29,385       $ 22,898
                                                                         =======        =======
</TABLE>
 
     See accompanying Notes to Condensed Consolidated Financial Statements.
 
                                        3
<PAGE>   4
 
                            STORAGE DIMENSIONS, INC.
 
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED       SIX MONTHS ENDED
                                                           JUNE 30,                JUNE 30,
                                                      -------------------     -------------------
                                                       1997        1996        1997        1996
                                                      -------     -------     -------     -------
<S>                                                   <C>         <C>         <C>         <C>
Net sales............................................ $16,589     $18,319     $37,470     $34,251
Cost of sales........................................  10,918      11,794      24,196      21,906
                                                      -------     -------     -------     -------
  Gross profit.......................................   5,671       6,525      13,274      12,345
Operating expenses
  Research and development...........................   1,773       1,409       3,264       2,749
  Sales and marketing................................   4,341       3,492       8,258       6,622
  General and administrative.........................   1,127         902       2,013       1,778
  Advisory fee.......................................      --          91          --         182
                                                      -------     -------     -------     -------
     Total operating expenses........................   7,241       5,894      13,535      11,331
                                                      -------     -------     -------     -------
Operating income.....................................  (1,570)        631        (261)      1,014
Other income (expense), net..........................      47        (351)       (196)       (606)
                                                      -------     -------     -------     -------
Income (loss) before provision for income taxes......  (1,523)        280        (457)        408
     Provision for income taxes......................    (275)          9          23          18
                                                      -------     -------     -------     -------
Net income (loss).................................... $(1,248)    $   271     $  (480)    $   390
                                                      =======     =======     =======     =======
Net income (loss) per share.......................... $ (0.16)    $  0.05     $ (0.07)    $  0.07
                                                      =======     =======     =======     =======
Weighted average common and common equivalent shares
  outstanding........................................   7,841       5,496       7,064       5,496
                                                      =======     =======     =======     =======
</TABLE>
 
     See accompanying Notes to Condensed Consolidated Financial Statements.
 
                                        4
<PAGE>   5
 
                            STORAGE DIMENSIONS, INC.
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                            SIX MONTHS ENDED
                                                                                JUNE 30,
                                                                           -------------------
                                                                            1997        1996
                                                                           -------     -------
<S>                                                                        <C>         <C>
Cash flows from operating activities:
  Net income (loss)....................................................... $  (480)    $   390
  Adjustments to reconcile net income (loss) to cash provided by (used in)
     operating activities:
     Depreciation and amortization........................................     612         557
     Compensation expense from stock and stock options....................      67           6
     Changes in assets and liabilities:
       Accounts receivable................................................  (2,226)     (3,644)
       Inventory..........................................................    (559)      2,163
       Prepaid expenses and other assets..................................     142        (194)
       Accounts payable...................................................    (677)        423
       Accrued liabilities................................................     387        (105)
                                                                           -------     -------
          Net cash used in operating activities...........................  (2,734)       (404)
                                                                           -------     -------
Cash flows from investing activities:
  Acquisition of property and equipment...................................    (548)       (450)
                                                                           -------     -------
Cash flows from financing activities:
  Proceeds from issuance of Common Stock, net.............................  16,632          --
  Payments to repurchase Series A Preferred Stock.........................      --        (142)
  Proceeds (repayments) from short-term borrowings........................  (9,442)        983
                                                                           -------     -------
          Net cash provided by financing activities.......................   7,190         841
                                                                           -------     -------
Net increase (decrease) in cash and cash equivalents......................   3,908         (13)
Cash and cash equivalents at beginning of period..........................   1,682         363
                                                                           -------     -------
Cash and cash equivalents at end of period................................ $ 5,590     $   350
                                                                           =======     =======
Supplemental disclosure of cash flow information:
  Cash paid during the period for interest................................ $    98     $   239
                                                                           =======     =======
  Cash paid during the period for income taxes............................ $     9     $   344
                                                                           =======     =======
</TABLE>
 
     See accompanying Notes to Condensed Consolidated Financial Statements.
 
                                        5
<PAGE>   6
 
                            STORAGE DIMENSIONS, INC.
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
     The accompanying unaudited condensed consolidated financial statements have
been prepared by Storage Dimensions, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial information and,
pursuant to rules and regulations of the Securities and Exchange Commission,
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and results of operations of the Company for the interim
periods presented. The results of operations for the three month and six month
periods ended June 30, 1997 are not necessarily indicative of the operating
results to be expected for the full fiscal year or future operating periods. The
information included in this report should be read in conjunction with the
audited consolidated financial statements and notes thereto for the fiscal year
ended December 31, 1996 which are contained in the Company's Registration
Statement on Form S-1, effective March 11, 1997.
 
 2. INVENTORIES
 
     Inventories are stated at the lower of cost (using the first-in, first-out
method) or market and consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                 JUNE
                                                                  30,       DECEMBER 31,
                                                                 1997           1996
                                                                -------     ------------
        <S>                                                     <C>         <C>
        Inventory:
          Raw material and purchased components...............  $ 3,704        $2,539
          Work in progress....................................    1,615         1,639
          Finished goods......................................    1,544         2,126
                                                                 ------        ------
                                                                $ 6,863        $6,304
                                                                 ======        ======
</TABLE>
 
 3. STOCKHOLDERS' EQUITY
 
     On March 11, 1997 the Company effected its initial public offering of
2,700,000 shares of common stock at an offering price of $7.00 per share (the
"Offering"). The net proceeds from the Offering were $16,627,000 after payment
of underwriting discounts and Offering expenses. Net proceeds were used to pay
down the Company's short-term line of credit and pay off the Company's
subordinated promissory note to Maxtor Corporation, a stockholder.
 
     In conjunction with the Offering, the Company effected a one-for-four
reverse stock split of all outstanding Common Stock, an increase in the
authorized Common Stock to 40,000,000 shares (and a corresponding adjustment to
the conversion ratio of the then outstanding Preferred Stock) and authorized
10,000,000 shares of undesignated Preferred Stock, par value $0.005.
 
 4. NET INCOME PER SHARE
 
     Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the periods presented
assuming the conversion of all shares of the Company's Series A Convertible
Preferred Stock into Common Stock which occurred upon the consummation of the
Company's initial public offering. Per share amounts also give retroactive
effect to the one-for-four reverse split of all shares of Common Stock (and an
adjustment to the conversion price of the Series A Convertible Preferred Stock)
as described in Note 3. Pursuant to the requirements of the Securities and
Exchange Commission, common equivalent shares relating to preferred stock and
stock options (using the treasury stock method and the initial public offering
price of $7.00 per share) issued subsequent to January 22, 1996 have been
included in the computations for all periods presented.
 
                                        6
<PAGE>   7
 
                            STORAGE DIMENSIONS, INC.
 
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
is effective for the Company's year ending December 31, 1997. The statement
redefines earnings per share under generally accepted accounting principles.
Under the new standard, primary earnings per share is replaced by basic earnings
per share and fully diluted earnings per share is replaced by diluted earnings
per share. If the Company had adopted the statement for the six month periods
ended June 30, 1997 and 1996, the Company's basic net income (loss) per share
and dilutive net income (loss) per share would have been the same as the
Company's reported net income (loss) per share for each period represented.
 
                                        7
<PAGE>   8
 
                            STORAGE DIMENSIONS, INC.
 
                                   FORM 10-Q
 
                         PART I - FINANCIAL INFORMATION
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements included elsewhere herein.
 
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
 
     This quarterly report on Form 10-Q contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Predictions of future events are
inherently uncertain. Actual events could differ materially from those predicted
in the forward looking statements as a result of the risks set forth in the
following discussion, and in particular, the risks discussed below under the
caption "Additional Factors that Could Affect Operating Results." Readers are
also encouraged to refer to the Company's Registration Statement on Form S-1 for
a further discussion of the Company's business and the risks and opportunities
attendant thereto.
 
OVERVIEW
 
     Storage Dimensions designs, manufactures, markets and supports
high-performance data storage systems for open systems network applications. The
Company currently focuses on the PC-LAN market by developing and marketing a
broad family of disk and tape storage systems designed to satisfy the
high-performance, fault-tolerance and high-availability requirements of its
customers, while at the same time reducing the life-cycle cost of ownership. The
introduction of RAIDPro in April extended Storage Dimensions' breadth of product
offerings to reach the entry-level PC-server market. In line with its open
systems strategy, the Company also develops and supports selected products for
the Unix market. The Company's products are sold through its own end-user sales
force in combination with multi-tiered distribution channels.
 
RESULTS OF OPERATIONS
 
     Net Sales. Net sales decreased 9.3% to $16.6 million for the three months
ended June 30, 1997, compared to $18.3 million for the three months ended June
30, 1996. This reduction in net sales was attributable to near-term softness in
the PC-LAN-based networking market, and below-plan staffing of the Company's
end-user sales force. In addition, the reduction in net sales was attributable
to $1.3 million in product returns from a single customer. Although this sale
was not on a contingent basis and the customer had no legal right to return such
product, Storage Dimensions' management initiated this return in order to avoid
the possibility of larger costs.
 
     Net sales of $37.5 million for the six months ended June 30, 1997
represented a 9.3% increase over the $34.3 million for the same period last
year. This increase in net sales resulted from increased sales of existing
enterprise products, as well as products released in late 1996 and in the six
months of 1997, including: products incorporating dynamic growth and
reconfiguration (DGR); enterprise storage products for Windows NT-based
environments; and new products incorporating 9 gigabyte disk drives. Sales of
enterprise and OEM products accounted for 99% of its total net sales for the six
months ended June 30,1997 compared to 94% for the same period last year, which
supports the company's projections that desktop products will represent an
immaterial portion of revenues in future periods.
 
     Gross Profit. Gross profit for the second quarter of 1997 was $5.7 million,
or 34.2% of net sales, compared to $6.5 million, or 35.6% in the second quarter
of 1996. The 1.4% decrease in gross profit margin was largely attributable to
price reductions and the write-down of drive inventory in connection with
supplier-driven price decreases on 9 and 4 gigabyte drives.
 
                                        8
<PAGE>   9
 
     Gross profit for the six months ended June 30, 1997 was $13.3 million, or
35.4% of net sales, compared to $12.3 million, or 36.0% for the six months of
1996. The 0.6% decrease in gross profit margin year-to-date resulted primarily
from price decreases and inventory write-downs in connection with
supplier-driven price reductions on 9 gigabyte drives. Past and future
performance of the company's gross margin is impacted by a variety of factors
including: competition, product configuration, the mix of direct versus indirect
sales, the mix of desktop, enterprise and OEM products sold in any given period,
the availability of new products and product enhancements which tend to carry
higher gross margins than established products, and the cost and availability of
components.
 
     Research and Development. Research and development expenses consist
primarily of employee compensation, prototype expenses and fees paid to outside
consultants. Research and development expenses for the second quarter of 1997
totaled $1.8 million or 10.7% of net sales, versus $1.4 million or 7.7% of net
sales for the second quarter of 1996, representing a 29% increase in absolute
dollar spending. This increase in research and development spending was
primarily related to increased product development efforts related to the
introduction of RAIDPro, and software development efforts in connection with a
new storage management program that utilizes the internet. The increase in
research and development expenses as a percentage of net sales during the second
quarter of 1997 resulted from lower revenues between the two periods.
 
     On a year-to-date basis, research and development expenses totaled $3.3
million, or 8.7% of net sales for 1997, versus $2.7 million or 8.0% of net sales
for the same period in 1996, representing a 22% increase in spending
year-to-date as compared to the same period last year. This increase in research
and development spending is attributable to increased product development
efforts related to the introduction of RAIDPro. The Company will continue to
make necessary investments in research and development in order to remain
competitive, therefore these expenditures may increase in absolute dollars in
future periods and will fluctuate as a percentage of net sales.
 
     Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions, advertising, promotional costs, and customer service
and support expenses. Sales and marketing expenses for the second quarter of
1997 totaled $4.3 million, or 26.2% of net sales, versus $3.5 million or 19.1%
of net sales in the second quarter of 1996, representing a 23% increase in
absolute dollar spending. This increase is largely attributable to compensation
and training expenses related to the expansion of the direct sales force. The
increase in sales and marketing expenses as a percentage of net sales during the
second quarter of 1997 resulted from lower revenues between the two periods.
 
     On a year-to-date basis, sales and marketing expenses totaled $8.3 million,
or 22.0% of net sales for 1997, versus $6.6 million or 19.3% of net sales for
the same period in 1996, representing a 26% increase in spending year-to-date as
compared to the same period last year. The Company will continue to incur costs
related to the expansion of its field sales force and will continue to make
investments in advertising, tradeshows and other promotional efforts that may
result in overall increases to sales and marketing expenses in absolute dollar
spending.
 
     General and Administrative. General and administrative expenses consist
primarily of compensation expenses for employees performing the Company's
administrative functions. General and administrative expenses for the second
quarter of 1997 totaled $1.1 million or 6.8% of net sales, compared to $902,000
or 4.9% of net sales in the second quarter of 1996, representing a 25% increase
in absolute dollar spending. This increase in general and administrative
spending is attributable to recruiting costs associated with sales and
engineering hiring, and legal and accounting costs associated with operating as
a public company. The increase in general and administrative expenses as a
percentage of net sales during the second quarter of 1997 resulted from lower
revenues between the two periods.
 
     On a year-to-date basis, general and administrative expenses totaled $2.3
million or 5.4% of net sales, compared to $1.8 million or 5.2% of net sales in
1996, representing a 28% increase in absolute dollar spending. The Company
believes that it will continue to incur increased administrative expenses in the
future associated with operating as a public company.
 
                                        9
<PAGE>   10
 
     Other Income (Expense), Net. Other Income (Expense), Net consists primarily
of interest income earned by the investment of cash and cash equivalents
partially offset by interest payments on outstanding debt. Other income net of
other expenses totaled $47,000 in the second quarter of 1997, compared to net
expenses of $351,000 in the second quarter of 1996. This improvement was largely
the result of the repayment of debt with proceeds from the Company's Offering
and interest income earned from investment of the remaining Offering proceeds.
 
     Provision for Income Taxes. In the second quarter of 1997, the company
reduced its tax provision by $275,000 resulting from a decrease in
profitability, as compared to a $9,000 tax provision in the second quarter of
1996 based on marginal profitability. On a year-to-date basis, the company
recorded a $23,000 tax provision versus a tax provision of $18,000 for the same
period of last year.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     As of June 30, 1997 cash and cash equivalents amounted to $5.6 million
compared to $1.7 million as of December 31, 1996. The increase resulted from net
financing activities including cash generated from the initial public offering
on March 11, 1997 and the repayment of short-term borrowings.
 
     The Company used cash for operating activities totaling $2.7 million during
the six months ended June 30, 1997 and used cash for operating activities
totaling $395,000 during the six months ended June 30, 1996. The use of cash for
operating activities in the six months of 1997 was principally related to
increases in accounts receivable and inventories, decreases in accounts payable
and operating losses, and was partially offset by increases in accrued
liabilities. The use of cash for operating activities in the six months of 1996
was primarily attributable to increases in accounts receivable and prepaid
expenses, operating losses, and was partially offset by the decreases in
inventories and increases in accrued liabilities.
 
     The Company used approximately $548,000 of cash during the six months ended
June 30, 1997 to purchase capital equipment compared to $450,000 during the same
period in 1996. Financing activities provided $7.2 million for the six months
ended June 30, 1997, as net proceeds from the Company's initial public offering
were partly reduced by the repayment of short-term borrowings. During the same
period last year, the company used $841,000 of it cash for financing activities
to pay down short-term borrowings.
 
     The Company currently has no significant capital commitments. The Company
believes that its existing cash, together with borrowing capacity and cash
generated from operations will satisfy the Company's projected working capital
and other cash requirements for at least the next twelve months. There can be no
assurance, however, that the Company will not need additional capital before
such time.
 
ADDITIONAL FACTORS THAT COULD AFFECT FUTURE OPERATING RESULTS
 
     The Company's future operating results are subject to a number of risks and
uncertainties including those listed below.
 
HISTORY OF OPERATING LOSSES; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
 
     While the Company generated net income in 1996 and the first quarter of
1997, it incurred losses in each of 1993, 1994 and 1995. There can be no
assurance that the Company will remain profitable on a quarterly or annual
basis.
 
     The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on a number of factors, including:
the level of competition; the size, timing, cancellation or rescheduling of
significant orders; product configuration and mix; market acceptance of new
products and product enhancements; new product announcements or introductions by
the Company's competitors; deferrals of customer orders in anticipation of new
products or product enhancements; changes in pricing by the Company or its
competitors; the impact of price protection measures and return privileges
granted by the Company to its distributors and VARs; the ability of the Company
to develop, introduce and market new products and product enhancements on a
timely basis; hardware component costs and availability, particularly with
respect to hardware components obtained from sole sources; hardware supply
constraints; the Company's
 
                                       10
<PAGE>   11
 
success in expanding its sales and marketing programs; technological changes in
the network storage system market, in particular the PC-LAN storage system
market; the mix of sales among the Company's sales channels; levels of
expenditures on research and development; changes in Company strategy; personnel
changes; and general economic trends and other factors.
 
     Sales for any future quarter are not predictable with any significant
degree of certainty. The Company generally operates with limited order backlog
because its products typically are shipped shortly after orders are received. As
a result, sales in any quarter are generally dependent on orders booked and
shipped in that quarter. Sales are also difficult to forecast because the PC-LAN
storage system market is rapidly evolving and the Company's sales cycles vary
substantially from customer to customer. The Company's customers generally have
the right to cancel orders at any time and to return the Company's products for
a refund. The cancellation of orders already placed and the return of products
could have a material adverse effect on the Company's operating results in any
quarter. Due to the typical timing of customer orders, the Company often ships
products representing a significant portion of its net sales for a quarter
during the last month of that quarter. Any significant deferral of these sales
could have a material adverse effect on the Company's results of operations in
any particular quarter. To the extent that the Company completes significant
sales earlier than expected, operating results for subsequent quarters may be
adversely affected. The Company's expense levels are based, in part, on its
expectations as to future sales. As a result, if sales levels are below
expectations, net income may be disproportionately affected.
 
     Over the past several years, the Company has transitioned its focus from
desktop subsystem products to enterprise RAID products for use primarily in
PC-LAN network applications. As a result, the Company has become increasingly
dependent on the market for these products and on its ability to compete
successfully in this market. Although the Company has experienced growth in its
net sales of enterprise and OEM products in recent periods, the Company's net
sales from its desktop products have declined during the same periods. There can
be no assurance that the Company will continue to experience sales growth with
respect to its enterprise and OEM products in future periods. Due to all of the
foregoing factors, the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as an indicator of future performance. It is possible that in some future
quarter the Company's operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially and adversely affected.
 
RELIANCE ON KEY CUSTOMERS AND INDIRECT DISTRIBUTION CHANNELS
 
     The Company sells its products through a direct sales force and through
multi-tiered distribution channels. Approximately 70% of the Company's sales in
1996 were made through its indirect sales channels. In 1996, the Company's top
ten customers, of which six were distributors or VARs, accounted for
approximately 50% of the Company's total net sales. In particular, Xerox
Corporation, an OEM customer, and Tech Data Corporation, a distributor,
accounted for approximately 13% and 8% of the Company's 1996 total net sales,
respectively. In 1995, the Company's top ten customers, of which eight were
distributors or VARs, accounted for approximately 51% of its total net sales,
and Tech Data and Xerox accounted for approximately 15% and 11% of the Company's
total net sales, respectively. The Company expects that a high percentage of its
sales for the foreseeable future will be through indirect channels and to a
limited number of customers. There can be no assurance that orders from existing
customers will continue at their historical levels, or that the Company will be
able to obtain orders from new customers. The Company generally has not entered
into long-term volume purchase contracts with its customers, and the Company's
customers generally have certain rights to extend or to delay the shipment of
their orders. The Company provides price protection to distributors such that,
if the Company reduces the price of its products, distributors are entitled to a
credit for the difference between the new, reduced price and the price they
previously paid for products which are held in the distributor's inventory at
the time of the price reduction. As a result, price reductions could have an
immediate material adverse effect on the Company's results of operations,
depending upon distributor inventory levels at the time of the price reduction.
In 1995 and 1996, the Company issued approximately $550,000 and $840,000,
respectively, of credits in connection with such price protection. The Company's
distributors and VARs may also carry competing product lines and could reduce or
discontinue sales of the
 
                                       11
<PAGE>   12
 
Company's products, which could have a material adverse effect on the Company's
operating results. Although the Company believes that it provides adequate
allowances for product returns, there can be no assurance that actual returns
will not exceed recorded allowances which could have a material adverse effect
on its operating results. In addition, there can be no assurance that existing
end-user customers will not purchase their network storage equipment from the
manufacturer that provides their network computing systems and, as a result,
reduce or eliminate purchases from the Company. The loss of one or more of the
Company's current customers, particularly a principal customer, or cancellation
or rescheduling of orders already placed, could materially and adversely affect
the Company's business, operating results or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
 
     The network storage system market is characterized by rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards. The introduction of products embodying new technologies and
increased storage capacities by the Company's competitors and the emergence of
new industry standards could render the Company's existing products obsolete and
unmarketable. The Company's future success will depend upon its ability to
develop and to introduce new products with increasing storage capabilities
(including new software releases and enhancements) on a timely basis that keep
pace with technological developments and emerging industry standards and address
the increasingly sophisticated needs of its customers. The Company began
shipping its entry level storage system product (RAIDPro) in the second quarter
of 1997 and intends to begin shipping its new storage server product in the
second half of 1997. There can be no assurance that the Company will be
successful in developing and releasing these two new products on its current
schedule or at all, or that these products will achieve market acceptance. The
failure of the Company to achieve significant net sales from these two products
could have a material adverse effect on the Company's business, operating
results or financial condition. There can be no assurance that the Company will
be successful in developing and marketing any other products that respond to
technological changes or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products, or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop and introduce new products, in particular those for use with Windows NT,
in a timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial condition
will be materially and adversely affected.
 
     Network storage system products like those offered by the Company may
contain undetected software errors or failures when first introduced or as new
versions are released. There can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in new
products after commencement of commercial shipments, resulting in a loss of or
delay in market acceptance, which could have a material adverse effect on the
Company's business, operating results or financial condition. The Company's
standard warranty provides that if the system does not function to published
specifications the Company will repair or replace the defective component
without charge. Although to date the Company's suppliers of hardware components
have generally covered the warranty costs associated with such components, there
can be no assurance that such manufacturers will continue to be willing or able
to cover such costs, and their failure to do so would result in such costs being
borne by the Company. There can be no assurance that the Company's warranty
costs will not be significant in the future. Significant warranty costs,
particularly those that exceed reserves, could have a material adverse effect on
the Company's business, operating results or financial condition.
 
     The Company's agreements with its customers typically contain provisions
intended to limit the Company's exposure to potential product liability claims.
It is possible that the limitation of liability provisions contained in the
Company's agreements may not be effective. Although the Company has not received
any product liability claims to date, the sale and support of products by the
Company and the incorporation of products from other companies may entail the
risk of such claims. A successful product liability claim against
 
                                       12
<PAGE>   13
 
the Company could have a material adverse effect on the Company's business,
operating results or financial condition.
 
DEPENDENCE ON GROWTH IN THE PC-LAN MARKET
 
     Most of the Company's products address the PC-LAN market, in particular
NetWare and Windows NT applications. The Company currently intends to continue
to focus its development and marketing efforts on PC-LAN storage system
applications. While the Company may in the future evaluate opportunities outside
its target markets, no such products are currently under development. To date, a
significant portion of the Company's net sales have been derived from sales of
products for use with NetWare and Windows NT applications. The Company's future
financial performance will depend in large part on continued growth in the
PC-LAN market, in particular NetWare and Windows NT applications. There can be
no assurance that NetWare and Windows NT will remain the leading operating
systems in the PC-LAN market, or that the PC-LAN market will grow at rates
currently anticipated, or at all. If the PC-LAN market fails to grow or grows
more slowly than anticipated, or if PC-LAN storage systems based on emerging
standards other than NetWare or Windows NT and other standards adopted by the
Company become increasingly accepted by the market, the Company's business,
operating results and financial condition would be materially and adversely
affected. During recent years, segments of the computer industry have
experienced significant economic downturns characterized by decreased product
demand, production over capacity, price erosion, work slowdowns and layoffs. The
Company's operations may in the future experience substantial fluctuations from
period to period as a consequence of such industry patterns, general economic
conditions affecting the timing of orders from major customers and other factors
affecting capital spending. There can be no assurance that such factors will not
have a material adverse effect on the Company's business, operating results or
financial condition.
 
COMPETITION
 
     The network storage system market is intensely competitive. The Company
competes primarily in the PC-LAN server storage market and experiences the
greatest competition from traditional suppliers of PC-LAN network servers, such
as Compaq Corporation, Hewlett-Packard Company and International Business
Machines Corporation, who market storage systems as part of their complete
computer systems. Storage Dimensions also competes against independent storage
system suppliers to the PC-LAN server market, including DEC Storage Works, MTI
Technology and Procom Technology, Inc. In addition, providers of storage for the
mainframe or UNIX-based markets, such as Auspex Systems, Inc., Data General
Corporation, EMC Corporation, Network Appliance, Inc., Storage Computer, Inc.
and Symbios Logic, Inc., could develop and market products that address the
PC-LAN storage systems market, and in particular Windows NT applications. Many
of the Company's current and potential competitors have significantly greater
financial, technical, marketing, purchasing and other resources than the
Company, and as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, to devote greater resources
to the development, promotion and sale of products than can the Company, or to
deliver competitive products at a lower end-user price. The Company also expects
that competition will increase as a result of industry consolidations. Current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
is likely to result in price reductions, reduced operating margins and loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results or financial condition.
 
     The Company believes that the principal competitive factors affecting its
market include: fault-tolerant reliability, performance, ease of use,
scalability, configurability, price and customer service and support. There can
be no assurance that the Company will be able to successfully incorporate these
factors into its products and to compete against current or future competitors
or that competitive pressures faced by the Company will not materially and
adversely affect its business, operating results or financial condition.
 
                                       13
<PAGE>   14
 
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS OF HIGH QUALITY COMPONENTS
 
     The Company relies upon a limited number of suppliers of several key
components utilized in the assembly of the Company's products. For example, the
Company purchases disk drives primarily from Seagate Technology, Inc. and
Micropolis Corporation, DLT tape drives exclusively from Quantum Corporation and
DGR (Dynamic Growth and Reconfiguration) RAID controllers exclusively from
American Megatrends, Inc. The Company's reliance on its suppliers involves
several risks, including: an inadequate supply of required components; price
increases; late deliveries; and poor component quality. These risks are
particularly significant with respect to suppliers of disk drives because, in
order to meet product performance requirements, the Company must obtain disk
drives with extremely high quality and capacity. In addition, there is currently
a significant market demand for disk drives, tape drives and RAID controllers,
and from time to time the Company may experience component shortages, selective
supply allocations and increased prices of such components. Although to date the
Company has been able to purchase its requirements of such components, there can
be no assurance that the Company will be able to obtain its full requirements of
such components in the future or that prices of such components will not
increase. In addition, there can be no assurance that problems with respect to
yield and quality of such components and timeliness of deliveries will not
occur. Disruption or termination of the supply of these components could delay
shipments of the Company's products and could have a material adverse effect on
the Company's business, operating results or financial condition. Such delays
could also damage relationships with current and prospective customers.
 
     In the past, due to the Company's quality requirements, the Company has
experienced delays in the shipments of its new products principally due to an
inability to qualify component parts from disk drive manufacturers and other
suppliers, resulting in delay or loss of product sales. The Company has
currently qualified disk drives manufactured by Seagate and Micropolis, tape
drives from Quantum, and RAID controllers from Mylex Corporation and American
Megatrends. Although these delays in the past have not had a material adverse
effect upon the Company's business, operating results or financial condition,
there can be no assurance that in the future any such delays would not have such
a material adverse effect.
 
DEPENDENCE ON PROPRIETARY TECHNOLOGY
 
     Storage Dimensions' success depends significantly upon its proprietary
technology. The Company currently relies on a combination of copyright and
trademark laws, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company has registered
its Storage Dimensions and LANStor trademarks and will continue to evaluate the
registration of additional trademarks as appropriate. The Company generally
enters into confidentiality agreements with its employees and with key vendors
and suppliers. The Company currently has one U.S. patent application pending
associated with the object-oriented layered architecture of its RAIDFlex array
management software. There can be no assurance that this patent will eventually
be issued, that the Company will develop proprietary products or technologies
that are patentable, that any patent issued in the future will provide the
Company with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have a material adverse effect
on the Company's ability to do business. The Company believes that the rapidly
changing technology in the computer storage industry makes the Company's success
dependent more on the technical competence and creative skills of its personnel
than on any patents it may be able to obtain.
 
     There has also been substantial litigation in the computer industry
regarding intellectual property rights, and litigation may be necessary to
protect the Company's proprietary technology. The Company has from time to time
received claims that it is infringing third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. The Company expects that companies in
the storage system market will increasingly be subject to infringement claims as
the number of products and competitors in the Company's target markets grows.
Any such claims or litigation may be time-consuming and costly, cause product
shipment delays, require the Company to redesign its products or require the
Company to enter into royalty or licensing agreements, any of which could have a
material adverse effect on the Company's
 
                                       14
<PAGE>   15
 
business, operating results or financial condition. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. In addition, the laws of some foreign countries
do not protect proprietary rights to as great an extent as do the laws of the
United States. There can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology, duplicate the Company's products
or design around patents issued to the Company or other intellectual property
rights of the Company.
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company provides incentives such as salary, benefits and option grants (which
are typically subject to vesting over four years) to attract and retain
qualified employees. The loss of the services of one or more of the Company's
officers or other key employees could have a material adverse effect on the
Company's business, operating results or financial condition. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and management personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key technical and management employees or that it can attract, assimilate or
retain other highly qualified technical and management personnel in the future.
 
                                       15
<PAGE>   16
 
                            STORAGE DIMENSIONS, INC.
 
                                   FORM 10-Q
 
                          PART II -- OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
     The Company is not involved in any material legal proceedings at this time.
However, there can be no assurances that the Company will not be subject to
legal proceedings in the future, which could have a material effect on the
Company's financial position. In addition, even if the ultimate outcome of such
legal proceedings is resolved in favor of the Company, the defense of such
litigation could entail considerable costs and diversion of efforts of
management, either of which could have a material adverse effect on the
Company's results of operations.
 
ITEM 2.  CHANGE IN SECURITIES
 
     None.
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
     None.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
ITEM 5.  OTHER INFORMATION
 
     None.
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) EXHIBITS
 
<TABLE>
<C>     <S>
 3.1*   Second Amended and Restated Certificate of Incorporation of the
        Registrant.
 3.2*   By-laws of the Registrant.
 4.1*   Form of Registrant's Common Stock Certificate.
10.1*   Form of Director and Officer Indemnification Agreement.
10.2*   1996 Stock Plan.
10.3*   1996 Employee Stock Purchase Plan.
10.4*   Loan and Security Agreement, dated May 16, 1996, by and between
        Congress Financial Corporation (Western) and the Registrant.
10.5*   Stockholders Agreement, dated December 26, 1992, among the
        Registrant, Gene E. Bowles, Jr., David A. Eeg, CP Acquisition, L.P.
        No. 4A, CP Acquisition, L.P. No. 4B, Capital Partners, Inc., FGS,
        Inc., Maxtor Corporation, and certain other management investors.
10.6*   Lease, dated October 8, 1993, between Registrant and Callahan-Pentz
        Properties, McCarthy Four.
10.7*   First Amendment to Lease, dated June 28, 1995, between Registrant and
        Callahan-Pentz Properties, McCarthy Four.
10.8*   Form of employment agreement between the Registrant and certain
        employees.
11.1    Statement of computation of net income per share.
27.1    Financial Data Schedule.
</TABLE>
 
---------------
 
* Incorporated by reference from the Registrant's Registration Statement on Form
  S-1, effective March 11, 1997.
 
     (b) REPORTS ON FORM 8-K
 
        No reports on Form 8-K have been filed during the quarter for which this
report is filed.
 
                                       16
<PAGE>   17
 
                                   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.
 
                                          STORAGE DIMENSIONS, INC. (Registrant)
 
Date: August 12, 1997                     By:      /s/ ROBERT E. BYLIN
                                            ------------------------------------
                                            Robert E. Bylin
                                            Senior Vice President, Finance
                                            and Chief Financial Officer
 
Date: August 12, 1997                     By:    /s/ GENE E. BOWLES, JR.
                                            ------------------------------------
                                            Gene E. Bowles, Jr.
                                            Executive Vice President,
                                            Marketing and Customer Services
 
                                       17
<PAGE>   18
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
    EXHIBIT NO.                                     DESCRIPTION
    -----------     ----------------------------------------------------------------------------
    <S>             <C>
     3.1*           Second Amended and Restated Certificate of Incorporation of the Registrant.
     3.2*           By-laws of the Registrant.
     4.1*           Form of Registrant's Common Stock Certificate.
    10.1*           Form of Director and Officer Indemnification Agreement.
    10.2*           1996 Stock Plan.
    10.3*           1996 Employee Stock Purchase Plan.
    10.4*           Loan and Security Agreement, dated May 16, 1996, by and between Congress
                    Financial Corporation (Western) and the Registrant.
    10.5*           Stockholders Agreement, dated December 26, 1992, among the Registrant, Gene
                    E. Bowles, Jr., David A. Eeg, CP Acquisition, L.P. No. 4A, CP Acquisition,
                    L.P. No. 4B, Capital Partners, Inc., FGS Inc., Maxtor Corporation, and
                    certain other management investors.
    10.6*           Lease, dated October 8, 1993, between Registrant and Callahan-Pentz
                    Properties, McCarthy Four.
    10.7*           First Amendment to Lease, dated June 28, 1995, between Registrant
                    Callahan-Pentz Properties, McCarthy Four.
    10.8*           Form of employment agreement between the Registrant and certain employees.
    11.1            Statement of computation of net income per share.
    27.1            Financial Data Schedule.
</TABLE>
 
---------------
 
* Incorporated by reference from the Registrant's Registration Statement of Form
  S-1, effective, March 11, 1997.