ANDATACO Reports Third Quarter Results.

SAN DIEGO--(BUSINESS WIRE)--Sept. 1, 1998--ANDATACO, Inc. (NASDAQ/SMALLCAP:ANDA) today reported results for the third fiscal quarter of 1998, which ended July 31, 1998.

Revenues for the quarter ended July 31, 1998 were $17,092,000, with a net loss of $1,874,000, or $0.08 per share, compared to revenues of $22,057,000, with a net loss of $4,169,000, or $0.19 per share, for the third quarter of fiscal 1997. The net loss for the quarter ended July 31, 1998 includes $418,000 for amortization of goodwill resulting from the merger of ANDATACO of California and ANDATACO, Inc. (formerly IPL Systems, Inc.) on June 3, 1997 (the "Merger"). The net loss for the quarter ended July 31, 1997 includes an expense of $2,400,000 for acquired in-process research and development, amortization of existing proprietary technology of $200,000 and goodwill amortization of $278,000 resulting from the Merger.

Revenues for the nine-month period ended July 31, 1998 were $59,848,000, with a net loss of $2,483,000, or $0.10 per share, compared to revenues of $69,094,000, with a net loss of $4,618,000, or $0.24 per share, for the nine months ended July 31, 1997. The net loss for the nine-month period ended July 31, 1998 includes $1,254,000 for amortization of goodwill resulting from the Merger. The net loss for the nine-month period ended July 31, 1997 includes an expense of $2,400,000 for acquired in-process research and development, amortization of existing proprietary technology of $400,000 and goodwill amortization of $278,000 resulting from the Merger.

Harris Ravine, Chief Executive Officer and Chairman of the Company's Board of Directors, commented, "This past quarter was a significant, but temporary, disappointment. The reasons contributing to this disappointment have been addressed and we are moving forward. The sales shortfall is a direct result of a slower than anticipated ramp in our Fibre Channel solutions offering which appears to have been corrected. This, combined with the changes in our sales organization, the availability of new LVD-based products, and our expanded tape and software partnerships cause us to be moving forward with confidence in our strategy of continuous data availability solutions for knowledgeable computer users."

During the first nine months of fiscal 1998, the Company generated $3,218,000 of cash from operations, primarily from improved management of working capital. Offsetting the cash generated from operations was cash used to reduce the Company's line of credit and note payable by $1,641,000 and purchases of property and equipment of $1,298,000.

ANDATACO President W. David Sykes said, "In the fourth quarter we are focused on managing the sales process and increasing sales productivity through our industry-leading products and services. Our entire organization is motivated to deliver improved results."

Recent Highlights

ANDATACO Extends Application-Specific Architecture with Five High

Performance Storage Solutions

New RAID solutions offer industry-leading performance, availability

and scalability at under $.40/MB

On August 11, 1998, ANDATACO introduced two powerful new RAID storage systems, storage management software, and the industry's first Ultra2 SCSI LVD (Low Voltage Differential) intelligent storage enclosure. The new products are high-performance extensions of ANDATACO's Application-Specific Architecture (ASA), the design process that specifically matches storage features to the individual data patterns of target applications in today's data-intensive NT & UNIX environments.

The complementary new solutions reflect ANDATACO's storage strategy, each one optimized for a different data structure and environment: GigaRAID/HA is the industry's fastest RAID solution in its class for RDBMS/OLTP, and GigaRAID/AA is the most scalable RAID system in its class for massive data warehouses, digital video graphics and technology development applications.

The GigaRAID/AA features ANDATACO's LVD-ready enclosure enabling its customers' easy transition, with investment protection, to the speed and connectivity advantages of Ultra2 LVD interface technology. Since the GigaRAID/AA is a superset of the GigaRAID/SX system with far superior scalability and functionality, it effectively replaces the G/SX as a premier solution for large block, sequential applications.

ANDATACO's new storage systems are supported by innovative storage management software, Client/S for GigaRAID/HA and Web Storage Manager for GigaRAID/AA. Client/S features enterprise-centric asset management software for proactive monitoring, control, configuration and service notification. Web Storage Manager 3.0 is the next generation of ANDATACO's WSM/RMU, the industry's first web-based storage management tool. Rewritten in Java, the network-centric Web Storage Manager proactively monitors, controls, configures and services GigaRAID/AA storage through a Netscape browser across the intranet and internet from any point in the enterprise. Both systems report problems via E-Mail for advanced warning of potential problems, and forward messages to ANDATACO's Services Department through a phone-home feature for rapid notification and response.

GigaRAID/8000 LVD, the industry's first Ultra2 SCSI Low Voltage Differential (LVD) RAID-ready storage system, incorporates the next generation of ANDATACO's award-winning Enterprise Storage Packaging (ESP). The multi-platform GigaRAID/8000 LVD is the first through-and-through Ultra2 LVD solution, with chassis, controllers and drives all capable of Ultra2 LVD speeds of 80MB/sec. It is easily expandable to software or hardware RAID. A variety of chassis interface adapter (CIA) cards are available to ensure that the customer will be able to use existing Ultra SCSI host bus adapters (HBAs), making the transition from current Ultra SCSI to Ultra2 SCSI environments smooth and affordable. Ultra SCSI speeds of 80 MB/sec. and scalability to 2 TB in a single data cabinet provide an exceptionally powerful storage system. GigaRAID/8000 LVD uses the latest 4, 9 and 18 GB drives, and is available in workgroup and enterprise models. It extends the family of ANDATACO's mass storage solutions that have become standard in several national technology test labs and development companies.

GigaRAID/HA and Client/S software are currently available. GigaRAID/AA, Web Storage Manager 3.0 and ESP 8000 LVD will be available in mid-September.

ANDATACO Demostrates Shared Storage Area Network Solution Using

Fibre Channel for Digital Video Industry

Storage Solution Increases Productivity 30% by

Reducing Production Time

On July 23, 1998 ANDATACO, a leader in storage area networks (SAN) for digital video applications, demonstrated a new SAN implementation at the SIGGRAPH `98 conference in Orlando, FL. ANDATACO SAN allows the real-time sharing of files using a Fibre Channel solution among heterogeneous work stations. The shared SAN solution, engineered and designed by ANDATACO using ANDATACO's storage and Mercury Computer Systems' SuiteFusionPro(TM), dramatically improves productivity up to 30% for video production, post-production and animation applications.

The ANDATACO SAN and Fibre Channel digital video demonstrated how sharing data in multi-function environments with an easy-to-manage centralized storage solution can increase productivity and allow users to spend more time developing and creating. Formerly, in a production environment, moving content between workstations was a logistical nightmare of completing one process on one system before being able to move on to the next step. ANDATACO's application centralizes storage and makes it simultaneously available to Sun, SGI, NT, and Mac systems so that the creative process is uninterrupted. Currently, ANDATACO is one of the only storage companies that can offer the products and expertise needed to implement this solution.

ANDATACO, Inc., with offices in San Diego, California, and Maynard, Massachusetts, designs, manufacturers, and distributes storage solutions based on its Application-Specific Architecture for Windows NT and UNIX environments. The Company's products include RAID and RAID-ready disk storage, tape backup and restore products; and storage management, and disaster recovery software. World-class technical support and service back the Company's products. The Company distributes internally developed products, and products from other manufacturers, through a network of 19 sales offices worldwide and through business affiliates in Europe, Asia, Latin America, Canada, and Australia. Information on ANDATACO, Inc.'s award-winning products can be accessed via the internet at www.anadataco.com.

This press release contains forward-looking statements that are subject to risks and uncertainties. These forward looking statements include the Company's product development timetable and goals of increasing sales and sales productivity. There are a number of factors that could cause actual results to differ materially from any forward-looking statements contained in this release. Any such statements are based on the assumptions and expectations of the Company's management at the time these statements are made. These factors include, but are not limited to: rapid technological and market changes which could shorten the life cycle of existing products; dependence on key personnel and suppliers; competitive pressures; continued new product introductions; market acceptance of the Company's new product introductions; and new product introductions by competitors. Additional information on potential factors that could affect the Company's financial results are included in the Company's Annual Report to the SEC on Form 10-K for the fiscal year ended October 31, 1997 and the Company's other periodic reports.

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Andataco, Inc.
Consolidated Balance Sheet
                                           July 31,      October 31,
                                             1998            1997
                                          (Unaudited)
Assets

Current assets:
 Cash                                     $   320,000    $    41,000
 Accounts receivable, net                   8,352,000     10,846,000
 Inventories                                4,959,000      7,458,000
 Other current assets                         406,000        353,000

  Total current assets                     14,037,000     18,698,000

Goodwill, net                               6,411,000      7,665,000
Equipment and improvements, net             3,660,000      3,599,000
Other assets                                    1,000         27,000
                                           ----------     ----------
                                          $24,109,000    $29,989,000

Liabilities and Shareholders' Equity

Current liabilities:
 Accounts payable                         $ 6,569,000    $ 7,660,000
 Accrued expenses                           2,674,000      4,202,000
 Deferred revenue                           2,417,000      1,554,000
 Current portion of notes payable                  --        113,000

  Total current liabilities                11,660,000     13,529,000

Long-term liabilities:
 Bank line of credit                        5,000,000      6,500,000
 Notes payable, less current portion               --         28,000
 Shareholder loan                           5,196,000      5,196,000

  Total long-term liabilities              10,196,000     11,724,000

Shareholders' equity:
 Common stock                                 238,000        238,000
 Additional paid in capital                10,107,000     10,107,000
 Accumulated deficit                       (8,092,000)    (5,609,000)

  Total shareholders' equity                2,253,000      4,736,000
                                           ----------     ----------
                                          $24,109,000    $29,989,000


Andataco, Inc.
Consolidated Statement of Operations
(Unaudited)
                       Three months ended        Nine months ended
                            July 31,                  July 31,
                       1998         1997         1998         1997

Sales              $17,092,000  $22,057,000  $59,848,000  $69,094,000
Cost of sales       12,733,000   17,151,000   42,033,000   53,609,000

  Gross profit       4,359,000    4,906,000   17,815,000   15,485,000

Operating expenses:
 Selling, general
  and administrative 5,325,000    6,015,000   17,788,000   15,690,000
 Rent expense to
  shareholder           83,000       83,000      249,000      249,000
 Purchased research
  and development           --    2,400,000           --    2,400,000
 Research and
  development          568,000      304,000    1,482,000      918,000

  Total operating
   expenses          5,976,000    8,802,000   19,519,000   19,257,000

Loss from
 operations         (1,617,000)  (3,896,000)  (1,704,000)  (3,772,000)

Interest expense       140,000      156,000      428,000      501,000
Interest expense to
 shareholder           117,000      117,000      351,000      345,000

Net loss           $(1,874,000) $(4,169,000) $(2,483,000) $(4,618,000)

Loss per share:
 Basic                 $ (0.08)     $ (0.19)     $ (0.10)     $ (0.24)
 Diluted               $ (0.08)     $ (0.19)     $ (0.10)     $ (0.24)

Shares used in
  computing net
  loss per share
 Basic              23,819,399   21,688,262   23,819,399   19,294,898
 Diluted            23,819,399   21,688,262   23,819,399   19,294,898

CONTACT: ANDATACO, Inc.

Anita Buchanan, [phone] or [phone]

[e-mail]