<PAGE>

                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 March 31, 1998

                                      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 March 
31, 1998 was 17,189,446.

<PAGE>

                      ZITEL CORPORATION AND SUBSIDIARIES

                                     INDEX

<TABLE>
<CAPTION>
                                                              Page
                                                             Number
<S>                                                          <C>
PART I.   Financial Information

  Item 1.  Financial Statements

     Condensed Consolidated Balance Sheets
       March 31, 1998 (unaudited) and September 30, 1997 .....  3

     Condensed Consolidated Statements of
       Operations (unaudited) - Three and Six Months
        Ended March 31, 1998 and 1997 ........................  4

     Condensed Consolidated Statements of
       Cash Flows (unaudited) - Six Months Ended
       March 31, 1998 and 1997 ...............................  5

     Notes to Condensed Consolidated
       Financial Statements ..................................  7

  Item 2.   Management's Discussion and Analysis of
            Financial Condition and Results
              of Operations .................................. 12

PART II.   Other Information

  Item 6.  Exhibits and Reports on Form 8-K .................. 16
</TABLE>


                             Page 2

<PAGE>

                      ZITEL CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                    ($000's)

<TABLE>
<CAPTION>
                                               (UNAUDITED)
                                                 March 31,  September 30,
                                                   1998         1997
<S>                                            <C>          <C>
   ASSETS
Current assets:
  Cash and cash equivalents                      $ 4,415       $ 4,224
  Short-term investments                              --         9,596
  Accounts receivable, net                         5,052         6,547
  Inventories                                      1,915         3,050
  Deferred and refundable taxes                    3,546         3,540
  Other current assets                             1,181           993
                                                 -------       -------
    Total current assets                          16,109        27,950

Fixed assets, net                                  3,259         3,700
Intangible assets, net                             5,347         5,846
Other assets, net                                 13,560        11,798
                                                 -------       -------
  Total assets                                   $38,275       $49,294
                                                 -------       -------
                                                 -------       -------

   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                               $ 2,797       $ 4,768
  Accrued liabilities                              4,218         4,419
                                                 -------       -------
    Total current liabilities                      7,015         9,187

Convertible subordinated debt                      9,317        24,161

Shareholders' equity:
  Common stock                                    43,065        27,081
  Accumulated deficit                            (21,122)      (11,135)
                                                 -------       -------
  Total shareholders' equity                      21,943        15,946
                                                 -------       -------
  Total liabilities and 
    shareholders' equity                         $38,275       $49,294
                                                 -------       -------
                                                 -------       -------
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                    Page 3

<PAGE>
                     ZITEL CORPORATION AND SUBSIDIARIES

               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                 (UNAUDITED)
                    (In thousands except per share data)

<TABLE>
<CAPTION>
                                     Three Months Ended   Six Months Ended
                                          March 31,          March 31,
                                     ------------------  -----------------
                                        1998     1997      1998      1997
                                      -------  -------   -------   -------
<S>                                  <C>       <C>       <C>       <C>
Net sales                             $ 4,183  $ 1,576   $11,546   $ 4,842
Royalty revenue                           210    1,196       792     3,514
                                      -------  -------   -------   -------
  Total revenue                         4,393    2,772    12,338     8,356
Cost of goods sold                      2,339    1,737     5,795     4,536
Research and development 
  expenses                              1,963    1,613     3,951     3,235
Selling, general & 
  administrative expenses               5,182    3,007    11,860     5,498
                                      -------  -------   -------   -------
  Operating loss                       (5,091)  (3,585)   (9,268)   (4,913)

Other (income) expense                    399     (594)      719    (1,035)
                                      -------  -------   -------   -------
Loss before income taxes               (5,490)  (2,991)   (9,987)   (3,878)
Benefit from income taxes                  --   (1,077)       --    (1,396)
                                      -------  -------   -------   -------
Net loss                              $(5,490) $(1,914)  $(9,987)  $(2,482)
                                      -------  -------   -------   -------
                                      -------  -------   -------   -------

Basic and diluted loss 
  per share                           $  (.33) $  (.13)  $  (.62)  $  (.16)
                                      -------  -------   -------   -------
                                      -------  -------   -------   -------

Number of shares used in 
  basic and diluted loss 
  per share calculations               16,646   15,234    16,175    15,096
                                      -------  -------   -------   -------
                                      -------  -------   -------   -------
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                    Page 4

<PAGE>

                      ZITEL CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  ($000's)

<TABLE>
<CAPTION>
                                                                (UNAUDITED)
                                                             Six Months Ended
                                                                 March 31,
                                                              1998       1997
                                                            --------   -------
<S>                                                         <C>        <C>
Cash flows provided by (used in) operating activities:
  Net loss                                                  $(9,987)   $(2,482)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Amortization of capitalized financing costs                 482         --
    Depreciation and amortization                             1,530        556
    Provision for doubtful accounts                             102         99
    Provision for inventory allowances                          160        240
    Gain on sale of trading securities                            0       (777)
    Proceeds from sale of trading securities                      0      3,159
    Change in operating assets and liabilities:
    Decrease in accounts receivable                           1,393      2,112
    Decrease in inventories                                     975        439
    Increase in deferred and refundable taxes                    (6)    (1,395)
    Increase in other current assets                           (188)      (259)
    Decrease in accounts payable                             (1,971)      (732)
    Increase in accrued liabilities                             268         63
                                                           --------    -------
 Net cash provided by (used in)
  operating activities                                       (7,242)     1,023
                                                           --------    -------
Cash flows provided by (used in) 
 investing activities:
    Purchase of fixed assets                                   (477)      (811)
    Purchase of other assets                                   (862)      (875)
    Investment in unconsolidated company                     (1,495)    (2,024)
    Maturities of investments                                 9,596         --
                                                           --------    -------
 Net cash provided by (used in) 
  investing activities                                        6,762     (3,710)
                                                           --------    -------
</TABLE>


                                    Page 5

<PAGE>

                      ZITEL CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (continued)
                                  ($000's)

<TABLE>
<CAPTION>
                                                                (UNAUDITED)
                                                             Six Months Ended
                                                                 March 31,
                                                              1998       1997
                                                            --------   -------
<S>                                                         <C>        <C>
Cash flows provided by financing activities:
   Issuance of common stock                                  $   671   $   881
                                                             -------   -------
 Net cash provided by financing activities                       671       881
                                                             -------   -------
 Net increase (decrease) in cash                                 191    (1,806)
Cash and cash equivalents, beginning of year                   4,224     9,216
                                                             -------   -------
Cash and cash equivalents, end of period                     $ 4,415   $ 7,410
                                                            --------   -------
                                                            --------   -------

Supplemental non-cash investing and
 financing activities:
  Conversion of subordinated debt and accrued
    interest                                                 $15,313   $    --
                                                            --------   -------
                                                            --------   -------
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                    Page 6

<PAGE>

                      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 March 31, 1998 are not necessarily 
indicative of the results expected for the full year.  The Company has 
sustained recurring losses related primarily to lower than anticipated 
revenues.  Management believes that the Company will be able to meet its cash 
requirements for the quarter ending June 30, 1998 from cash on hand, other 
working capital, and cash flow from operations augmented by the recently 
obtained bank line of credit.  The Company currently plans to raise 
additional capital to fund operations until cash flow from operating 
activities are positive.  Management is actively engaged in evaluating 
alternative sources for capital and believes this effort will be successful.  
There can be no assurance, however, that the Company would be successful in 
raising the additional capital.

2.  Recent Accounting Pronouncements:
    In June 1997, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting 
Comprehensive Income".  SFAS No. 130 establishes standards for the reporting 
and display of comprehensive income and its components in a full set of 
general purpose financial statements.  Comprehensive income is defined as the 
change in equity of a business enterprise during a period from transactions 
and other events and circumstances from non-owner sources.  The impact of 
adopting SFAS No. 130, which is effective for the Company in fiscal year 
1999, has not been determined.


                                    Page 7

<PAGE>

    In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments 
of an Enterprise and Related Information".  SFAS No. 131 requires 
publicly-held companies to report financial and other information about key 
revenue-producing segments of the entity for which such information is 
available and is utilized by the chief operations decision maker.  Specific 
information to be reported for individual segments includes profit or loss, 
certain revenue and expense items and total assets.  A reconciliation of 
segment financial information to amounts reported in the financial statements 
would be provided.  SFAS No. 131 is effective for the Company in fiscal year 
1999 and the impact of adoption has not been determined.

    On October 27, 1997, the American Institute of Certified Public 
Accountants (AICPA) issued Statement of Position (SOP) 97-2, "Software 
Revenue Recognition".  SOP 97-2 establishes the standard for the appropriate 
recognition of software revenue, effective for the Company in fiscal year 
1999.  The effect of the new SOP 97-2 has yet to be determined.

3.  Inventories:

<TABLE>
<CAPTION>
                              March 31,        September 30,
                                1998               1997
                            ------------       -------------
     <S>                    <C>                <C>
     Raw materials             $  819             $  953
     Work in process              255                576
     Finished goods               841              1,521
                               ------             ------
                               $1,915             $3,050
                               ------             ------
                               ------             ------
</TABLE>

4.  Intangible Assets:
    Intangible assets include goodwill and purchased technology, recorded in 
connection with the acquisition of the three software companies, which are 
being amortized on a straight-line basis over seven and five years, 
respectively.  The Company periodically assesses the recoverability of the 
intangible assets by determining whether the amortization of the asset 
balance over its remaining life can be recovered through undiscounted future 
operating cash flows of the acquired operation.  The amount of impairment, if 
any, is measured based on projected discounted future operating cash flows 
and is recognized as a write down of the asset to net realizable value.  As 
of March 31, 1998, intangible assets consist of the following: 


                                    Page 8

<PAGE>

<TABLE>
<CAPTION>
                                      March 31,     September 30,
                                        1998            1997
    <S>                               <C>           <C>
    Goodwill                           $3,252          $3,242
    Purchased technology                2,862           2,862
    Less accumulated amortization        (767)           (258)
                                       ------          ------
                                       $5,347          $5,846
                                       ------          ------
                                       ------          ------
</TABLE>

5.  Deferred Software Implementation Costs:
    The Company capitalizes substantially all costs related to the purchase 
of software and its implementation which includes purchased software, 
consulting fees and the use of certain specified Company resources, and are 
being amortized on a straight-line basis over the estimated life of the 
computer software, which is five years.  As of March 31, 1998, $1.1 million 
in costs had been capitalized and are included in other long-term assets.  
Amortization in the amount of $113 thousand has been charged during the 
six-month period in fiscal 1998.  Amortization of $111 thousand had been 
charged in fiscal year 1997.

6.  Investment in Unconsolidated Company:
    During the quarter ended December 31, 1997, Zitel invested an additional 
$1.5 million in MatriDigm Corporation in exchange for a convertible 
promissory note.  The note is convertible into 1,050 thousand shares of 
common stock.  As of March 31, 1998, the Company's investment in MatriDigm 
Corporation amounted to $7.37 million, consisting of 10.6 million shares of 
preferred stock, 500 thousand shares of common stock and the convertible 
promissory note.

7.  Line of Credit:
    In April 1998, the Company obtained a $1.5 million secured bank line of 
credit.  The line of credit expires on June 30, 1998, with a three-month 
renewal through September 30, 1998, subject to compliance with specified 
terms.  Advances bear interest at the bank's prime rate plus 1%.  Under terms 
of the agreement, the borrowing base is 75% of eligible domestic and foreign 
insured accounts receivable.  Payment of interest is on a monthly basis, with 
principal limited to the borrowing base and is due upon maturity.  In 
addition, the Company is required to maintain certain specified financial 
ratios.

8.  5% Convertible Subordinated Debentures:
    The current quarter includes a charge to interest expense in 


                                    Page 9

<PAGE>

the amount of $482 thousand related to the amortization of the capitalized 
financing costs on the 5% convertible subordinated debentures.  For the six 
months ended March 31, 1998, approximately $15.3 million was converted into 
1.4 million shares of common stock at an average price of $10.936 per share.

9.  Earnings Per Share (EPS):
    The Company has adopted the provisions of Statement of Financial 
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), effective 
December 31, 1997.  SFAS 128 requires the presentation of basic and diluted 
earnings per share.  Basic EPS is computed by dividing income available to 
common stockholders by the weighted average number of common shares 
outstanding for the period.  Diluted EPS is computed giving effect to all 
dilutive potential common shares that were outstanding during the period.  
Dilutive potential common shares consist of the incremental common shares 
issuable upon the conversion of convertible subordinated debt (using the "if 
converted" method) and exercise of stock options and warrants for all 
periods.  All prior period earnings per share amounts have been restated to 
comply with the SFAS 128.

In accordance with the disclosure requirements of SFAS 128, a reconciliation 
of the numerator and denominator of basic and diluted EPS is provided as 
follow (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                       Three Months Ended Six Months Ended
                                            March 31,         March 31,
                                       ------------------ ----------------
                                         l998      1997     1998     1997
                                       -------   -------  -------  -------
                                           (unaudited)       (unaudited)
<S>                                    <C>       <C>      <C>      <C>
Numerator - Basic and Diluted EPS
  Net loss                             $(5,490)  $(1,914) $(9,987) $(2,482)
                                       -------   -------  -------  -------
                                       -------   -------  -------  -------
Denominator - Basic EPS
  Common stock outstanding              16,646    15,234   16,175   15,096
  Common equivalent stock                   --        --       --       --
                                       -------   -------  -------  -------
                                        16,646    15,234   16,175   15,096
                                       -------   -------  -------  -------
Basic loss per share                   $  (.33)  $  (.13) $  (.62) $  (.16)
                                       -------   -------  -------  -------
                                       -------   -------  -------  -------


                                    Page 10

<PAGE>

Denominator - Diluted EPS
  Denominator - Basic EPS               16,646    15,234   16,175   15,096
  Effect of Dilutive Securities:
    Common stock options                    --        --       --       --
    Convertible preferred stock             --        --       --       --
                                       -------   -------  -------  -------
                                        16,646    15,234   16,175   15,096
                                       -------   -------  -------  -------
Diluted loss per share                 $  (.33)  $  (.13) $  (.62) $  (.16)
                                       -------   -------  -------  -------
                                       -------   -------  -------  -------
</TABLE>

For the quarter and six-month period ended March 31, 1998, options to 
purchase 738 thousand and 744 thousand shares, respectively, were  not 
included in the computation of diluted EPS because of the anti-dilutive 
effect of including these shares in the calculation for both periods. For the 
quarter and six-month period ended March 31, 1997, options to purchase 1,404 
thousand and 1,422 thousand shares, respectively, were not included in the 
computation of diluted EPS because of the anti-dilutive effect of including 
these shares in the calculation for both periods.  In addition, had the 
subordinated debt been converted, it would have resulted in approximately 679 
thousand and 1,659 thousand shares for the three and six months ended March 
31, 1998, respectively.  These shares were not included in the computation 
due to their anti-dilutive effect.


                                    Page 11

<PAGE>

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

                      CONDITION AND RESULTS OF OPERATIONS

Result of Operations

The Company recorded a net loss of $5,490,000 ($0.33 per share) for the 
quarter ended March 31, 1998 compared with a net loss of $1,914,000 ($0.13 
per share) for the same quarter of the prior year.  Included in the quarter 
results of the previous year was a tax benefit of $1,077,000 (36% of income 
before income taxes) resulting from the recognition of deferred tax assets in 
accordance with SFAS No, 109, "Accounting for Income Taxes".  Weighted 
average shares outstanding for the current quarter were 16,646,000 compared 
to 15,234,000 for the same quarter of the prior year.

For the six months ended March 31, 1998, the net loss was $9,987,000 ($0.62 
per share) compared with a net loss of $2,482,000 ($0.16 per share) for the 
same period a year earlier.  Included in the prior year results was a tax 
benefit of $1,396,000.  Year-to-date weighted average shares were 16,175,000 
versus 15,096,000 in the prior year.

Total revenue for the current quarter was $4,393,000 versus total revenue of 
$2,772,000 for the same quarter of the prior year, an increase of $1,621,000. 
The increase in revenue is directly attributable to an increase in net 
sales, partially offset by a decrease in royalty revenue.  Net sales for the 
current quarter were $4,183,000 versus $1,576,000 for the same quarter of the 
prior year, an increase of $2,607,000.  The increase in net sales is directly 
attributable to the net sales generated by the software companies acquired 
June 30, 1997.  The Company's solution services business unit has not yet 
generated revenue.  Royalty revenue for the quarter just ended was $210,000 
compared with $1,196,000 for the same quarter of the prior year. 

For the six months ended March 31, 1998, total revenue was $12,338,000 versus 
total revenue of $8,356,000 for the same period of the prior year, an 
increase of $3,982,000.  The increase in revenue is directly attributable to 
an increase in net sales, partially offset by a decrease in royalty revenue.  
For the six months just ended, net sales were $11,546,000 versus $4,842,000 
for the same period of the prior year, an increase of $6,704,000.  The 
increase in net sales is directly attributable to the net sales generated by 
the acquired software companies.  Royalty revenue for the six-month period 
was $792,000 compared 


                                    Page 12

<PAGE>

with $3,514,000 for the same period of the prior year.  In April 1998, the 
Company concluded negotiations for receipt of an additional $740,000 covering 
remaining royalty obligations from the third party utilizing the Company's 
technology.

Gross margin as a percent of net sales was 44% for the quarter ended March 
31,1998 compared to a negative 10% for the same quarter of the prior year.  
For the six-month period ended March 31, 1998, gross margin was 50% versus 6% 
for the same period of the prior year.  The improvement in the gross margin 
percentage during the current quarter and six-month period is primarily 
attributable to product mix as a result of net sales generated by the 
software business unit.  In addition, the gross margin of the storage 
products, as a percent of net sales, also improved during the current quarter 
and six-month period, as a result of lower material costs and a reduction in 
other cost of sales which do not vary directly with sales volume.  Future 
gross margins may be affected by several factors including the mix of 
products sold, the price of products sold, price competition, increases in 
material costs and changes in other cost of sales which do not vary directly 
with sales volume.

In April 1998, the Company announced the intention to divest the storage 
business unit.  A leading investment banker has been engaged to advise and 
assist the Company with respect to the execution of the divestiture.  The 
Company is evaluating a number of alternative actions; however, there is no 
assurance that the divestiture can be completed without incurring significant 
costs.

Research and development expenses for the quarter ended March 31, 1998, were 
45% of total revenue compared with 58% for the same quarter of the prior 
year.  Actual spending increased $350,000.  For the six-month period just 
ended, research and development expenses were 32% of total revenue compared 
with 39% for the same period of the prior year.  Actual spending increased 
$716,000.  The increase in spending during both periods is primarily 
attributable to the added research and development by the acquired software 
companies ($642,000 and $1,255,000 for the current quarter and six-month 
period, respectively), partially offset by a reduction in research and 
development and a reduction in engineering personnel of the storage business 
unit ($292,000 and $539,000 for the current quarter and six-month period just 
ended, respectively).

Selling, general and administrative (SG&A) expenses were 118% of total 
revenue for the current quarter versus 108% for the same 


                                    Page 13

<PAGE>

quarter of the prior year.  Actual spending increased $2,175,000.  The 
increase in spending is primarily attributable to the added SG&A expenses of 
the acquired software companies of approximately $1,952,000.

For the six-month period just ended, SG&A expenses were 96% of total revenue 
compared with 66% for the same period a year earlier.  Actual spending 
increased $6,362,000.  The increase in spending is primarily attributable to 
the added SG&A expenses of the acquired software companies of approximately 
$4,476,000, an increase in SG&A of the solution services business unit of 
approximately $769,000, an increase in salaries and related costs as a result 
of an increase in SG&A personnel of approximately $200,000, an increase in 
professional services of approximately $370,000, and an increase in 
depreciation and amortization of approximately $250,000.

Other expense was $399,000 for the quarter just ended versus other income of 
$594,000 in the same quarter of the prior year.  For the current quarter, 
other expense included $482,000 interest expense related to the convertible 
subordinated debt, partially offset by interest income of $126,000.  For the 
comparable quarter of the prior year, other income included $479,000 in 
realized gains from the sale of marketable securities and interest income of 
$126,000.

Liquidity and Capital Resources

During the six-month period ended March 31, 1998, working capital decreased 
$9,669,000 and cash flow utilized by operating activities was $7,242,000.  
The utilization of cash in operating activities resulted primarily from the 
net loss of $9,987,000 and a decrease in accounts payable of $1,971,000.  
This was partially offset by a decrease in gross accounts receivable of 
$1,393,000, a decrease in gross inventory of $975,000, an increase in accrued 
liabilities of $268,000, and depreciation and amortization of $2,012,000.

During the current year, net cash provided by investing activities was 
$6,762,000; $9,596,000 generated from the maturity of a short-term 
investment.  The Company invested an additional $1,495,000 in an 
unconsolidated company, purchased other assets in the amount of $862,000 and 
capital equipment in the amount of $477,000.

Net cash provided by financing activities was $671,000 from the exercise of 
employee stock options and from the purchase of stock under the Company's 
employee stock purchase plan.


                                    Page 14

<PAGE>

In April 1998, the Company concluded negotiations for receipt of an 
additional $740,000 covering remaining royalty obligations from the third 
party utilizing the Company's technology.  Additionally, the Company executed 
a $1.5 million secured bank line of credit.  Management believes that the 
Company will be able to meet its cash requirements for the quarter ending 
June 30, 1998 from cash on hand, other working capital, and cash flow from 
operations augmented by the recently obtained bank line of credit.  The 
Company currently plans to raise additional capital to fund operations until 
cash flow from operating activities are positive.  Management is actively 
engaged in evaluating alternative sources for capital and believes this 
effort will be successful.  There can be no assurance, however, that the 
Company would be successful in raising the additional capital.

Recent Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", 
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related 
Information".  In October 1997, the AICPA issued SOP 97-2, "Software Revenue 
Recognition". Readers are referred to the "Recent Accounting Pronouncements" 
section of the Notes to the Condensed Consolidated Financial Statements for 
further discussion.


--------------------------------------------------
--------------------------------------------------
This report contains forward-looking statements which are subject to 
uncertainties, including those contained in the Company's annual report on 
Form 10-K for the fiscal year ended September 30, 1997.



-------------------------------------------------------------

Zitel is a registered trademark of Zitel Corporation. All other product names 
and brand names are trademarks or registered trademarks of their respective 
holders.


                                    Page 15

<PAGE>

PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

           (a)  Exhibits

                Exhibit 27 - Financial Data Schedule

           (b)  Reports

                No reports on Form 8-K were filed during the quarter for which 
this report is filed.


                                    Page 16

<PAGE>
                                   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:  May 13, 1998                    Larry B. Schlenoff
                                       Larry B. Schlenoff
                                       Vice President, Finance &
                                       Administration
                                       (Chief Financial Officer and
                                       Secretary)


                                    Page 17