(Mark One)

Securities Exchange Act of 1934

For the quarterly period ended March 31,2000

[ ] Transition Report Under Section 13 or 15 (d) of the

Exchange Act

For the transition period from ____________ to ____________ Commission file number 1-13616

(Exact name of registrant as specified in its charter)

Delaware 02-0450593

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

(Address of principal executive offices)

(Issuer's telephone number)

(Title or Class) (Name of Exchange on which registered)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 of Common Stock outstanding as of the close of business on May 10, 2000 was 11,929,754 shares.

Portions of the Company's Proxy Statement relating to the Company's Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets -- March 31, 2000 and December 31, 1999

Statement of Consolidated Operations -- Three months ended March 31, 2000 and 1999

Statement of Consolidated Cash Flows -- Three months ended March 31, 2000 and 1999

Notes to Consolidated Financial Statements -- March 31, 2000

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

Results of Operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 1. Legal Proceedings

Item 2. Changes in Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

See Notes to Consolidated Financial Statements.

Three Months Ended

See Notes to Consolidated Financial Statements.

Three Months Ended

See Notes to Consolidated Financial Statements.

Note A - The Company and Basis of Presentation

Storage Computer Corporation (the "Company") and its subsidiaries are engaged in the development, manufacture, and sale of computer disk arrays and computer equipment worldwide. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Storage Computer Europe GmbH, Vermont Research Products, Inc., Storage Computer UK, Ltd., Storage Computer Pty., Ltd. and its 51% owned subsidiary Storage Computer France S.A. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company has a 20% investment in Storage Computer (Asia) Ltd. which is accounted for by the equity method.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements and related notes included in a Report on Form 10-K filed by the Company with the Securities and Exchange Commission, containing the Company'sfinancial statements for the fiscal year ended December 31, 1999. In the opinion of management, the accompanying financial statements reflect all adjustments, all of which are of a normal, recurring nature, to fairly present the Company'sconsolidated financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year.

Certain 1999 amounts have been reclassified to conform with the current period presentation.

In April 2000, the Company reached agreement with its bank on new terms amending the Company'sloan agreement, decreasing the commitment from $6,550,000 to $1,730,000. Under the agreement, the Company agreed to undertake certain actions to reduce the line of credit with the bank during 2000. The line of credit expires on January 5, 2001. During April, 2000, the Company closed the placement of an initial tranche of 60,000 shares of Series A 8% Convertible Preferred Stock (the " Series A Preferred Stock"), to several purchasers for an aggregated purchase price of $6,000,000 (less approximately $180,000 in placement fees and commissions).

THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996 CONTAINS CERTAIN SAFE HARBORS REGARDING FORWARD-LOOKING STATEMENTS. FROM TIME TO TIME, INFORMATION PROVIDED BY THE COMPANY OR STATEMENTS MADE BY ITS DIRECTORS, OFFICERS OR EMPLOYEES MAY CONTAIN "FORWARD-LOOKING" INFORMATION SUBJECT TO NUMEROUS RISKS AND UNCERTAINTIES. ANY STATEMENTS MADE HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT ARE FORWARD-LOOKING STATEMENTS INCLUDING, BUT NOT LIMITED TO, STATEMENTS CONCERNING THE CHARACTERISTICS AND GROWTH OF THE COMPANY'sMARKETS AND CUSTOMERS, THE COMPANY'sOBJECTIVES AND PLANS FOR FUTURE OPERATIONS AND PRODUCTS AND THE COMPANY'sEXPECTED LIQUIDITY AND CAPITAL RESOURCES. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON A NUMBER OF ASSUMPTIONS AND INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES, AND, ACCORDINGLY, ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO: THE CONTINUED AND FUTURE ACCEPTANCE OF THE COMPANY'sPRODUCTS; THE RATE OF GROWTH IN THE INDUSTRIES OF THE COMPANY'sPRODUCTS; THE PRESENCE OF COMPETITORS WITH GREATER TECHNICAL, MARKETING AND FINANCIAL RESOURCES; THE COMPANY'sABILITY TO PROMPTLY AND EFFECTIVELY RESPOND TO TECHNOLOGICAL CHANGE TO MEET EVOLVING CUSTOMER NEEDS; RISKS ASSOCIATED WITH SALES IN FOREIGN COUNTRIES; AND THE COMPANY'sABILITY TO SUCCESSFULLY EXPAND ITS OPERATIONS.

The Company'soperating results have fluctuated in the past and may in the future fluctuate significantly, depending upon a variety of factors, including the timely successful deployment of its newly created marketing relationship, the reestablishment of the reseller sales channel and the length of the sales cycle for the Company'sproducts and services. Additional factors that may contribute to variability of operating results include: the pricing and mix of services offered by the Company; changes in pricing of the Company'sproducts and services due to competitive pressures; the Company'sability to obtain sufficient supplies of sole or limited source components; the ability to manage future growth and expansion; the ability to successfully identify, target, acquire and integrate suitable acquisition candidates; and charges related to financing and acquisitions.

REVENUE

Revenue for the three-month period ended March 31, 2000 was $2,094,998 compared to revenue of $2,679,673 in the corresponding period of 1999. First quarter revenue was impacted by both lower international and domestic sales, some of which is attributable to delays in shipments of new 36 gigabyte 3.5" disks. For the three months ended March 31, 2000, U.S. domestic product sales and international product sales were 53.6% and 46.4% respectively of total revenue. In the 1999 period such percentages were 33.1% and 66.9% respectively.

All United States export sales are denominated in United States dollars to limit the amount of foreign currency risk. Export sales from the European sales offices are denominated in United States dollars. Sales which occur through the Company'ssubsidiaries located in England and Germany are conducted in the local currency.

PRODUCT COST

Product cost for the three month periods ended March 31, 2000 and 1999 were $902,882 and $1,596,802, respectively, or 43% and 60% of revenue. The decrease in product cost percentage between 1999 and 2000 of approximately 28% was the result of reduced factory overheads, lower technical service expenditures on lower sales volume, and a further reduction in the cost of component parts.

RESEARCH AND DEVELOPMENT

Research and development expenses for the three month periods ended March 31, 2000 and 1999 were $384,371 and $869,891, respectively, or approximately 18% and 32% of revenue in each period. The $485,520 decrease in expenditures between the three month periods ended March 31, 2000 and 1999 was a direct result of reduced research personnel and a decrease in the utilization of independent software engineers.

SELLING AND MARKETING EXPENSES

Selling and marketing expenses for the three month periods ended March 31, 2000 and 1999 were $529,570 and $1,394,179, respectively, or 25% versus 52% of revenue in the prior period as a result of lower sales volume. The decrease in expenses between the three month periods ended March 31, 2000 and the comparable period of 1999 of $864,609, was principally due to lower head count in corporate marketing and field sales organizations.

GENERAL AND ADMINSTRATIVE EXPENSES

General and administrative expenses for the three month periods ended March 31, 2000 and 1999 were $363,673 and $607,986, respectively, or 17% and 23% of revenue. The decrease in general and administrative expenses between the three month periods ended March 31, 2000 and 1999 of $244,313 resulted primarily from decreases in personnel due to the lower sales volumes.

INTEREST EXPENSE

The interest expense was $168,920 and $216,702 for the three month periods ended March 31, 2000 and March 31, 1999, respectively. The decrease is directly related to a reduced borrowing by the Company under its revolving credit facility at its bank.

NET LOSS

The Company incurred a net loss for the three month period ended March 31, 2000 of $151,028 compared to $1,973,333 for the three month period ended March 31, 1999. The $1,822,305 reduction in the net loss, representing a 92% reduction in net loss, was directly attributable to the Company'sre-engineering relative to the lower revenues while the Company re-establishes the re-seller sales channel. The Company is committed in the near term to rebuilding and increasing its revenue base, which will require near term expenses for marketing costs. However, this may negatively affect the Company'sshort term operating results.

CASH FLOW

To date, the Company has satisfied its cash requirements through a combination of its operations, debt and equity financing. The Company'sprincipal uses of cash are to fund working capital requirements.

DEBT AND EQUITY

In April 2000, the Company reached agreement with its bank on new terms amending the Company'sloan agreement, decreasing the commitment from $6,550,000 to $1,730,000. Under the agreement, the Company agreed to undertake certain actions to reduce the line of credit with the bank during 2000. The line of credit facility expires on January 5, 2001. During April, 2000, the Company closed the placement of an initial tranche of 60,000 shares of Series A 8% Convertible Preferred Stock (the "Series A Preferred Stock"), to several purchasers for an aggregated purchase price of $6,000,000 (less approximately $180,000 in placement fees and commissions). Management is actively seeking to close a placement of an additional 30,000 shares of Series A Preferred Stock. Management believes that the equity investments and credit facility will accommodate all of its working capital requirements for the year 2000.

ACCOUNTS RECEIVABLE

The increase in accounts receivable from December 31, 1999 to March 31, 2000 of $423,804 is principally due to larger system sales near the end of the quarter and the decrease in product sales in the previous quarterly reporting periods. The Company did not change its standard credit terms during the period and there has been no material deterioration in the aging of accounts receivable during the period.

INVENTORY

Inventory decreased approximately $228,237 from December 31, 1999 to March 31, 2000 as the Company continued its efforts to reduce its inventory investment. The investment in inventory is impacted by several factors, including, but not limited to, the increased value of parts associated with larger storage units, the timing of purchasing component parts such as disk drives; the non recognition of revenue and corresponding inventory increases due to inventory transfers deemed to be evaluation units and increased inventory locations throughout the United States and Europe.

WORKING CAPITAL

The Company'sworking capital at March 31, 2000 was $1,288,044.

CAPITAL EXPENDITURES

The Company does not have any material commitments for capital expenditures at this time.

FOREIGN CURRENCY TRANSACTIONS

Management does not currently utilize any derivative products to hedge its foreign currency risk. The Company'sforeign subsidiaries' obligations to their parent are denominated in US dollars. There is a potential for a foreign currency gain or loss based upon fluctuations between the US dollar and its subsidiaries' functional currencies, currently German, British, French and Australian. This exposure is limited to the period between the time of accrual of such liability to the parent in the subsidiaries' functional currency and the time of its payment in US dollars.

Other than the intercompany balances noted above, the Company does not believe it has material unhedged monetary assets, liabilities or commitments which are denominated in a currency other than the operations' functional currencies. Management expects such exposure to continue until its foreign subsidiaries reach a more mature level of operation. Management currently has no plans to utilize any derivative products to hedge its foreign currency risk.

FACTORS THAT MAY AFFECT FUTURE RESULTS

THE COMPANY'sSTOCK PRICE IS VOLATILE

The Company's stock price, like that of other technology companies, is subject to significant volatility because of factors such as:

- quarterly variations in its operating results

- changes in revenue or earnings estimates by the investment community

- speculation in the press or investment community

- failure to meet earning expectations

In addition, the Company'sstock price may be affected by general market conditions and domestic and international economic factors unrelated to the Company'sperformance. Further, until recently, the Company'sstock was thinly traded. Because of these factors, recent trends should not be considered reliable indicators of future stock prices or financial results.

THE COMPANY'sBUSINESS MAY SUFFER IF IT CANNOT PROTECT ITS INTELLECTUAL PROPERTY

The Company generally relies upon patent, copyright, trademark and trade secret laws and contract rights in the United States and in other countries to establish and maintain the Company's proprietary rights in its technology and products. However, there can be no assurance that any of the Company's proprietary rights will not be challenged, invalidated or circumvented. In addition, the laws of certain countries do not protect the Company's proprietary rights to the same extent, as do the laws of the United States. Therefore, there can be no assurance that the Company will be able to adequately protect its proprietary technology against unauthorized third-party copying or use, which could adversely

affect the Company's competitive position. Further, there can be no assurance that the Company will be able to obtain licenses to any technology that it may require to conduct its business or that, if obtainable, such technology can be licensed at a reasonable cost.

INTELLECTUAL PROPERTY RIGHTS

The Company is aggressively pursuing the enforcement of its intellectual property rights after an extensive patent review conducted in 1999. During the first quarter, the Company retained a major law firm to enforce these rights against infringing parties, which management believes to be extensive. Despite the Company'sand its legal representatives' efforts, there can be no assurance or predictability as to any amount of recovery or the length of time it will take the Company to recover any royalties or license fees which may be recoverable. Despite the Company'sefforts to protect its intellectual property rights, unauthorized use may still occur, particularly in foreign countries.

DEVELOPMENT OF NEW PRODUCTS AND SOLUTIONS

The Company must make continuous investment in research and development to maintain its ongoing effort to continually improve its products and provide innovative solutions to its customers. The development of software products is a difficult and costly process and subject to many other products' requirements. The Company'sinability to timely deliver new products in the past has had an adverse effect on the Company'soperating and financial results. There can be no assurance that the Company will be able to effectively develop new products in the future.

COMPETITION

The Company competes with many established companies in the computer storage and server industries and certain of these companies have substantially greater financial, marketing and technological resources, larger distribution capabilities, earlier access to customers and more opportunity to address customers' various information technology requirements than the Company. The Company's business may be adversely affected by the announcement or introduction of new products by its competitors, including hardware, software and services, price reductions of its competitors' equipment or services and the implementation of effective marketing strategies by its competitors.

Competitive pricing pressures exist in the computer storage and server markets and have had and may in the future have an adverse effect on the Company's revenues and earnings. There also has been and may continue to be a willingness on the part of certain competitors to reduce prices in order to preserve or gain market share, which the Company cannot foresee. The Company currently believes that pricing pressures are likely to continue. The relative and varying rates of product price and component cost declines could have an adverse effect on the Company's earnings.

RAPID TECHNOLOGICAL CHANGES

The computer industry is changing both dramatically and rapidly. The development of "open systems computing", the introduction of the Internet, new fibre technologies (SAN) and the increasing storage density in disk drive technologies, have caused an increase in new product development and shorter time to bring the new products to market. While the Company believes that its Virtual Storage Architecture and StorageSuite products are advanced when compared to competitive products, and compliment many other products utilized in total customer solutions, there can be no assurance that this will continue in the future. The failure to remain consistently ahead of competitive technologies would have a negative impact on the Company'soperating results and financial condition.

BUSINESS ALLIANCES

Many companies are forming business alliances with their competitors, to be able to provide totally integrated storage solutions to their customers. One result of these alliances is to effectively preclude competitive products from being offered to the customers. Many of the relationships are exclusive and the Company'sfailure to develop similar relationships will effectively reduce the number of qualified sales opportunities the Company will have for its products in the future. The Company believes that it addresses this issue by its return to the reseller channel sales model and having the integrator/solution providers/value added-resellers perform the solution selling required. The Company'sfailure to open these sales channels will have a negative effect on the Company'soperating results and financial condition.

OPERATIONS

The Company's products operate near the limits of electronic and physical performance and are designed and manufactured with relatively small tolerances. If flaws in design, production, assembly or testing were to occur by the Company or its suppliers, the Company could experience a rate of failure in its products that would result in substantial repair or replacement costs and potential damage to the Company's reputation. Continued improvement in manufacturing capabilities and control of material and manufacturing quality and costs are critical factors in the future growth of the Company. The Company frequently revises and updates manufacturing and test processes to address engineering and component changes to its products and evaluates the reallocation of manufacturing resources among its facilities. There can be no assurance that the Company's efforts to monitor, develop and implement appropriate test and manufacturing processes for its products will be sufficient to permit the Company to avoid a rate of failure in its products that results in substantial delays in shipment, significant repair or replacement costs and potential damage to the Company's reputation, any of which could have a material adverse effect on the Company 's business, results of operations or financial condition.

Additionally, most companies in the high technology arena are under pressure to be able to acquire and retain the services of talented individuals. At present, there is a shortage in the number of qualified employees who are available, creating a lucrative job market for qualified and talented high tech employees. The Company has had a decline in revenue in each of the two previous years and comparable reduction in its work force. While the Company believes that it has the required core personnel to effectively manage and grow the Company, there can no assurance that key employees may leave the company in the future. The failure to maintain key employees could adversely affect the Company'soperating and financial results in the future.

LIQUIDITY AND WORKING CAPITAL

The Company'scontinued success depends on maintaining adequate liquidity and working capital to meet its operational requirements. Given the recent volatility in the securities markets and, in particular, the securities of technology companies, there can be no assurances that additional investors' investments in the Company will close. The failure of the Company to maintain adequate liquidity and working capital could have a material adverse impact on the Company.

FAILURE OF SUPPLIERS TO PROVIDE QUALITY PRODUCTS

The Company purchases several sophisticated components and products from one or a limited number of qualified suppliers. These components and products include disk drives, high density memory components and power supplies. The Company has experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet its quality and delivery requirements. If any of its suppliers were to fail to meet the quality or delivery requirements needed to satisfy customer orders for its products, the Company could lose time-sensitive customer orders and have significantly decreased quarterly revenues and earnings, which would have a material adverse effect on the Company'sbusiness, results of operations or financial condition. Additionally, the Company periodically transitions its product line to incorporate new technologies. The importance of transitioning its customers smoothly to new technologies, along with its historically uneven pattern of quarterly sales, intensifies the risk that a supplier who fails to meet its delivery or quality requirements will have an adverse impact on the Company's revenues and earnings.

CHANGES IN LAWS, REGULATIONS OR OTHER CONDITIONS THAT COULD ADVERSELY IMPAIR THE COMPANY'sCONDITION

The Company's business, results of operations and financial condition could be adversely affected if any laws, regulations or standards, both foreign and domestic, relating to the Company or its products were newly implemented or changed.

LITIGATION THAT THE COMPANY MAY BECOME INVOLVED IN MAY ADVERSELY AFFECT THE COMPANY

In the ordinary course of business, the Company may become involved in litigation, administrative proceedings and governmental proceedings. Such matters can be time-consuming, divert management's attention and resources and cause the Company to incur significant expenses. Furthermore, there can be no assurance that the results of any of these actions will not have a material adverse effect on its business, results of operations or financial condition.

The market risk inherent in the Company'sfinancial instruments relates primarily in fluctuations in the prime rate of interest to be charged to the Company under the terms of the promissory note for the revolving credit facility. The Company does not use derivative products or have any material unhedged monetary assets, except for the inter-company balances outstanding.

In April 2000, the Company designated 90,000 shares of Series A 8% Convertible Preferred Stock and closed the placement of an initial tranche, and issued 60,000 shares of Series A 8% Convertible Preferred Stock, (the "Series A Preferred Stock") to several purchasers for an aggregated purchase price of $6,000,000 (less approximately $180,000 in placement fees and commissions). The proceeds will be utilized to reduce the Company'sborrowings under its revolving credit facility and for its general working capital requirements.

There has not been any material default in the payment of principal, interest, or any other material default not cured within 30 days with respect to any indebtedness of the Company and its subsidiaries during the three month period ended March 31, 2000.

There were no matters submitted to a vote of security holders during the three month period ended March 31, 2000.

SUBSEQUENT EVENTS

At a meeting of the Company'sBoard of Directors on May 8, 2000, the Board elected two additional directors and named a new President and Chief Operating Officer, and a new Chief Financial Officer, as follows:

Theodore J. Goodlander, currently the Chief Executive Officer, President and Chairman of the Board of the Directors resigned his position as President and will retain his positions as both Chief Executive Officer and Chairman of the Board of Directors.

Edward A. Gardner was elected and will serve as both President and Chief Operating Officer of the Company and was appointed as a member of the Board of Directors.

Peter N. Hood was elected Chief Financial Officer of the Company.

Roger E. Gauld was appointed as a member of the Board of Directors and will serve as the chairman of Board'sAudit Committee.

None

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STORAGE COMPUTER CORPORATION

Registrant

Theodore J. Goodlander

Chairman of the Board of Directors

(Principal Executive Officer)