EXHIBIT 99.1
FOR IMMEDIATE RELEASE
ZITEL REPORTS ON STATUS OF COMBINATION WITH
MATRIDIGM CORPORATION AND YEAR-END RESULTS
FREMONT, CA, December 21, 1998 -- Zitel Corporation (Nasdaq:
ZITL) today announced that it has re-structured the planned transaction to
combine with MatriDigm Corporation. Instead of the planned merger, Zitel
will convert $3,200,000 of notes receivable plus accrued interest into
MatriDigm preferred stock. Zitel's resulting ownership in MatriDigm will
increase to approximately 58%. As part of the revised plan, the merger
agreement is being terminated. The modified transaction is expected to
close in January 1999. Discussions to combine the companies have been
suspended but may be re- instated at a later date.
Zitel also reported results for the fourth fiscal quarter and
year ended September 30, 1998. The Company announced revenue of $4,022,000
for the fourth quarter of fiscal 1998 versus revenue of $6,258,000 for the
same quarter of the prior year. Prior year revenue included $3,154,000 in
sales and services related to the storage business unit, which was disposed
of in the third quarter of the current fiscal year, and $728,000 in royalty
revenue which terminated in April 1998. Revenue from the Datametrics
division increased 54% to $3,651,000 during the current quarter from
$2,376,000 for the same quarter of the prior year. As a result of the delay
in the materialization of the Y2K market and the disappointing revenue
results, to date, by MatriDigm, the Company wrote off its investment,
loans, notes, and bank guarantee of $10,616,000. In addition, the results
included charges associated with the final wrap up of the storage business
unit of approximately $1,670,000 and costs associated with the subordinated
debentures of $1,058,000. The resulting net loss for the quarter was
$14,691,000 or $0.74 per share versus a net loss of $7,046,000 or $0.46 per
share for the same quarter of the prior year. Weighted average shares
outstanding in the fourth quarter of fiscal 1998 were 19,923,000 compared
to 15,439,000 for the fourth quarter of fiscal 1997.
For the twelve months ended September 30, 1998, the Company
reported revenue of $21,700,000 versus $17,966,000 for the prior year and a
net loss of $43,205,000 or $2.48 per share for the current year versus a
net loss of $17,501,000 or $1.15 per share for the prior year. Weighted
average shares outstanding in fiscal 1998 were 17,433,000 compared to
15,222,000 for fiscal 1997. Subsequent to the end of the year, the
remaining outstanding $4,585,000 of the $10,000,000 Subordinated
Convertible Debentures converted to approximately 1,250,000 of common
stock.
"The decision to write off the balance of our investments in
and advances to MatriDigm was both difficult and troubling because the size
and amount of opportunities currently being negotiated by Zitel and
MatriDigm today are larger and appear to be closer to completion than in
the past," commented Jack H. King, President and CEO, "but without executed
contracts to support the value, we reluctantly concluded that the most
conservative course was to reserve the balance."
"As to the re-structuring of the transaction with MatriDigm,"
continued Mr. King, "the resulting benefits to the shareholders are
substantially better than the prior plan. With the change in ownership to
58%, MatriDigm's financial results will be consolidated with Zitel's
financial statements for reporting purposes. In addition, most of the
infrastructure and business items in the original definitive agreement are
expected to be implemented."
"Zitel has emerged from fiscal 1998 considerably battered and
bruised but with an adequate balance sheet and two business units with
strong prospects for the future," King concluded. "Once the costs of the
terminated merger are behind us, the Company should be positioned to return
to profitability."
This press release contains projections and other
forward-looking statements regarding future events or the future financial
performance of the Company. These statements are only predictions and
actual events or results may differ materially. Refer to the documents the
Company files from time to time with the Securities and Exchange
Commission. These documents contains and identify important factors that
could cause the actual results to differ materially from those contained in
the projections or forward-looking statements in this press release.
Zitel Corporation is an Information Technology company
specializing in systems optimization, modeling and search technology. The
Company's Year 2000 services include consulting, project management,
planning, analysis, code conversion, and testing. Zitel's headquarters are
located at 47211 Bayside Parkway, Fremont, CA 94538. Telephone: (510)
440-9600 or (800) 622-5020. FAX: (510) 400-9696. http://www.zitel.com. For
information on Year 2000 services, call (888) FIND-FIX. Visit Zitel's web
site for information and instructions to receive press releases via e-mail.
Consolidated Financial Summary follows.
Zitel is a registered trademark 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
Consolidated Statements of Operations
(In Thousands Except Per Share Data)
Three Months Ended Twelve Months Ended
9/30/98* 9/30/97* 9/30/98 9/30/97
------- ------- ------- -------
Net Sales $ 4,022 $ 5,530 $ 20,159 $ 12,626
Royalty Revenue - 728 1,541 5,340
Total Revenue 4,022 6,258 21,700 17,966
Cost of goods sold 1,915 3,058 12,155 9,301
Research & development expenses 851 2,598 6,419 7,504
Selling, general and
administrative expenses 4,538 5,679 24,012 14,468
Loss on impairment of assets 105 - 2,061 -
Loss from unconsolidated company 10,616 - 10,616 -
Acquisition of in-process
research & development expenses - - - 6,600
Operating loss (14,003) (5,077) (33,563) (19,907)
Other expense 735 1,969 3,142 2,097
Loss before income taxes (14,738) (7,046) (36,705) (22,004)
Provision (benefit) for income
taxes (47) 0 6,500 (4,503)
Net loss $ (14,691) $ (7,046) $ (43,205) $ (17,501)
Net loss per share $ (.74) $ (.46) $ (2.48) $ (1.15)
Number of shares used in per
share calculation 19,923 15,439 17,433 15,222
Consolidated Balance Sheets
(In Thousands)
September 30, 1998 September 30, 1997
Assets
Current Assets
Cash and cash equivalents $ 6,589 $ 4,224
Short-term investments - 9,596
Accounts receivable 3,579 6,547
Inventories - 3,050
Deferred and refundable taxes 208 3,540
Other current assets 749 993
Total current assets 11,125 27,950
Fixed assets, net 1,311 3,700
Other assets, net 5,634 17,644
Total assets $ 18,070 $ 49,294
Liabilities and shareholders'
equity
Current liabilities
Accounts payable $ 3,585 $ 4,768
Accrued liabilities 3,666 4,419
Total current liabilities 7,251 9,187
Convertible subordinated
debenture 4,585 24,161
Total Liabilities 11,836 33,348
Shareholders' equity
Common Stock 60,574 27,081
Accumulated deficit (54,340) (11,135)
Total shareholders' equity 6,234 15,946
Total liabilities and
shareholders' equity $ 18,070 $ 49,294
*Three months ended 9/30/97 and 9/30/98 are unaudited.