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Zitel Reports First Quarter Fiscal 1997 Results

 CASD Sales Increased Nearly 90%


FREMONT, Calif., Jan. 20 /PRNewswire/ -- Zitel Corporation (Nasdaq: ZITL) today reported operating results for the first quarter of fiscal 1997 ended December 31, 1996.

Revenue for the first quarter of fiscal 1997 totaled $5,584,000, as compared to $7,313,000 in the year ago quarter due to lower royalties from IBM. The net loss for the first quarter of fiscal 1997 was $567,000 or $0.04 per share versus net income of $1,643,000 or $0.11 per share in the comparable fiscal 1996 quarter. Weighted average shares outstanding in the first quarter of fiscal 1997 were 14,953,000 compared to 15,444,000 for the first quarter of fiscal 1996.

"During the quarter, we began to see the benefits of our strengthened sales and marketing infrastructure, as sales of our CASD product increased nearly 90% from the fourth quarter of fiscal 1996," stated Jack H. King, president and chief executive officer. "We continued to gain growing customer acceptance of CASD/Enterprise as a baseline against which other advanced storage products are measured. Additionally, we added several seasoned sales professionals, both domestically and in Europe, and significantly expanded our distributor network abroad."

Mr. King continued, "Royalties from IBM were impacted by the transition from the RAMAC 2 generation storage system to RAMAC 3. The new RAMAC 3 contains nine gigabyte drives versus the previous generation's four gigabyte drives. This increased capacity causes us to believe that royalties will not return to historical levels."

Mr. King continued, "The Company recently announced the appointment of Arthur L. Chait as Vice President and General Manager of the Zitel Solution Services Division, which is a reseller partner of MatriDigm Corporation's Year 2000 conversion services. In conjunction with MatriDigm's recent announcement that they expect general availability of their factory services to be February 10th, we have received our first 'slot' in the factory and we are prepared to use the allocated time for a customer code conversion."

Mr. King concluded, "While we were disappointed by the financial results of the quarter, the progress of the CASD product line and the Solution Services Division provide us with cautious optimism about our ability to meet our plan for the year."

This news release contains forward-looking statements that involve risks and uncertainties, including those discussed in the Company's report on Form 10-K for the fiscal year ended September 30, 1996.

Zitel Corporation specializes in the design, manufacture and marketing of high-performance, enterprise-class, storage subsystems for enterprise-wide, mission-critical applications which include relational database, batch and on-line transaction processing. The Company also develops and markets single-system and multi-system performance measurement and modeling software used on a variety of UNIX and proprietary platforms to measure the performance of Client/Server environments. Additionally, the Company's Solution service Division is a certified reseller of the MatriDigm corporation's Year 2000 compliance services. Zitel products are offered through systems integrators, value added resellers and distributors, OEMs and directly to end users. The Company is headquartered at 47211 Bayside Parkway, Fremont, CA 94538. Telephone: 510-440-9600 or 800-622-5020. FAX: 510-440-9696. http://www.zitel.com. For information on Year 2000 compliance services, call 888-FIND-FIX.

NOTE: Zitel and CASD are registered trademarks of Zitel Corporation. All other product names and brand names are trademarks or registered trademarks of their respective holders.
 Zitel Corporation
 CONSOLIDATED SUMMARY OF FINANCIAL STATEMENTS
 (Thousands except per share amounts)
 Consolidated Statements of Operations
 (In Thousands Except Per Share Data)
 (Unaudited)
 Three Months Ended
 12/31/96 12/31/95
 Net sales $3,266 $2,844
 Royalty revenue 2,318 4,469
 Total revenue 5,584 7,313
 Cost of goods sold 2,798 1,920
 Research & development expenses 1,621 1,569
 Selling, general and administrative expenses 2,493 1,980
 Operating income (loss) (1,328) 1,844
 Other income (442) (785)
 Income (loss) before income taxes (886) 2,629
 Provision (benefit) for income taxes (319) 986
 Net income (loss) $ (567) $ 1,643
 Net income (loss) per share (.04) .11
 Number of shares used in per share calculation 14,953 15,444
 Consolidated Balance Sheets
 (In Thousands)
 (Unaudited)
 Dec. 31, Sept. 30,
 Assets 1996 1996


Current assets
 Cash and cash equivalents $ 7,826 $9,216
 Short-term investments 2,680 2,382
 Accounts receivable 5,243 5,542
 Inventories 3,627 4,211
 Deferred and refundable taxes 2,522 2,224
 Other current assets 467 480
 Total current assets 22,365 24,055
 Fixed assets, net 2,379 2,253
 Other assets, net 5,808 4,391
 Total assets $30,552 $30,699


Liabilities and shareholders' equity

Current liabilities
 Accounts payable $ 1,947 $ 2,066
 Accrued liabilities 1,472 1,544
 Total current liabilities 3,419 3,610


Shareholders' equity:
 Common stock 21,334 20,723
 Retained earnings 5,799 6,366
 Total shareholders' equity 27,133 27,089
 Total liabilities and shareholder' equity $30,552 $30,699


SOURCE Zitel Corp.
 -0- 01/20/97 R


/CONTACT: Henry C. Harris, Vice President of Finance of Zitel Corp., 510-440-9600 or 800-622-5020; or Lisa Laukkanen, or Jon Squire, or Doug Sherk, 415-296-7383, or Emily Dupree or Josh Pashman, 212-850-5600, all of Morgen-Walke Associates, for Zitel/

/Zitel's press releases available through Company News On-Call by fax, 800-758-5804, ext. 997450, or at http://www.prnewswire.com/

(ZITL)

CO: Zitel Corp. ST: California IN: CPR SU: ERN

GZ-CL -- SFM010R -- 0046 01/20/97 06:37 EST http://www.prnewswire.com
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Date:Jan 20, 1997
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