FORM 10-K/A
(as amended December 22, 1995)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-12194
ZITEL CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2566313
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
47211 Bayside Parkway, Fremont, California 94538-6517
(Address of principal executive offices) (Zip Code)
(510) 440-9600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 aggregate market value of the Registrant's Common Stock held by
nonaffiliates on November 30, 1995 (based upon the closing sale price of stock
on such date) was $80,993,560. As of November 30, 1995, 7,297,187 of the
Registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Company's 1995 Notice of Annual Meeting of Shareholders and
Proxy Statement are incorporated by reference into Part III hereof.
<PAGE>
PART I
Item 1: BUSINESS
Business
Zitel Corporation ("Zitel" or the "Company") specializes in the design,
manufacture and marketing of high-performance, mission-critical storage
subsystems for relational database, batch and on-line transaction processing.
The Company also develops and markets single-nodal and multi-nodal performance
management and simulation software used on a variety of UNIX and proprietary
platforms to manage performance of LANs, MANs, WANs, and processor environments.
Its primary products include CASD (Cached Actuator Storage Device) subsystems
for Unisys A and V mainframes; SCP (Storage Co-Processor), products based on
CASD technology for UNIX, NT, Open VMS and NETWARE based systems; and
performance and modeling software products. These products are offered through
systems integrators, value-added resellers (VARs) and distributors, OEMs
(original equipment manufacturers), and directly to end users. The Company
conducts its business within one industry segment.
Zitel was organized in 1979 to provide semiconductor memory systems to OEM
customers. The Company's first end user product was the solid state RAMdisk sold
to users of Unisys Corporation mainframe computer systems. The Company then
introduced its line of rotating memory systems incorporating its CASD
technology, enhanced with caching solid state memory and proprietary algorithms,
also for Unisys computer systems. In 1995, the Company announced the
availability of the CASD products for the open systems/relational database
market. In late fiscal 1995, the second generation of CASD (CASD-II) was
announced for general availability into the Unisys market. CASD-II for the open
systems/relational database markets were announced in December 1995. The Company
operates with little backlog, so most of its orders are shipped in the quarter
received.
Three years ago, the Company entered into a joint development agreement with
International Business Machines (IBM) Corporation. In September and October of
1994, IBM announced general availability of RAMAC products, which incorporate
Zitel technology, and upon which the Company is receiving royalties as RAMAC
products are sold. In October 1995, IBM announced the general availability of
RAMAC 2, its second generation of RAMAC which continues to include Zitel
technology and upon which Zitel will receive royalties as RAMAC products are
sold.
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The Company has historically, during certain quarters, made material sales to a
single customer which have had significant impact on net sales and on operating
margins. Operating margins can also fluctuate from quarter to quarter due to
product mix and other cost of sales, which do not vary directly with sales
volume. As a result of these and other factors, the Company has experienced
fluctuations in its quarterly operating results in the past and anticipates such
fluctuations in the future.
Research and Development and New Products
During fiscal 1995, the Company invested in a number of development programs
including CASD-II, the next generation of rotating memory systems incorporating
its CASD technology; other CASD and SCSI programs; and the development of
NetArchitect, a software package for client/server network design and
simulation. Expenditures for research and development activities were
approximately $5,754,000, $7,071,000 and $8,420,000 in fiscal 1995, 1994 and
1993, respectively.
The computer industry, in general, and the markets for the Company's products,
in particular, are subject to extreme price competition, rapid technological
change and evolving standards, resulting in relatively short product life cycles
and continuous erosion of average selling prices. As a result, the Company must
continually enhance its existing products and develop and introduce new products
in an effort to maintain and increase net sales. The Company has experienced
delays in completing the development of new products and may well encounter
difficulties that could delay the products currently under development. There
can be no assurance that the Company will be successful in its enhancement and
development efforts or in achieving market acceptance of products developed.
Products
The Company offers a family of rotating memory systems utilizing the CASD
technology for use with Unisys A/V mainframe computers and with most UNIX, NT,
Open VMS and NETWARE server platforms.
The first generation of CASD products, introduced in 1991, integrates a
high-capacity solid state cache with a single rotating disk drive and utilizes
interactive caching algorithms. Modules utilizing the CASD technology are
available in cache sizes ranging from 4 to 256 megabytes and with single
rotating disks with capacities from 674 megabytes to 4 gigabytes,
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depending on the market the products are sold into. These modules can be sold on
an individual module basis or are available in cabinet configurations ranging
from one to twenty modules. Pricing for a single module ranges from
approximately $6,000 to $28,000. Subsystems incorporating CASD technology are
available in prices from $12,000 to $568,000, depending on the number of modules
utilized, the amount of cache utilized, optional equipment, and other factors.
CASD-II, the second generation of CASD products, was introduced in September,
1995. These products integrate a high-capacity solid state cache with multiple
rotating disk drives and utilize interactive caching algorithms. Modules
utilizing the technology are available with cache sizes ranging from 64 to 256
megabytes and with one to four disk drives with capacities from 4.3 to 17.2
gigabytes, depending on the market the products are sold into. These modules can
be sold on an individual module basis or are available in cabinet configurations
ranging from one to six modules and up to 103 gigabytes per cabinet. Pricing for
a single module ranges from approximately $30,000 to $60,000. Subsystems
incorporating CASD technology are available in prices from $30,000 to $350,000,
depending on the number of modules utilized, the amount of cache utilized,
optional equipment, and other factors.
Performance and Modeling, Inc., Zitel's wholly-owned subsidiary, has designed
and developed VAM/Perspective Capacity Planner and NetArchitect software
products.
VAM/Perspective Capacity Planner has unique features which provide Information
Technology managers with the ability to architect and evaluate a client/server
environment and to test for performance bottlenecks before installing expensive
equipment. VAM/Perspective measures and simulates performance of UNIX, IBM MVS,
Digital VMS, Unisys proprietary, and a wide variety of open systems platforms.
This software tool aids system administrators to anticipate, track and correct
system performance bottlenecks and I/O problems.
NetArchitect is Performance and Modeling's latest sophisticated network modeling
tool that has an intuitive, easy-to-use, Windows- based Graphical User
Interface. This package is designed for the Network Administrator who has the
responsibility of designing and installing a new network, or maintaining and
expanding existing structures. As network requirements become increasingly more
complex, computer-aided tools will be mandatory to sort through and evaluate the
many issues and possibilities
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prior to the investment and installation of significant amounts of capital
equipment. With these capabilities in mind, NetArchitect also has practical
applications as a pre-sales tool for systems integrators, VARs, and other
channels selling or consulting on network management. NetArchitect runs under
Windows 3.X, Windows 95 and Windows NT.
Zitel offered a family of performance enhancing semiconductor memory systems
(RAMdisk and Primary Storage Systems) to end users of Unisys medium and large
mainframe computers for several years. These products are reaching the end of
their life. The price for a single subsystem ranges from approximately $35,000
to $450,000, depending on memory capacity and optional equipment.
The Company sold two HIPPI interface board products and introduced a new
HIPPI-VME Intelligent Interface Board during the year. The price of a HIPPI
board ranges from $7,000 to $13,000. This business segment was sold during 1995.
Marketing and Customers
Zitel offers its products through system integrators, value-added resellers and
distributors, OEMs, and directly to end users. Zitel's direct sales and service
staff consists of employees who operate from California, Kansas, Massachusetts,
Tennessee, Virginia, and Europe.
In fiscal 1995, Lockheed Martin Missiles and Space Company accounted for 14.3%
of net sales. In fiscal 1994, Unisys Mexico accounted for 14.5% of net sales. In
fiscal 1993, Unisys Mexico accounted for 11.3% of net sales.
During fiscal 1995, Zitel sold to approximately 140 customers including both
domestic and international. Foreign and export sales were approximately $3.1
million in fiscal 1995, down from approximately $4.9 million in fiscal 1994.
Zitel does not maintain a field service organization. Typically, customers
contract with a third party to maintain products. The end-user organization is
staffed with experienced technical support personnel to make or assist in the
initial installations; assist the service organization with problem resolution
and field upgrades; assist customers in determining whether or not Zitel
products can improve system reliability, performance and cost effectiveness; and
in helping customers determine how best to deploy Zitel products in their system
to achieve the maximum benefit.
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Competition
During fiscal 1995, the Company generated a majority of its net sales in the
Unisys end user market. Unisys Corporation offers alternative products by which
a computer user can achieve enhanced performance. Zitel products compete against
these alternatives in providing the customer with the best performance solution.
Zitel also competes with other independent manufacturers of Winchester disk
and/or solid state disk devices in the Unisys market and several system
integrators. During fiscal 1995, competition remained at a high level and
average sales prices continued to decline.
Depending on the other markets served, the Company may compete with the computer
manufacturer and/or third party companies or with a customer's in-house
engineering department and/or third party manufacturers.
Patents
Management believes that technical expertise, responsiveness to user
requirements and implementation of technological advances are mandatory factors
in Zitel's markets. Zitel applied for additional patent protection on certain
elements of its CASD products, VAM software products and other products in the
development stage. During the year, the Company received three patents on its
CASD technology, VAM technology and other products in the development stage,
bringing the total patents currently held to four. There can be no assurance
that any of the other patents applied for will be issued or, if issued, provide
any meaningful protection.
Manufacturing and Suppliers
Zitel manufactures a large percentage of its hardware products from standard
component parts and subassemblies purchased from others. Certain of these parts,
including printed circuit boards and subassemblies, are produced from Zitel's
design and to its specifications. Use of such standard items simplifies the
manufacturing process, reduces the number of items carried in inventory and
permits Zitel to expand its product line while minimizing the expense of
designing and developing new assemblies.
The Company utilizes various subcontractors to assemble and solder printed
circuit boards using material purchased by the Company or to produce surface
mount ASICs to Zitel's workmanship
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standards. Completed assemblies are then inspected by Zitel's receiving
inspection department and submitted to its manufacturing test operation. This
test operation provides board- level and system-level testing under stressed
operating conditions.
The Company's hardware products use a large number of semiconductor memory
devices and, as a volume user, the Company has historically been able to
purchase these devices at favorable prices. Most of the other components used in
products are available from several sources and the Company believes that the
loss of one or more of its suppliers will not have a material effect on
operations.
Employees
At the end of fiscal 1995, the Company employed 92 persons on a full time basis,
32 in research and development, 13 in manufacturing, 26 in sales and marketing,
and 21 in general management and administration.
The Company believes that its further success will depend, in part, on its
ability to attract and retain qualified employees, who are in great demand. None
of Zitel's employees are represented by a labor union and the Company believes
that its employee relations are good.
Item 2: PROPERTIES
Zitel leases its primary manufacturing and office facility under a
non-cancelable operating lease, which expires in March 1998, with an average
annual rent of approximately $502,000 per annum.
Item 3: LEGAL PROCEEDINGS
None.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 1995.
Executive Officers of the Registrant
Set forth below is information regarding executive officers of the Company who
are not directors.
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Name Age Position
Richard F. Harapat 60 Vice President, Sales
Henry C. Harris 47 Vice President, Finance and
Administration; Chief Financial
Officer; Chief Accounting Officer;
Secretary
Donald F. Olker 60 Vice President, Manufacturing
Frank J. Vukmanic 49 Vice President, Marketing
Richard F. Harapat joined Zitel as Director of International Sales in March of
1986. In October of 1987, he was promoted to Vice President of End User Sales
and, in mid-1992, to Vice President of Sales, his current position. Prior to
joining Zitel, he spent over 30 years in the computer industry in the sales
management area, 15 of which were with Burroughs Corporation.
Henry C. Harris, CPA, joined Zitel as Vice President of Finance and
Administration, Chief Financial Officer and Chief Accounting Officer in December
1986. He has served as Secretary of the Company since November 1987. Prior to
joining Zitel, he was employed by Dynamic Disk, Inc. as Vice President of
Finance and Administration and Chief Financial Officer from October 1983 until
November 1986. Prior to Dynamic Disk, he spent over 10 years in financial
management and public accounting positions.
Effective September 1995, Donald F. Olker retired and resigned as an officer of
the Company. Mr. Olker served as Vice President of Manufacturing since October
1994 and Vice President of Business Development & Special Programs since
November 1986. Mr. Olker also held the position of Executive Vice President of
CHI Systems, Inc., a wholly-owned subsidiary of Zitel. He joined Zitel as
Director of Marketing in March 1983 and held the position of Vice President of
Sales from January 1984 to November 1986. Prior to joining Zitel, he was
employed in various managerial positions in marketing at Intel Corporation from
1979 to 1983.
Frank J. Vukmanic has served as Vice President of Marketing since joining Zitel
in June 1994. Prior to joining Zitel, Mr. Vukmanic was CEO of Edgetech
International, a consulting firm, from October 1993 until joining Zitel. From
June 1989 to September 1993, Mr. Vukmanic was Sr. Vice President of Amperif
Corporation responsible for worldwide sales, marketing, customer support, and
customer engineering for mass storage products. For 19 years prior to joining
Amperif, Mr. Vukmanic held various sales and
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marketing management positions with Unisys Corporation. His experience includes
over 25 years in sales, marketing, product management, customer service and
support management, and program management.
- - -----------------------------
Zitel, CASD and RAMdisk are registered trademarks of Zitel Corporation.
NetArchitect, Primary Storage Systems, SCP, and VAM are trademarks of Zitel
Corporation.
All other product names and brand names are trademarks or registered trademarks
of their respective owners.
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<PAGE>
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Zitel's Common Stock is traded in the NASDAQ National Market System under the
symbol "ZITL". The following table sets forth the closing sales prices as
reported by the National Association of Securities Dealers.
FISCAL 1995 1994
------------------- ---------------
High Low High Low
-------- -------- ------- -----
First Quarter 13 11/16 7 1/8 4 13/16 3
Second Quarter 20 3/4 10 11/16 3 7/8 2 1/4
Third Quarter 13 8 1/8 5 1 7/8
Fourth Quarter 13 5/8 9 1/4 8 7/8 4
As of September 30, 1995, the Registrant had approximately 243 shareholders of
record of its Common Stock.
Zitel has never paid cash dividends and the Board of Directors does not
anticipate declaring cash dividends in the foreseeable future.
Item 6: SELECTED FINANCIAL DATA
Five-Year Financial Summary
(In thousands except per share data)
1995 1994 1993 1992 1991
Total Revenue $23,714 $17,452 $21,780 $47,771 $48,347
Net income (loss) 8,526 (6,961) (8,277) 783 3,265
Net income (loss) per share 1.12 (1.10) (1.34) .12 .53
Number of shares used in
per share calculation 7,583 6,327 6,179 6,555 6,183
At year end:
Working capital 19,969 7,202 15,668 18,374 18,464
Total assets 26,206 13,678 24,230 32,442 28,306
Long-term liabilities - 13 4,355 305 1,153
Shareholders' equity 22,957 10,004 16,203 23,802 22,033
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Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the five-year
summary of selected financial data and the Company's consolidated financial
statements and notes thereto.
Business
Zitel Corporation (the "Company" ) specializes in the design, manufacture and
marketing of high-performance, mission-critical storage subsystems for
relational database, batch and on-line transaction processing. The Company also
develops and markets single-nodal and multi-nodal performance management and
simulation software used on a variety of UNIX and proprietary platforms to
manage performance of LANs, MANs, WANs, and processor environments. These
products are marketed worldwide through a wide variety of channels including
systems integrators, value-added resellers and distributors, OEMs, and directly
to end users.
1995 vs. 1994
Total revenue for 1995 was $23,714,000 compared with revenues of $17,452,000 in
the prior year, an increase of 36%. The increase in revenue is attributable to
an increase of $8,743,000 in royalties ($15,421,000 in 1995 versus $6,678,000 in
1994), partially offset by a decrease of $2,481,000 in net sales ($8,293,000 in
1995 versus $10,774,000 in 1994). Royalties based on a third party's sales of
products incorporating the Company's technology were received for the entire
1995 fiscal year.
In 1994, royalties represented a one-time non-refundable prepayment of
$6,378,000 from this third party and $300,000 from product sales in the fourth
quarter of the fiscal year. In October 1995, the third party announced general
availability of and commenced shipments of a second generation product
incorporating the Company's technology and management expects significant
continuing royalties in fiscal 1996.
The decrease in net sales has continued to impact operational profitability
excluding royalty revenue. The decrease in net sales is primarily attributable
to competitive factors in the data storage market which have made the Company's
original generation of CASD products to be less cost effective solutions for
end-users of Unisys Corporation computer systems. A new generation of CASD
products for the Unisys market was announced
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for general availability in early October 1995. Initial response to this market
has been very positive. Additionally, a new generation of CASD products for the
open systems market is expected to be released during the first quarter of
fiscal 1996. The new generation of CASD products is priced competitively while
providing CASD's embedded intelligence based performance. Management is
cautiously optimistic that these new products will generate increased net sales
in fiscal 1996.
Cost of goods sold as a percentage of net sales decreased to 82% during 1995
from 90% of net sales in the prior year. The improvement in gross margin is
primarily attributable to a decrease in other cost of sales which do not vary
directly with sales volume.
Research and development expenses were 24% of total revenue versus 41% of total
revenue in the prior year. Spending decreased $1,317,000, primarily attributable
to decreased development spending as a result of the completion of a major
development program, and lower salary and related costs in connection with a
reduction in personnel.
Selling, general and administrative expenses were 29% of total revenue versus
43% of total revenue in the prior year. Actual spending decreased $586,000. The
decrease is primarily attributable to the reversal of a bad debt reserve for an
expected collection of a receivable ($350,000).
Interest expense in fiscal 1995 was $57,000 versus $310,000 in the prior year.
The decrease is primarily attributable to lower levels of debt in fiscal 1995
versus 1994. Interest income in fiscal 1995 was $399,000 versus $174,000 in
1994. The increase is primarily related to higher cash balances invested in
fiscal 1995 versus 1994.
In 1995, the Company recorded a tax provision of 33.2% of income before income
taxes. This provision was offset by the utilization of net operating losses and
the recognition of deferred tax assets in accordance with SFAS No. 109,
Accounting for Income Taxes, totaling $5,500,000.
1994 vs. 1993
Total revenue was $17,452,000, down 20% from the prior year revenues of
$21,780,000. Included in the current year revenue was the receipt of $6,678,000
of royalty resulting from a joint development agreement with a third party,
$6,378,000 of prepaid
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non-refundable royalties and $300,000 based on initial shipment of products in
late September. Net sales were $10,774,000, down 51% from the prior year net
sales of $21,780,000. The Company experienced a significant decline in demand
for both the solid state and rotating memory products. During the year, average
sales prices of solid state and rotating memory products in the Unisys market
declined 43% and 63%, respectively.
Cost of goods sold as a percentage of net sales increased to 90% during the year
from 55% of net sales in the prior year. Cost of goods sold increased primarily
as a result of reduced average selling prices and the increase in other cost of
sales which do not vary with sales volume.
Research and development expenses were 41% of revenue versus 39% of revenue in
the prior year. Actual spending, however, decreased $1,349,000 during the year
due to a reduction in payroll and related costs.
Selling, general and administrative expenses were 43% of revenue compared to 51%
of revenue in the prior year. Actual spending decreased $3,618,000. Spending
declined due to a reduction of staff and their related costs ($2,100,000).
Additionally, there was decreased spending in travel and entertainment
($380,000), facility relocation ($350,000), facility expense ($320,000), and
professional services ($330,000).
Interest expense in 1994 was $310,000 versus $178,000 in the prior year. The
increase is primarily related to the increase in debt during the year versus the
prior year. Interest income received in 1994 was $174,000 compared to $183,000
in 1993.
Other expense for 1994 was immaterial, but was $425,000 in 1993, which included
losses on the conversion of foreign currencies and hedging transactions of
$453,000.
Liquidity and Capital Resources
The Company's principal sources of working capital are product sales and royalty
revenue. Working capital increased $12,767,000 during fiscal 1995 and cash flows
provided by operations were $7,573,000. Cash flows from operating activities
were generated primarily from net income of $8,526,000, a decrease in inventory
of $1,825,000 and depreciation and amortization of $1,384,000. This was offset
by an increase in deferred and refundable taxes of $4,104,000. $1,668,000 was
used to purchase capital equipment and other assets in the current year. Net
cash provided by
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financing activities in the current year was $4,350,000. $2,922,000 was
generated from the issuance of 450,000 shares of common stock in a private
placement and $1,492,000 from the exercise of employee stock options and from
the sale of stock under the Company's employee stock purchase plan. The Company
also utilized a line of credit which terminated on September 30, 1995, borrowing
and repaying $3,646,000 during the year. Subsequent to year end, the Company
negotiated a $3,000,000 revolving accounts receivable line of credit with terms
substantially more favorable to the Company.
Management believes that the Company will meet its cash requirements from
current cash on hand, other existing working capital, cash flows from
operations, and the utilization of the line of credit.
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Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
(In thousands)
September 30,
1995 1994
Assets
Current assets:
Cash and cash equivalents $ 11,265 $ 1,010
Accounts receivable, less allowance for doubtful
accounts of $88 in 1995 and $496 in 1994 4,200 3,785
Inventories 2,987 4,988
Deferred and refundable taxes 4,348 244
Other current assets 418 836
-------- --------
Total current assets 23,218 10,863
Fixed assets-net 1,419 1,616
Other assets-net 1,569 1,199
-------- --------
Total assets $ 26,206 $ 13,678
======== ========
Liabilities And Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 13 $ 77
Accounts payable 1,725 2,023
Accrued liabilities 1,511 1,561
-------- --------
Total current liabilities 3,249 3,661
Long-term debt - 13
-------- --------
Total liabilities 3,249 3,674
Commitments (See note)
Shareholders' equity:
Preferred stock, no par value; 1,000 shares
authorized, none issued
Common stock, no par value; 10,000 shares authorized:
Issued and outstanding; 7,276 and 6,485 shares
at September 30, 1995 and 1994, respectively 19,916 15,489
Retained earnings (deficit) 3,041 (5,485)
-------- --------
Total shareholders' equity 22,957 10,004
-------- --------
Total liabilities and shareholders' equity $ 26,206 $ 13,678
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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Consolidated Statements of Operations
(In thousands except per share data)
Year Ended September 30,
1995 1994 1993
Net sales $ 8,293 $ 10,774 $ 21,780
Royalty revenue 15,421 6,678 -
-------- -------- --------
Total revenue 23,714 17,452 21,780
Costs and expenses:
Cost of goods sold 6,807 9,682 12,079
Research and development 5,754 7,071 8,420
Selling, general and administrative 6,944 7,530 11,148
-------- -------- --------
Operating income (loss) 4,209 (6,831) (9,867)
Interest and other expense 156 419 603
Interest and other income (418) (289) (183)
-------- -------- --------
Income (loss) before income taxes 4,471 (6,961) (10,287)
Provision (benefit) for income taxes (4,055) - (2,010)
-------- -------- --------
Net income (loss) $ 8,526 $ (6,961) $ (8,277)
======== ======== ========
Net income (loss) per share $ 1.12 $ (1.10) $ (1.34)
======== ======== ========
Number of shares used in per share
calculation 7,583 6,327 6,179
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
(In thousands except per share data)
Common Common Retained Total
Stock Stock Earnings Shareholders'
Shares Amount (Deficit) Equity
<S> <C> <C> <C> <C>
Balances at September 30, 1992 6,101 $ 14,049 $ 9,753 $ 23,802
Issuance of common stock:
Stock options exercised ($1.50-$5.38
per share) 52 262 - 262
Employee stock purchase plan ($4.46 and $6.48
per share) 80 416 - 416
Net loss - - (8,277) (8,277)
----- -------- -------- --------
Balances at September 30, 1993 6,233 14,727 1,476 16,203
Issuance of common stock:
Stock options exercised ($0.67-$7.63
per share) 154 504 - 504
Employee stock purchase plan ($2.13 and $3.29
per share) 98 258 - 258
Net loss - - (6,961) (6,961)
----- -------- -------- --------
Balances at September 30, 1994 6,485 15,489 (5,485) 10,004
Issuance of common stock:
Stock options exercised ($0.67-$9.13
per share) 272 1,262 - 1,262
Employee stock purchase plan ($2.13 and $7.65
per share) 67 230 - 230
Private placement 450 2,922 - 2,922
Stock warrants 2 13 - 13
Net income - - 8,526 8,526
----- -------- -------- --------
Balances at September 30, 1995 7,276 $ 19,916 $ 3,041 $ 22,957
===== ======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(In thousands)
Year Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 8,526 $(6,961) $(8,277)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,384 2,495 2,466
Loss on disposal of fixed assets 111 212 -
Provision for doubtful accounts 114 237 150
Provision for inventory allowances 176 233 148
Deferred and refundable income taxes (4,104) 1,412 350
Decrease (increase) in accounts receivable (529) 213 7,318
Decrease (increase) in inventories 1,825 3,276 (1,811)
Decrease (increase) in other current assets 418 722 (911)
Increase (decrease) in accounts payable (298) 755 (2,068)
Increase (decrease) in accrued liabilities (50) 226 (2,327)
Decrease in income taxes payable - - (2,350)
Increase (decrease) in other long-term liabilities - (113) 113
Royalty revenues utilized to retire note payable - (5,000) -
------- ------- -------
Net cash provided by (used in) operating activities 7,573 (2,293) (7,199)
------- ------- -------
Cash flows used in investing activities:
Acquisition of fixed assets (1,222) (566) (1,569)
Reduction (purchase) of other assets (446) (66) 155
------- ------- -------
Net cash used in investing activities (1,668) (632) (1,414)
------- ------- -------
Cash flows provided by (used in) Financing activities:
Issuance of common stock 4,427 762 678
Proceeds from borrowings 3,646 - 6,600
Repayments of borrowings (3,723) (221) (2,338)
------- ------- -------
Net cash provided by financing activities 4,350 541 4,940
------- ------- -------
Net increase (decrease) in cash 10,255 (2,384) (3,673)
Cash and cash equivalents, beginning of year 1,010 3,394 7,067
------- ------- -------
Cash and cash equivalents, end of year $11,265 $ 1,010 $ 3,394
======= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
Page 18
<PAGE>
Notes to Consolidated Financial Statements
(In thousands except per share data)
Summary of Significant Accounting Policies:
Zitel Corporation specializes in the design, manufacture and marketing of
high-performance, mission-critical storage subsystems for relational database,
batch and on-line transaction processing. The Company also develops and markets
single-nodal and multi-nodal performance management and simulation software used
on a variety of UNIX and proprietary platforms to manage performance of LANs,
MANs, WANs, and processor environments. These products are marketed worldwide
through a wide variety of channels including systems integrators, value-added
resellers and distributors, OEMs, and directly to end users. Zitel conducts its
business within one industry segment. The following is a summary of Zitel's
significant accounting policies:
Principles of Consolidation:
The consolidated financial statements include the accounts of Zitel Corporation
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Inventories:
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
Fixed Assets:
Fixed assets, other than leasehold improvements, are depreciated on a
straight-line basis over their estimated useful lives (2-7 years). Leasehold
improvements are amortized over the lesser of their useful life or remaining
term of the related lease. When assets are disposed of, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
and losses are included in the results of operations.
Page 19
<PAGE>
Revenue Recognition:
Revenue is recognized at the time products are shipped to customers and at the
time services are rendered. Royalty revenue is recognized when earned and
receipt is assured.
Research and Development Expenditures:
Research and development expenditures are charged to operations as incurred.
Foreign Currency Translation:
The U.S. dollar is considered to be the functional currency for the Company's
foreign operations. Accordingly, non-monetary assets and liabilities have been
translated into U.S. dollars at a historical rate; monetary assets and
liabilities have been translated into U.S. dollars using the exchange rate at
the balance sheet date; and revenues and expenses have been generally translated
into U.S. dollars at the weighted average exchange rate during the period.
Foreign currency transaction gains and losses, as well as the effects of
translation (which have not been material in the aggregate), are included in the
accompanying statements of operations.
Income Taxes:
As of October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes.
Accordingly, the Company has changed its method of accounting for income taxes
from the deferred method used in prior years (APB Opinion No. 11) to the method
proscribed by SFAS No. 109. Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences that will occur in future years because of
differences between the tax basis of assets and liabilities and the basis of
such assets and liabilities for accounting purposes. Since the adoption is on a
prospective basis, the prior year's financial statements have not been restated.
The cumulative effect of adoption of SFAS No. 109 was not material for the
Company's results of operations or financial position for the year ended
September 30, 1994.
Recent Accounting Pronouncement:
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock- Based Compensation," which
establishes a fair value based method
Page 20
<PAGE>
of accounting for stock-based compensation plans. The Company is currently
following the requirements of APB Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company plans to adopt SFAS No. 123 during 1996 utilizing the
disclosure alternative.
Net Income (Loss) Per Share:
Net income (loss) per share amounts are computed by dividing the net income
(loss) by the weighted average number of common shares and common equivalent
(when dilutive) shares outstanding during each year presented using the treasury
stock method.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables. The Company
places its cash investments with high credit quality financial institutions and
limits the amount of exposure to any one financial institution. Concentrations
of credit risk with respect to trade receivables are limited due to the
diversity of the Company's customers both geographically and within different
industry segments.
Year Ended September 30,
1995 1994 1993
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 57 $310 $178
Income taxes 136 19 35
Non-cash investing and financing activities:
There were no capital lease obligations incurred for the years ended September
30, 1995 and 1994. Capital lease obligations of $209 thousand were incurred when
the Company entered into leases for office furniture, engineering equipment and
manufacturing equipment in the year ended September 30, 1993.
Page 21
<PAGE>
September 30,
1995 1994
Inventories:
Raw materials $ 734 $ 2,074
Work in progress 733 751
Finished goods 1,520 2,163
-------- --------
$ 2,987 $ 4,988
======== ========
Fixed Assets:
Manufacturing equipment $ 3,504 $ 4,200
Office furniture and equipment 2,197 2,395
Engineering equipment 4,462 5,043
Leasehold improvements 638 600
-------- --------
10,801 12,238
Less accumulated depreciation
and amortization (9,382) (10,622)
-------- --------
$ 1,419 $ 1,616
======== ========
At September 30, 1995, office furniture, engineering equipment and manufacturing
equipment included assets acquired under capital leases of $333 thousand, $360
thousand and $172 thousand, respectively, less related accumulated amortization
of $333 thousand, $360 thousand and $172 thousand, respectively. At September
30, 1994, office furniture, engineering equipment and manufacturing equipment
included assets acquired under capital leases of $333 thousand, $1,516 thousand
and $172 thousand, respectively, less related accumulated amortization of $330
thousand, $1,358 thousand and $172 thousand, respectively.
September 30,
1995 1994
Other Assets:
Investment in unconsolidated company $ 1,000 $ 1,000
Other 885 557
------- -------
1,885 1,557
Less accumulated amortization (316) (358)
------- -------
$ 1,569 $ 1,199
======= =======
Page 22
<PAGE>
The investment in unconsolidated company is recorded under the cost method.
September 30,
1995 1994
Accrued Liabilities:
Accrued payroll and related $ 637 $ 438
Accrued vacation 526 576
Accrued commissions 24 37
Other accrued liabilities 324 510
------- -------
$ 1,511 $ 1,561
======= =======
Long-Term Debt:
Obligations under capital leases at interest
rates ranging from 6.6% to 14.0% expiring
through 1995 $ 13 $ 90
Current portion of long-term debt (13) (77)
------- -------
$ - $ 13
======= =======
Future principal payments of long-term debt are $13 thousand, payable in fiscal
year 1996.
Commitments:
The Company leases its primary manufacturing and office facility under a
noncancelable operating lease which expires in March 1998. The Company is
responsible for taxes, maintenance and insurance. Rent expense incurred under
all operating leases and charged to operations was $606 thousand in 1995, $682
thousand in 1994 and $771 thousand in 1993.
Future minimum obligations under the facility lease at September 30, 1995
aggregate approximately $1,255 thousand, payable as follows:
Fiscal Year
1996 $502
1997 502
1998 251
Page 23
<PAGE>
Capital Stock:
- - -------------
Preferred Stock:
In October 1983, the Company authorized one million shares of preferred stock.
The Board of Directors has the authority to establish all rights and terms with
respect to the preferred stock without future vote or action by the
shareholders.
Private Placement:
In November 1994, the Company issued 450 thousand shares of common stock in a
private placement. Net proceeds from this transaction were $2.9 million. Common
stock purchase warrants totaling approximately 23 thousand were issued as a part
of this transaction. The warrants, which are immediately exercisable at $7.01
per share, expire in December 1999.
Stock Option Plans:
At September 30, 1995, the Company had reserved 2.3 million common shares for
issuance under its 1990 Stock Option, 1982 Incentive Option and 1984
Supplemental Stock Option Plans.
Under the Company's stock option plans, options become exercisable at dates and
in amounts as specified by the Compensation Committee of the Board of Directors
and expire two to ten years from the date of grant. Options may be granted to
employees at prices not less than fair market value at the date of grant. At
September 30, 1995, approximately 85 thousand shares were available for future
grants.
Activity in the Company's option plans during fiscal 1995 is summarized as
follows:
Options Outstanding
Shares Per Share Amount Total
Balances, September 30, 1994 998 $ .67-$ 9.13 $ 3,819
Granted 272 $7.88-$19.00 3,263
Canceled (68) $2.88-$15.88 (462)
Exercised (272) $ .67-$ 9.13 (1,243)
--- ------------ -------
Balances, September 30, 1995 930 $ .67-$19.00 $ 5,377
=== ============ =======
Page 24
<PAGE>
At September 30, 1995, options for 568 thousand shares were exercisable at
prices ranging from $0.67 to $8.75.
Employee Benefit Plans:
- - ----------------------
Stock Purchase Plan:
In April 1984, the Board of Directors approved the adoption of an Employee Stock
Purchase Plan under which 200 thousand shares of common stock were reserved for
issuance to eligible employees. In January 1988, January 1990, January 1992, and
January 1995, the shareholders approved amendments to increase the shares
reserved for the Plan by 150 thousand shares, 200 thousand shares, 200 thousand
shares, and 250 thousand shares, respectively. Employees who do not own 5% or
more of the outstanding shares are eligible to participate through payroll
deductions, which may not exceed 10% of an employee's compensation. At the end
of each offering period, shares are purchased by the participants at 85% of the
lower of the fair market value at the beginning or the end of the offering
period. The 15% discount is treated as equivalent to the cost of issuing stock
for financial reporting purposes. 67 thousand shares were issued under the Plan
during fiscal 1995. Since inception of the Plan, approximately 767 thousand
shares have been issued.
Savings and Investment Plan:
The Company has a Savings and Investment Plan, qualified under sections 401(k)
and 401(a) of the Internal Revenue Code, that enables participating U.S.
employees to prepare for retirement. The Plan allows eligible employees to defer
up to 15%, but no greater than $9,240 per year, of their earnings on a pre-tax
basis through contributions to the Plan. The Plan provides for employer
contributions at the discretion of the Board of Directors; however, no such
contributions were made in fiscal 1995, 1994, or 1993.
Page 25
<PAGE>
Income Taxes:
For the year ended September 30, 1994, there was no provision for income taxes.
The provision (benefit) for income taxes for the years ended September 30, 1995
and 1993 is as follows:
1995 1993
Current expense (benefit):
Federal $ 125 $(2,003)
Foreign 7 (357)
------- -------
132 (2,360)
Deferred tax expense (benefit) (4,187) 350
------- -------
$(4,055) $(2,010)
======= =======
The Company's effective tax rate for the years ended September 30, 1995 and 1993
differs from the U.S. federal statutory income tax rate as follows:
1995 1993
Federal income tax (benefit) at
statutory rate 34.0% (34.0%)
State taxes, net of federal benefit 6.1 -
Tax credits (9.7) -
Other, net 2.8 -
Loss producing no current tax benefit - 14.5
Net operating losses utilized (33.5) -
Change in valuation allowance (90.4) -
------ ------
(90.7%) (19.5%)
====== ======
Page 26
<PAGE>
The following table shows the major components of the deferred tax asset as of
September 30, 1995 and 1994:
Deferred tax assets: 1995 1994
Accounts receivable, inventory and
other reserves $ 691 $ 701
Accrued liabilities 264 312
Net operating losses 1,673 3,434
Tax credit carryforwards 1,114 1,258
Depreciation 445 517
------- -------
4,187 6,222
Valuation allowance - (6,222)
------- -------
Net deferred tax asset $ 4,187 $ -
======= =======
A valuation allowance has been established to reduce the deferred tax asset to
the amount expected to be realized. The deferred tax provision for the year
ended September 30, 1993 consisted principally of non-deductible reserves and
accelerated depreciation methods. The deferred tax benefit for the year ended
September 30, 1995 consisted primarily of net operating losses from previous
periods.
At September 30, 1995, the Company has federal and state net operating loss
(NOL) carryforwards of $4.8 million and $.5 million, respectively, to reduce
future taxable income. These carryforwards expire in 1998 through 2009, if not
utilized.
As a result of the acquisition of CHI Systems in 1992, CHI Systems experienced a
change of ownership as defined by the Internal Revenue Code. Consequently,
utilization of approximately $1 million and $500 thousand of the Company's
federal and state NOL carryforwards, respectively, will be subject to an annual
limitation of approximately $100 thousand available to offset CHI Systems'
separate taxable income. These carryforwards expire in 1998 through 2008, if not
utilized.
Research and Development Contract:
During fiscal year 1992, the Company entered into a joint development contract
to develop a product with a third party. The Company received funding from the
third party based on
Page 27
<PAGE>
completion milestones. In addition, upon completion of the project, the Company
has and will receive a royalty based on sales by the third party of the product
developed. All expenses incurred by the Company were charged to research and
development expense as incurred. Amounts received from the third party were
recognized as a reduction of research and development expense on a percentage of
completion basis and amounted to $1,101 thousand and $2,707 thousand for the
years ended September 30, 1994 and 1993, respectively. For the years ended
September 30, 1994 and 1993, the Company incurred expenses of $2,928 thousand
and $3,995 thousand, respectively, related to the contract. At September 30,
1994, the Company recorded unbilled receivables associated with the project of
$500 thousand, which was included in other current assets and was subsequently
received. Royalties of approximately $300 thousand were received in the fourth
quarter of fiscal year 1994 on products sold by the third party. Royalties
totaling approximately $15.4 million were received from the third party during
fiscal year 1995.
Foreign Operations:
The Company's foreign operations are those of its European branch and
subsidiary. Substantially all of their sales are made to unaffiliated European
customers. The following table summarizes the Company's European operations:
1995 1994 1993
Net sales $1,566 $2,138 $6,324
Operating loss (124) (489) (164)
Total assets 386 1,176 1,513
Export Sales:
Export sales from domestic operations were $1.5 million, $2.8 million, and $3.3
million in 1995, 1994 and 1993, respectively.
Major Customers:
Sales to one customer amounted to 14.3%, 14.5% and 11.3% of net sales in 1995,
1994 and 1993, respectively.
Subsequent Events:
Effective October 1995, the Company negotiated a $3 million revolving accounts
receivable line of credit. Interest is at the prime rate (8.75% at October 1,
1995) and is payable monthly. The note is collateralized by accounts receivable,
inventory,
Page 28
<PAGE>
equipment and intangible assets. The line of credit will expire September 30,
1996.
The investment made in an unconsolidated company in the amount of $1 million
will be revalued due to a public offering by the company, which took place in
October 1995. In subsequent financial statements, the 205,128 shares of common
stock will be valued at the current fair market value.
On November 17, 1995, the Company finalized an agreement to acquire 37.5% of
MatriDigm Corporation, a privately held company. The investment, which consisted
of preferred stock, totaled approximately $3.4 million. Under the agreement, the
Company obtained an exclusive license from MatriDigm to incorporate its
technology in the development of new products.
Page 29
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
Zitel Corporation
We have audited the accompanying consolidated balance sheets of Zitel
Corporation and subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended September 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Zitel
Corporation and subsidiaries as of September 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
San Jose, California
October 25, 1995, except for the third paragraph of the note entitled
"Subsequent Events" to which the date is November 17, 1995
Page 30
<PAGE>
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors under the caption "Election of Directors" on
pages 2 and 3 of the Proxy Statement for the Annual Meeting of Shareholders to
be held January 25, 1996, is incorporated herein by reference. The information
regarding executive officers under the caption "Executive Officers of the
Registrant" is included herein on pages 7 through 9.
Item 11: EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" on pages 8 through 11
of the Proxy Statement for the Annual Meeting of Shareholders to be held January
25, 1996, is incorporated herein by reference.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain Beneficial
Owners and Management" on page 7 of the Proxy Statement for the Annual Meeting
of Shareholders to be held on January 25, 1996, is incorporated herein by
reference.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The consolidated financial statements, together with the report
thereon from Coopers & Lybrand, appear in Item 8 in this Form 10-K. Financial
statement schedules not included in this Form 10-K have been omitted because
they are not applicable or the required information is shown in the financial
statements or the notes thereto.
Page 31
<PAGE>
(1) Financial Statements:
Consolidated Balance Sheets (p. 15)
Consolidated Statements of Operations (p. 16)
Consolidated Statements of Shareholders' Equity (p. 17)
Consolidated Statements of Cash Flows (p. 18)
Notes to Consolidated Financial Statements (pgs. 19-29)
Report of Independent Accountants (p. 30)
(2) Financial Statement Schedules:
Report of Independent Accountants (p. 39)
SCHEDULE VIII-Valuation and Qualifying Accounts (p. 40)
(3) Exhibits
Exhibits filed as part of this report are listed below. Certain
exhibits have been previously filed with the Commission and are
incorporated by reference.
Exhibit
Number Description
- - ------- -----------
3.1 Restated Articles of Incorporation. (7)
3.2 Bylaws. (2)
10.1 1982 Incentive Stock Option Plan, as amended, and form of Stock Option
Grant. (3)
10.2 1984 Supplemental Stock Option Plan and form of Stock Option Grant. (3)
10.3 1984 Stock Purchase Plan, as amended through November 1987. (7)
10.4 Agreement dated February 27, 1979 among Robert H. Welch, Jack Melchor,
Bernard Wagner, Tony Tadin, John C. Blackie, John J. DePalma, James F. Riley
and the Company, amended as of November 15, 1979. (1)
10.5 Agreement for the Sale and Purchase of Intel Memory Product Lines dated as
of February 2, 1983 between the Company and Intel Corporation, and amendments
dated March 16, 1983, April 22, 1983,
Page 32
<PAGE>
June 23, 1983 and October 25, 1983 (portions deleted pursuant to a
Confidentiality Order). (1)
10.6 Stock Purchase Agreement dated September 29, 1980 between the Company and
Oxford Venture Fund, Oxford Venture (California) Fund II, and Oxford Venture
Offshore Fund. (1)
10.7 Stock Purchase Agreement dated June 2, 1983 between the Company and
Oxford Venture Fund, Oxford Venture (California) Fund II, and Oxford Venture
Offshore Fund. (1)
10.8 Agreement dated as of October 1, 1983 between the Company and Motorola,
Inc. (portions deleted pursuant to a Confidentiality Order). (1)
10.9 Agreement and Plan of Reorganization among the Company, Zitel Merger
Corporation and Gifford Computers Systems, Inc. (4)
10.10 Agreement for Purchase and Sale of Assets dated as of November 1, 1985
between the Company and React Corporation with Exhibits (portions deleted
pursuant to a Confidentiality Order). (5)
10.11 Agreement for Purchase and Sale of Marketing Rights dated as of June 8,
1986 between the Company and React Corporation (portions deleted pursuant to a
Confidentiality Order). (6)
10.12 Lease agreement dated February 7, 1986 between the Company, John
Arrillaga, Trustee, and Richard T. Peery, Trustee. (7)
10.13 Senior Management Incentive Plan (SMIP) dated November 18, 1987. (8)
10.14 Unisys Cooperative Marketing Agreement dated April 13, 1990 between the
Company and Unisys Corporation and Amendment One effective October 25, 1990.
(The Company has applied for confidential treatment of a portion of this
Exhibit.) (9)
10.15 Amendment Two to the Unisys Cooperative Marketing Agreement effective
February 5, 1991. (10)
10.16 Amendment Three to the Unisys Cooperative Marketing Agreement effective
March 31, 1991. (10)
Page 33
<PAGE>
10.17 Amendment Four to the Unisys Cooperative Marketing Agreement effective
June 30, 1991. (10)
10.18 Sublease agreement dated August 11, 1992 between the Company and Credence
Systems Corporation. (11)
10.19 Loan and Security Agreement dated August 2, 1993 between the Company and
IBM Credit Corporation. (12)
10.20 Development Agreement between the Company and IBM Corporation dated
October 14, 1992. (Confidential treatment has been requested for a portion of
the exhibit.) (13)
10.21 Amendment No. 1 dated June 23, 1993 to the Development Agreement between
the Company and IBM Corporation dated October 14, 1992. (Confidential treatment
has been requested for a portion of the exhibit.) (13)
10.22 Amendment No. 2 dated July 26, 1993 to the Development Agreement between
the Company and IBM Corporation dated October 14, 1992. (Confidential treatment
has been requested for a portion of the exhibit.) (13)
10.23 Amendment No. 3 dated November 29, 1993 to the Development Agreement
between the Company and IBM Corporation dated October 14, 1992. (Confidential
treatment has been requested for a portion of the exhibit.) (13)
10.24 Amendment No. 4 dated April 15, 1994 to the Development Agreement between
the Company and IBM Corporation dated October 14, 1992. (Confidential treatment
has been requested for a portion of the exhibit.) (13)
10.25 Loan and Security Agreement, dated as of September 30, 1994, between the
Company and CoastFed Business Credit Corporation. (14)
10.26 Accounts Collateral Security Agreement, dated as of September 30, 1994,
between the Company and CoastFed Business Credit Corporation. (14)
10.27 Lease Agreement dated February 16, 1995 between the Company and Renco
Investment Company. (15)
11.1 Statement regarding computation of earnings per share.
Page 34
<PAGE>
22.1 Subsidiaries of the Company.
24.1 Consent of Independent Accountants.
27 Financial Data Schedule.
- - ----------
(1) Incorporated by reference to the indicated exhibits to the Company's
Registration Statement on Form S-1 (File No. 2-87445) filed on October 27, 1983.
(2) Incorporated by reference to the indicated exhibits to the Company's
Registration Statement on Form S-8 (File No. 2-90366) filed on April 6, 1984.
(3) Incorporated by reference to the indicated exhibits to the Company's
Registration Statement on Form S-8 (File No. 2-96804) filed on March 29, 1985.
(4) Incorporated by reference to the indicated exhibits to the Company's Current
Report on Form 8-K filed on September 20, 1984.
(5) Incorporated by reference to the indicated exhibits to the Company's Annual
Report on Form 10-K filed December 18, 1985.
(6) Incorporated by reference to the indicated exhibits to the Company's
Quarterly Report on Form 10-Q filed August 14, 1986.
(7) Incorporated by reference to the indicated exhibits to the Company's Annual
Report on Form 10-K filed December 17, 1987.
(8) Incorporated by reference to the indicated exhibits to the Company's Annual
Report on Form 10-K filed December 21, 1988.
(9) Incorporated by reference to the indicated exhibits to the Company's Annual
Report on Form 10-K filed December 20, 1990.
(10) Incorporated by reference to the indicated exhibits to the Company's Annual
Report on Form 10-K filed December 20, 1991.
(11) Incorporated by reference to the indicated exhibits to the Company's Annual
Report on Form 10-K filed December 18, 1992.
(12) Incorporated by reference to the indicated exhibits to the Company's
Quarterly Report on Form 10-Q filed August 13, 1993.
Page 35
<PAGE>
(13) Incorporated by reference to the indicated exhibits to the Company's
Quarterly Report on Form 10-Q filed May 13, 1994.
(14) Incorporated by reference to the indicated exhibits to the Company's Annual
Report on Form 10-K filed December 22, 1994.
(15) Incorporated by reference to the indicated exhibits to the Company's
Quarterly Report on Form 10-Q filed May 11, 1995.
(b) Reports on Form 8-K
None.
For the purposes of complying with the amendments to the rules governing Form
S-8 under the Securities Act of 1933, the undersigned Registrant hereby
undertakes as follows, which undertaking shall be incorporated by reference into
Registrant's Registration Statements on Form S-8 No.'s 33-40361 and 33-47697
(filed May 3, 1991 and May 6, 1992).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Page 36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
ZITEL CORPORATION
By: Jack H. King
------------------------------
Jack H. King
President and Director
Chief Executive Officer
December 22, 1995
Jack H. King President and Director December 22, 1995
- - ------------------------ (Chief Executive Officer)
Jack H. King
Henry C. Harris* Vice President - Finance December 22, 1995
- - ------------------------ and Administration,
Henry C. Harris Secretary (Chief Financial
and Accounting Officer)
Catherine P. Goodrich* Director December 22, 1995
- - ------------------------
Catherine P. Goodrich
William R. Lonergan* Director December 22, 1995
- - ------------------------
William R. Lonergan
William M. Regitz* Director December 22, 1995
- - ------------------------
William M. Regitz
Robert H. Welch* Director December 22, 1995
- - ------------------------
Robert H. Welch
*By their attorney-in-fact, Jack H. King
Jack H. King
- - ------------------------
Jack H. King
Page 37 (as amended, December 22, 1995)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Zitel Corporation
Fremont, California
Our audit of the consolidated financial statements of Zitel Corporation and
Subsidiaries referred to in our report dated October 25, 1995 appearing in Item
8 in this Annual Report on Form 10-K also included an audit of the financial
statement schedules listed in Item 14a of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
San Jose, California
October 25, 1995
Page 38
<PAGE>
SCHEDULE VIII
ZITEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS 1993, 1994 AND 1995
Column A Column B Column C Column D Column E
-------- -------- ---------- -------- --------
Additions
Charged to
Balance Revenues Write-offs Balance at
Beginning and Costs and End of
Description of Period and Expense Deductions Period
----------- --------- ----------- ---------- --------
1993
- - --------------
Allowance for Doubtful
Accounts $109,000 $211,000 $ 61,000 $259,000
Provision for Obsolete
Inventory $185,000 $430,000 $476,000 $139,000
1994
- - --------------
Allowance for Doubtful
Accounts $259,000 $282,000 $ 45,000 $496,000
Provision for Obsolete
Inventory $139,000 $730,000 $318,000 $551,000
1995
- - --------------
Allowance for Doubtful
Accounts $496,000 $(408,000) - $ 88,000
Provision for Obsolete
Inventory $551,000 $278,000 $520,000 $309,000
Page 39
