-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DfSY51OezLFIb7w2S+TkUrrWB5EsFJc7Ad17oJ5DNoZFc8Z5Y5zd8Wk8d8W8JLaK x21BZt8vKqh+e5+nP5BubQ== 0000950005-96-000552.txt : 19960813 0000950005-96-000552.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950005-96-000552 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZITEL CORP CENTRAL INDEX KEY: 0000731647 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 942566313 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12194 FILM NUMBER: 96608257 BUSINESS ADDRESS: STREET 1: 47211 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538-6517 BUSINESS PHONE: 5104409600 MAIL ADDRESS: STREET 1: 47211 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 10-Q 1 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1996 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-12194 ZITEL CORPORATION (Exact name of Registrant as specified in its charter) California 94-2566313 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47211 Bayside Parkway 94538-6517 Fremont, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (510) 440-9600 Indicate by check mark whether the Registrant (1) has filed all 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 number of shares of the Registrant's Common Stock outstanding as of June 30, 1996 was 7,436,803 ZITEL CORPORATION AND SUBSIDIARIES INDEX Page Number PART I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 1996 (unaudited) and September 30, 1995 ............. 3 Condensed Consolidated Statements of Operations (unaudited) - Three and Nine Months Ended June 30, 1996 and 1995 ................................ 4 Condensed Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended June 30, 1996 and 1995 ....................................... 5 Notes to Condensed Consolidated Financial Statements ......................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 8 Exhibits to Part I. Exhibit 11.1 - Computation of Net Income per Common and Common Equivalent Share ........................ 11 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K ......................... 12 Page 2 ZITEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($000's) June 30, September 30, 1996 1995 ASSETS Current assets: Cash and cash equivalents $ 7,852 $11,265 Accounts receivable, net 8,041 4,200 Inventories 3,896 2,987 Deferred and refundable taxes 2,035 4,348 Other current assets 2,236 418 ------- ------- Total current assets 24,060 23,218 Fixed assets, net 1,986 1,419 Other assets, net 4,275 1,569 ------- ------- Total assets $30,321 $26,206 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ - $ 13 Accounts payable 1,193 1,725 Accrued liabilities 1,542 1,511 ------- ------- Total current liabilities 2,735 3,249 Shareholders' equity: Common stock 20,772 19,916 Retained earnings 6,814 3,041 ------- ------- Total shareholders' equity 27,586 22,957 ------- ------- Total liabilities and shareholders' equity $30,321 $26,206 ======= ======= The accompanying notes are an integral part of these financial statements. Page 3 ZITEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands except per share data) Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ Net sales $ 1,911 $ 2,791 $ 6,501 $ 6,760 Royalty revenue 3,733 4,209 11,916 12,946 ------- ------- ------- ------- Total revenue 5,644 7,000 18,417 19,706 Cost of goods sold 1,780 2,182 4,819 5,618 Research and development expenses 1,639 1,384 4,832 4,376 Selling, general & administrative expenses 1,974 1,921 5,756 5,495 ------- ------- ------- ------- Operating income 251 1,513 3,010 4,217 Other income (1,612) (76) (3,125) (119) ------- ------- ------- ------- Income before income taxes 1,863 1,589 6,135 4,336 Provision (benefit) for income taxes 717 595 2,362 (3,875) ------- ------- ------- ------- Net income $ 1,146 $ 994 $ 3,773 $ 8,211 ======= ======= ======= ======= Net income per share $ .15 $ .13 $ .48 $ 1.09 ======= ======= ======= ======= Number of shares used in per share calculations 7,891 7,677 7,798 7,543 ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements. Page 4 ZITEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($000's) (UNAUDITED) Nine Months Ended June 30, 1996 1995 Cash flows provided by (used in) ------ ------ operating activities: Net income $ 3,773 $ 8,211 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 688 1,110 Provision for doubtful accounts 260 349 Provision for inventory allowances 360 297 Unrealized gains on trading security (1,215) - Gain on sale of trading security (1,569) - Increase in accounts receivable (1,991) (2,808) Decrease (increase) in inventories (1,269) 1,942 Decrease (increase) in deferred and refundable taxes 2,313 (3,841) Increase in other current assets (144) (170) Decrease in accounts payable (532) (821) (Decrease) increase in accrued liabilities 31 (225) ------- ------- Net cash provided by operating activities 705 4,044 ------- ------- Cash flows used in investing activities: Purchase of fixed assets (1,186) (407) Purchase of other assets (3,775) (322) ------- ------- Net cash used in investing activities (4,961) (729) ------- ------- Cash flows provided by (used in) financing activities: Issuance of common stock 856 4,227 Payments of long-term debt (13) (58) ------- ------- Net cash provided by financing activities 843 4,169 ------- ------- Net increase (decrease) in cash (3,413) 7,484 Cash, beginning of period 11,265 1,010 ------- ------- Cash, end of period $ 7,852 $ 8,494 ======= ======= The accompanying notes are an integral part of these financial statements. Page 5 ZITEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands except per share data) 1. The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with the audited financial statements of the Company. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the period ended June 30, 1996 are not necessarily indicative of the results expected for the full year. 2. Inventories: June 30, September 30, 1996 1995 --------- ------------- Raw materials $ 832 $ 734 Work in process 903 733 Finished goods 2,161 1,520 ------ ------ $3,896 $2,987 ====== ====== Page 6 3. Other current assets: At the beginning of fiscal 1996, an investment in an unconsolidated company in the amount of $1,000,000 was revalued due to a public offering by the investee, which took place in October 1995. This investment, which was previously classified in other long-term assets, was reclassified to other current assets. In accordance with S.F.A.S. No. 115, this investment will be revalued to the current market value at the end of each reporting period. A portion of this investment was sold in June 1996. Gains in the amount of $1,569,000 have been realized on this sale and are included in other income. Cumulative unrealized gains recognized in other income through June 30, 1996 on the remaining portion of the investment amounts to $1,215,000. 4. Other assets: 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 $3,350,000. Under the agreement, the Company obtained an exclusive license from MatriDigm to incorporate its technology in the development of new products. The Company is not currently developing any new products that incorporate the technology. 5. Effective October 1995, the Company negotiated a $3,000,000 revolving accounts receivable line of credit with a commercial bank. The line is collateralized by accounts receivable, inventory, equipment and tangible assets. Interest is at the prime rate (8.25% at June 30, 1996) and is payable monthly. The line of credit expires on September 30, 1996. At June 30, 1996, the Company had no borrowings against the line. 6. 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. 7. Income per share amounts are computed using the weighted average number of common and common equivalent (dilutive stock options) shares outstanding during each period presented, when dilutive. Page 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Result of Operations The Company recorded net income of $1,146,000 ($0.15 per share) for the quarter ended June 30, 1996 versus net income of $994,000 ($0.13 per share) for the same quarter of the prior year. Results for the quarter included a gain of $1,487,000 on an investment held for resale. Weighted average shares outstanding in the third quarter of fiscal 1996 were 7,891,000 compared to 7,677,000 for the third quarter of fiscal 1995. For the nine months ended June 30, 1996, the Company recorded net income of $3,773,000 ($0.48 per share) versus net income of $8,211,000 ($1.09 per share) for the same period a year earlier. Year to date, gains in the amount of $2,784,000 ($1,569,000 and $1,215,000, realized and unrealized, respectively) have been recognized on the investment held for resale. Included in the current year is a tax provision of $2,362,000 (38.5% of income before income taxes) compared to a tax benefit in the prior year of $3,875,000 resulting from the recognition of deferred tax assets in accordance with S.F.A.S. No. 109, Accounting for Income Taxes. Weighted average shares outstanding in the first nine months of fiscal 1996 were 7,798,000 compared to 7,543,000 for the first nine months of fiscal 1995. Total revenue for the quarter ended June 30, 1996 was $5,644,000 versus $7,000,000 for the same period a year earlier. Revenue for the current quarter included $3,733,000 in royalty revenue from the IBM RAMAC product versus $4,209,000 in the same quarter of the prior year. For the nine months ended June 30, 1996, total revenue was $18,417,000 versus $19,706,000 for the same period of the prior year. Year-to-date royalty revenues amounted to $11,916,000 during the current year compared to $12,946,000 for the same period a year earlier. The Company expects that royalty revenue will remain strong for the near future; however, should the third party's sales decline or should royalty-bearing products be replaced by non-royalty-bearing products, the Company's total revenue could be materially and adversely affected. Net sales for the quarter ended June 30, 1996 were $1,911,000 versus $2,791,000 for the same quarter of the prior year. Net sales for the nine-month period ended June 30, 1996 were $6,501,000 compared to $6,760,000 for the same period a year Page 8 earlier. Net sales during the current quarter decreased as a result of the discontinuance of sales of the Company's OEM HiPPI interface card products, partially offset by a slight increase in net sales of CASD-II products, which began shipping earlier in the fiscal year. In December 1995, the Company announced general availability of SCP-II for the open systems market. The Company did not realize significant net sales in that market during the third quarter but management continues to believe the price/performance characteristics for certain applications should make SCP-II an attractive alternative for vendors and users of open systems platforms. However, commercial success remains subject to risks and uncertainties, including unanticipated technical problems, the continuing need to achieve Company credibility in the open systems market, and the potential introduction of more cost-effective competitive products. Gross margin for the quarter and nine months ended June 30, 1996 was 7% and 26% of net sales, respectively. This compares to 22% and 17% of net sales for the same periods a year earlier. The decrease in gross margin percentage for the quarter ended June 30, 1996 is primarily attributable to a change in product mix and to the amortization of materials-related standards changes. For the nine month period ended June 30, 1996, the increase in gross margin percentage is attributable to increased sales of higher margin CASD-II products and a decrease in other cost of sales which do not vary directly with sales volume. The Company does not believe that the gross margins reported for the current quarter just ended are necessarily indicative of the gross margins to be expected in the event net sales should increase significantly; there can be no assurance that net sales will increase significantly. Research and development expenses for the quarter ended June 30, 1996 were 29% of total revenue compared to 20% for the same period a year earlier. Actual spending increased $255,000. For the nine-month period, research and development was 26% of total revenue versus 22% in the prior year. Actual spending increased $456,000. The increase in spending in the two periods is primarily related to the increase in development spending and an increase in personnel. Selling, general and administrative expenses were 35% of total revenue for the current quarter versus 27% in the prior year. Actual spending increased $53,000. For the nine-month period, selling, general and administrative expenses were 31% of total revenue versus 28% in the prior year. Actual spending increased $261,000. Page 9 Other income was $1,612,000 for the quarter just ended versus other income of $76,000 in the same quarter of the prior year. Included in the current quarter is a gain of $1,487,000 on an investment held for resale. Interest income for the quarter was $114,000 versus $120,000 in the prior year. For the nine months just ended, other income was $3,125,000 as compared to $119,000 in the prior year. Included in other income for the current year is $2,784,000 ($1,569,000 realized and $1,215,000 unrealized) of income recognized related to an investment held for resale. Interest income in the current year is $342,000 versus $247,000 in the prior year. Liquidity and Capital Resources For the nine-month period ended June 30, 1996, working capital increased $1,356,000 and cash flows provided by operating activities were $705,000. Cash flows from operating activities were generated primarily from net income of $3,773,000, a decrease in deferred and refundable taxes of $2,313,000 and depreciation and amortization of $688,000. This was offset by an increase in gains on a trading security of $2,784,000, an increase in accounts receivable of $1,991,000, an increase in inventory of $1,269,000, and a decrease in accounts payable of $532,000. Cash in the amount of $1,186,000 was used to purchase capital equipment and other assets increased $3,775,000 in the current year. Net cash provided by financing activities consisted of the issuance of common stock in the amount of $856,000. The Company has a $3,000,000 line of credit which expires on September 30, 1996. At June 30, 1996, the Company had no borrowings outstanding on the line of credit. Management believes that the Company will meet its cash requirements from current cash on hand, existing working capital, cash flows from operations, and the utilization of the line of credit. - ------------------------------------------------------------- Zitel and CASD are registered trademarks of Zitel Corporation. SCP is a trademark of Zitel Corporation. IBM and RAMAC are registered trademarks of IBM Corporation. All other product names and brand names are trademarks or registered trademarks of their respective holders. Page 10 EXHIBIT 11.1 ZITEL CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE (In thousands except per share amounts) Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ Weighted average common shares outstanding 7,398 7,218 7,341 7,017 Computation of incremental outstanding shares: Net effect of dilutive stock options based on treasury stock method 493 459 457 526 ------ ------ ------ ------ 7,891 7,677 7,798 7,543 ====== ====== ====== ====== Net income $1,146 $ 994 $3,773 $8,211 ====== ====== ====== ====== Net income per share $ .15 $ .13 $ .48 $ 1.09 ====== ====== ====== ====== Primary and fully diluted income per share differ by less than one cent in all periods presented. Page 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter for which this report is filed. Page 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZITEL CORPORATION Date: August 12, 1996 Jack H. King Jack H. King President & Chief Executive Officer Page 13 EX-27 2 FDS
5 3-MOS SEP-30-1996 APR-01-1996 JUN-30-1996 7,852 1,674 2,106 87 3,896 24,060 11,965 (9,979) 30,321 2,735 0 20,772 0 0 6,814 30,321 1,911 5,644 1,780 3,613 (1,612) 0 0 1,863 717 1,146 0 0 0 1,146 0.15 0.15
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