<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 December 31, 1997

                                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 December
31, 1997 was 15,883,256.



<PAGE>
              ZITEL CORPORATION AND SUBSIDIARIES


                             INDEX



                                                            Page
                                                           Number

PART I.   Financial Information

  Item 1.  Financial Statements

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

     Condensed Consolidated Statements of
       Operations (unaudited) - Three Months
        Ended December 31, 1997 and 1996 .....................  4

     Condensed Consolidated Statements of
       Cash Flows (unaudited) - Three Months Ended
       December 31, 1997 and 1996 ............................  5

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

  Item 2.   Management's Discussion and Analysis of
            Financial Condition and Results
              of Operations .................................. 11

PART II.   Other Information

  Item 4.  Submission of Matters to a Vote
             of Security Holders ............................. 14

  Item 6.  Exhibits and Reports on Form 8-K .................. 14










                             Page 2
<PAGE>
                  ZITEL CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED BALANCE SHEETS
                           ($000's)
<TABLE>
<CAPTION>
                                    (UNAUDITED)
                                    December 31,  September 30,
                                         1997         1997
<S>                                 <C>           <C>
     ASSETS
Current assets:
  Cash and cash equivalents            $ 7,124       $ 4,224
  Short-term investments                     0         9,596
  Accounts receivable, net               8,391         6,547
  Inventories                            2,258         3,050
  Deferred and refundable taxes          3,536         3,540
  Other current assets                   1,005           993
                                       -------       -------
    Total current assets                22,314        27,950

Fixed assets, net                        3,629         3,700
Other assets, net                       19,337        17,644
                                       -------       -------
  Total assets                         $45,280       $49,294
                                       =======       =======

     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                     $ 4,079       $ 4,768
  Accrued liabilities                    5,032         4,419
                                       -------       -------
    Total current liabilities            9,111         9,187

Convertible subordinated debt           22,768        24,161

Shareholders' equity:
  Common stock                          29,032        27,081
  Accumulated deficit                  (15,631)      (11,135)
                                       -------       -------
  Total shareholders' equity            13,401        15,946
                                       -------       -------
  Total liabilities and 
    shareholders' equity               $45,280       $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
                                                December 31,
                                             ------------------
                                               1997      1996
                                              ------    ------
<S>                                          <C>       <C>
Net sales                                    $ 7,363   $ 3,266
Royalty revenue                                  583     2,318
                                             -------   -------
  Total revenue                                7,946     5,584
Cost of goods sold                             3,456     2,798
Research and development expenses              1,988     1,621
Selling, general & administrative expenses     6,678     2,493
                                             -------   -------
  Operating loss                              (4,176)   (1,328)

Other (income) expense                           320      (442)
                                             -------   -------
  Loss before income taxes                    (4,496)     (886)
Benefit for income taxes                           0      (319)
                                             -------   -------
  Net loss                                   $(4,496)  $  (567)
                                             =======   =======

Basic and diluted loss per share             $  (.29)  $  (.04)
                                             =======   =======

Number of shares used in basic and diluted
  loss per share calculations                 15,704    14,953
                                             =======   =======
</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)
                                                  Three Months Ended
                                                      December 31,
                                                    1997       1996
                                                  --------   -------
<S>                                               <C>        <C>
Cash flows used in operating activities:
  Net loss                                        $(4,496)   $  (567)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Amortization of discount on subordinated debt     222          -
    Depreciation and amortization                     743        273
    Provision for doubtful accounts                    51         46
    Provision for inventory allowances                120        455
    Unrealized gains on marketable securities           -       (298)
    Deferred and refundable income taxes                -       (298)
    Change in operating assets and liabilities:
    Decrease (increase) in accounts receivable     (1,895)       253
    Decrease in inventories                           672        129
    Decrease (increase) in other current assets        (8)        13
    Decrease in accounts payable                     (689)      (119)
    Increase (decrease) in accrued liabilities        647        (72)
                                                 --------    -------
 Net cash used in operating activities             (4,633)      (185)
                                                 --------    -------
Cash flows provided by (used in) 
 investing activities:
    Acquisition of fixed assets                      (370)      (375)
    Investment in unconsolidated company           (1,473)    (1,025)
    Maturities of investments                       9,596          -
    Purchase of other assets                         (744)      (416)
                                                 --------    -------
 Net cash provided by (used in) 
  investing activities                              7,009     (1,816)
                                                 --------    -------
</TABLE>








                             Page 5
<PAGE>

              ZITEL CORPORATION AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (continued)
                            ($000's)
<TABLE>
<CAPTION>
                                                      (UNAUDITED)
                                                  Three Months Ended
                                                      December 31,
                                                     1997      1996
                                                   -------   -------
<S>                                                <C>       <C>
Cash flows provided by financing activities:
   Issuance of common stock                        $   524   $   611
                                                   -------   -------
 Net cash provided by financing activities             524       611
                                                   -------   -------
 Net increase (decrease) in cash                     2,900    (1,390)
Cash and cash equivalents, beginning of year         4,224     9,216
                                                   -------   -------
Cash and cash equivalents, end of period           $ 7,124   $ 7,826
                                                   =======   =======

Supplemental non-cash investing and
 financing activities:
  Conversion of subordinated debt and accrued
    interest                                       $ 1,427         -
                                                   =======   =======
</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 December 31, 1997 are not necessarily indicative
of the results expected for the full year.

2.  Recent Accounting Pronouncements:
    In June 1997, the FASB issued 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.

    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.

                             Page 7
<PAGE>
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.  The effect of the new SOP 97-2 has yet to be determined.

<TABLE>
<CAPTION>
3.  Inventories:
                            December 31,       September 30,
                                1997               1997
                            ------------       -------------
<S>                         <C>                <C>
     Raw materials             $  867             $  953
     Work in process              374                576
     Finished goods             1,017              1,521
                               ------             ------
                               $2,258             $3,050
                               ======             ======
</TABLE>

4.  Investment in Unconsolidated Company:
    During the quarter ended December 31, 1997, Zitel invested an additional
$1.5 million in MatriDigm in exchange for a convertible promissory note.  The
note is convertible into common stock with a conversion rate based on future
performance of MatriDigm.  As of December 31, 1997, the Company's investment in 
MatriDigm amounted to $7.35 million, consisting of 10.6 million shares of
preferred stock, 500 thousand shares of common stock and the promissory note.

5.  Line of Credit:
    The Company's $3.0 million secured bank line of credit expired on January
31, 1998.  The Company is in the process of completing an agreement pursuant to
the commitment offer letter, which was executed on February 5, 1998, for a $3.0
million secured line of credit.

6.  5% Convertible Subordinated Debentures:
    The current quarter includes a charge to interest expense in the amount of
$222 thousand related to the amortization of the discount on the 5% convertible
subordinated debentures.  During December 1997, approximately $1.4 million was
converted into 129 thousand shares of common stock at a price of $9.9563 per
share.







                             Page 8
<PAGE>
7.  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>
                                               Quarters Ended
                                                 December 31,
                                              -----------------
                                                l997       1996
                                              -------    -------
                                                 (unaudited)
<S>                                           <C>        <C>
Numerator - Basic and Diluted EPS
  Net loss                                    $(4,496)   $  (567)
                                              =======    =======
Denominator - Basic EPS
  Common stock outstanding                     15,704     14,953
  Common equivalent stock                           -          -
                                              -------    -------
                                               15,704     14,953
                                              -------    -------
Basic loss per share                          $  (.29)   $  (.04)
                                              =======    =======
Denominator - Diluted EPS
  Denominator - Basic EPS                      15,704     14,953
  Effect of Dilutive Securities:
    Common stock options                            -          -
    Convertible preferred stock                     -          -
                                              -------    -------
                                               15,704     14,953
                                              -------    -------
Diluted loss per share                        $  (.29)   $  (.04)
                                              =======    =======
</TABLE>
                             Page 9
<PAGE>
Options to purchase 750 thousand shares were not included in the computation of
diluted EPS because of the anti-dilutive effect of including these shares in the
calculation.  In addition, had the subordinated debt been converted, it would
have resulted in approximately 2.6 million shares, but these shares were not
included in the computation due to their anti-dilutive effect.

Subsequent to December 31, 1997, approximately $2.2 million of the subordinated
debt were converted into approximately 243 thousand common shares.  If the
transaction would have occurred before the end of the period, the inclusion of
those shares would not have had a significant impact.




































                             Page 10
<PAGE>
       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

              CONDITION AND RESULTS OF OPERATIONS

Result of Operations

The Company recorded a net loss of $4,496,000 ($0.29 per share) for the first
quarter of fiscal 1998, ended December 31, 1997, compared with a net loss of
$567,000 ($0.04 per share) for the same quarter of the prior year.  Total
revenue for the current quarter was $7,946,000, an increase of 42% over total
revenue of $5,584,000 for the same period a year earlier.  The increase in total
revenue was due to an increase in net sales partially offset by a decrease in
royalty revenue.  Net sales for the current quarter were $7,363,000 versus
$3,266,000 for the same quarter of the prior year, an increase of $4,097,000. 
The increase in net sales is directly attributable to the net sales generated by
the software companies acquired June 30, 1997.  Royalty revenue for the quarter
just ended was $583,000 compared with $2,318,000 for the same quarter of the
prior year.

Gross margin for the quarter ended December 31, 1997 was 53% of net sales
compared to 14% of net sales for the same quarter of the prior year.  The
improvement in gross margin percentage is primarily attributable to product mix
as a result of net sales generated by the recently acquired software companies. 
In addition, gross margin of net sales of the storage products, as a percent of
net sales, also improved as a result of lower material costs and a slight
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.  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.

Research and development expenses for the quarter ended December 31, 1997 were
25% of total revenue compared to 29% for the same period of the prior year. 
Actual spending increased $367,000, primarily attributable to the added research
and development by the recently acquired software companies.  Research and
development expense in the storage division decreased by approximately $250,000.




                             Page 11
<PAGE>
Selling, general and administrative (SG&A) expenses for the quarter ended
December 31, 1997 were 84% of total revenue versus 45% for the same period a
year earlier.  Actual spending increased $4,185,000.  The increase is primarily
attributable to the added SG&A expenses of the recently acquired software
companies of approximately $2,500,000, an increase in SG&A of the Company's
solution services division of approximately $500,000, an increase in salaries
and related costs as a result of an increase in SG&A personnel of approximately
$300,000 and an accrual for the reduction in force described below, of
approximately $300,000.

While management was pleased with the growth in revenue from year to year,
revenue did not grow fast enough to support the levels of spending. Management
has restructured the storage and software divisions of the Company, resulting in
a reduction in work force.  Payroll costs were reduced by approximately 16% and
further savings in ancillary expenses are anticipated. 

Other expense was $320,000 for the quarter just ended versus other income of
$442,000 in the same quarter of the prior year.  For the current quarter, other
expense included $495,000 interest expense related to the convertible
subordinated debt, partially offset by interest income of $168,000.  For the
comparable quarter of the prior year, other income included an unrealized gain
of $298,000 on an investment held for resale and interest income of $140,000.

Liquidity and Capital Resources

For the quarter ended December 31, 1997, working capital decreased $5,560,000
and cash flows used in operating activities totaled $4,633,000.  The utilization
of cash in operating activities resulted primarily from the net loss of
$4,496,000 and an increase in gross accounts receivable of $1,895,000 partially 
offset by changes in other components of operating assets and liabilities. 
During the quarter, net cash provided by investing activities was $7,009,000;
$9,596,000 was generated from the maturity of a short-term investment.  The
Company invested an additional $1,473,000 in an unconsolidated company,
purchased other assets in the amount of $744,000 and capital equipment in the
amount of $370,000.  Net cash provided by financing activities was $524,000 from
the exercise of employee stock options and from the sale of stock under the
Company's employee stock purchase plan.



                             Page 12
<PAGE>
The Company's $3.0 million secured bank line of credit expired on January 31,
1998.  The Company is in the process of completing an agreement pursuant to the
commitment offer letter, executed on February 5, 1998, for a $3.0 million
secured bank line of credit  Management believes that the Company will be able
to meet its cash requirements for the remainder of the fiscal year from cash on
hand, other working capital, and cash flow from operations augmented by a bank
line of credit.

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





                             Page 13
<PAGE>
PART II.  OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

     An annual meeting of shareholders of the Company was held on January 29,
1998.  A total of 15,472,852 shares of the Company's Common Stock out of a total
15,749,251 shares outstanding on the record date for the meeting were
represented and voted in person or by proxy.

     The Company has a five-person Board of Directors.  At the annual meeting,
all five directors were nominated and re-elected to the Board of Directors by a
vote of at least 14,908,161 shares in favor and 564,691 shares withholding
authority to vote.

     The shareholders approved the adoption of an amendment to the 1990 Stock
Option Plan, as amended, to provide that the number of shares of Common Stock
reserved for issuance under such Plan be increased by 750,000 shares, from
5,450,000 shares (including shares reserved or granted under the Company's prior
Option Plans) to 6,200,000 shares.  The motion was carried by a vote of
14,224,626 shares voting for, 1,128,252 dissenting votes and 119,974 abstaining
votes.

  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 14
<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:  February 12, 1998          Larry B. Schlenoff
                                  Larry B. Schlenoff
                                  Vice President, Finance &
                                  Administration
                                  (Chief Financial Officer and
                                  Secretary)































                             Page 15