SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( x ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 0-14328
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ZING TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
New York 13-2650621
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(State or other jurisdiction or organization) (I.R.S. Employer
Identification No.)
115 Stevens Avenue, Valhalla, NY 10595
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(Address of principal executive officers) (Zip Code)
Registrant s telephone number, including area code: (914) 747-7474
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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 for 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:_____
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the average of bid and asked
price of the stock as of October 2, 1995 was $25,282,573.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant s knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form, 10-K or any amendment of this Form 10-K. [ ]
The number of shares of common stock, $.01 par value, outstanding as
of October 2, 1995 was 2,597,497.
DOCUMENTS INCORPORATED BY REFERENCE: None
Page 1 of 36; Exhibit Index on Page 33
<PAGE>
TABLE OF CONTENTS
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Part I
Item 1 - Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 - Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . 8
Part II
Item 5 - Market for Registrant s Common Stock and Related Matters . . . 9
Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . . . . 10
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . 11
Item 8 - Financial Statements and Supplementary Data . . . . . . . . . 15
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 32
Part III
Items 10-13 Directors and Executive Officers of the Registrant;
Executive Compensation; Security Ownership of Certain
Beneficial Owners and Management; Certain Relationships
and Related Transactions . . . . . . . . . . . . . . . . . . 32
Part IV
Item 14- Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 33
2
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I
ITEM 1 - BUSINESS
General
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Zing Technologies, Inc. ("Zing" or the "Company") is a holding company with
one material 98% owned operating subsidiary, Omnirel Corporation
("Omnirel") (approximately 84% owned by Zing on a fully diluted basis), and
one non-material 90% owned operating subsidiary, Transition Analysis of
Component Technology, Inc. ("TACTech"). Zing was incorporated in New York
on October 17, 1969.
Since June 26, 1991, when the Company acquired Omnirel, the Company has
engaged in the manufacture and sale of high reliability power semiconductor
multi-chip modules and packaged semiconductor components in its niche
market and has expanded its distribution into the high-end commercial and
industrial market.
High reliability power semiconductor multi-chip modules are defined as
electronic components and are single-package devices with a power dis-
sipation of five watts or more. They combine active power semiconductor
components and passive components (such as capacitors and resistors) which
form integrated smart power electronic circuits which control, drive and
regulate the input and output of power (electricity) in motion control and
power supply applications for use in electronic systems and equipment.
Omnirel manufacturing techniques and design standards for the military and
high reliability industrial markets are more exacting than is the case for
commercial general purpose hybrid circuit components. The products
manufactured by Omnirel include custom designed products as well as
standard commodity products.
Omnirel produces both standard and custom products in a clean room
environment and is certified to MIL-STD 1772, the highest level of military
certification for a hybrid circuit manufacturer, and is registered to ISO
9001. Omnirel's products are used where circuit density (including
miniaturization), electrical performance and reliability are critical
design requirements, such as in the defense, aerospace, commercial
transportation and medical device industries. Omnirel's products are also
used in the production of industrial controls and power supplies where
these same criteria are needed.
TACTech licenses proprietary computer software databases to military
semiconductor manufacturers, the Department of Defense and defense contrac-
tors. The databases provide the end users with information useful in
determining the projected life cycle (obsolescence) of microcircuits and
discrete semiconductor devices used primarily in the manufacture of systems
for military and aerospace applications. TACTech software also contains a
description and the general specification of each microcircuit and discrete
semiconductor device, thereby allowing the user to identify functionally
interchangeable devices from various manufacturers and to upgrade and rank
the devices according to life cycle and availability based on sources of
supply. The TACTech database is
3
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
believed to include virtually all standard microcircuits and discrete
devices with high reliability specifications used primarily for military or
aerospace application. The database is constantly updated and delivered on
a real-time or near real-time basis. The operations of TACTech are not
presently material to the Company.
Until May 19, 1993, Zing was principally engaged in the business of
distributing high reliability electronic semiconductor components used in
military and aerospace equipment and providing value-added services under
the name Zeus Components, Inc. Prior to May 19, 1993, Zing/Zeus was one of
the largest distributors in this niche market, representing over thirty
semiconductor manufacturers, with a product line which consisted of
integrated circuits, discrete semiconductors and passive components.
Integrated circuits generally are sold at higher unit prices and at a
higher unit gross profit margin than discrete semiconductors. Passive
components generally consist of capacitors and resistors.
On May 19, 1993, Zing sold the net assets of its high reliability
electronic component distribution and value added service businesses to
Arrow Electronics, Inc. (the "Arrow Sale"). Arrow (NYSE-ARW) is the
world's largest electronic components distributor. The purchase price was
$24,254,000, representing a premium of approximately $3,000,000 over the
net book value of the assets transferred. In May 1996, Zing is entitled to
receive up to $2,000,000 from Arrow as additional purchase price depending
on the performance of Arrow's high reliability electronic components and
value-added business. Based upon information received to date, Zing
believes Arrow's sales are running at a rate which would make it more
likely than not that some or all of the $2,000,000 will be realized by
Zing.
Competition
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The market for high reliability power semiconductor multi-chip modules
is fragmented. There is no single firm which maintains a dominant
position, either in technology or in market share. Based on recent
industry publications of Frost & Sullivan, Moody Associates and the
Semiconductor Industry Association, the total available market for high
reliability power semiconductor multi-chip modules within the United States
was approximately $300,000,000 in 1993 and $330,000,000 in 1994, and is
expected to grow at a rate greater than 10% (per annum) during the later
1990's. The market for power hybrid products which Omnirel addresses is in
excess of $125,000,000 a year and approximately 65% of the sales to such
market are made by five manufacturers (including Omnirel) of power hybrid
components. Omnirel is the only such manufacturer whose primary focus is
on high reliability power semiconductor multi-chip modules. The principal
competitors of Omnirel are other hybrid manufacturers, original equipment
manufacturers with internal capability and power semiconductor manufac-
turers who offer multi-chip modules as a complementary product line.
Omnirel distinguishes itself in the marketplace principally on the strength
of its focus on power applications. It has complete design, manufacturing
and high reliability screening capabilities in-house, and has developed a
reputation for innovative solutions for customer needs. The Company also
competes on the basis of pricing and delivery.
4
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Marketing and Sales
- -------------------
Omnirel markets its products through four regional sales managers in the
United States and twenty-five sales representative organizations world-
wide. Omnirel sells both standard and custom products to approximately two
hundred customers world-wide. Standard products are sold both through
distributors and directly to customers. Custom products are sold directly
to customers.
Omnirel publishes and distributes to its existing customers and poten-
tial new customers a catalogue of its standard products. Omnirel
management has focused its marketing effort in the United States where
nineteen independent sales representatives are coordinated by Omnirel's
sales management. Key accounts are also covered by area managers in each
sales region. Six representatives/distributors are currently in place in
Europe marketing Omnirel's products.
Omnirel's customers are primarily major electronic equipment and systems
manufacturers such as General Electric, Loral, Bendix, Hamilton-Standard,
Hughes Aircraft, Boeing, Texas Instruments, Raytheon and Motorola. Sales
of various products to General Electric representing multiple industrial
and military/aerospace programs at four separate locations aggregated 65%
of Omnirel's sales revenues for fiscal year 1995 of which a single project
accounted for approximately 63% of 1995 sales. Based upon orders already
placed, sales to General Electric are expected to represent a significant
portion of Omnirel's fiscal 1996 sales. The Company expects that the
current General Electric orders will be filled during the first three
quarters of fiscal 1996, and while additional sales to such customer are
likely, revenues from General Electric are expected significantly to
decline over the next several years. The amount of the decline is depen-
dent upon factors such as the level of General Electric's business, whether
Omnirel continues as General Electric's sole source supplier and whether
Omnirel can produce the products required by General Electric based upon
changing technology. Arrow Electronics is Omnirel's exclusive distributor
of its single and multi-chip semiconductor devices for a period ending
December 31, 1996.
Omnirel's customers outside the United States and export sales outside
the United States are as follows:
(000's omitted)
1995 1994 1993
---- ---- ----
Canada $ 67 $ 89 $ --
Europe 172 183 249
Mid East (Israel) 99 30 24
Far East (Japan) 12 5 4
South Pacific 12 151 44
-- --- --
(Australia)
Total $362 $458 $321
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5
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Omnirel's backlog on June 30, 1995 was $15,900,000; $9,100,000 of which
is accounted for in the order from General Electric. Approximately 90% of
the backlog is deliverable over the next 12-month period.
For the fiscal years 1995, 1994, and 1993 Omnirel did not enter into any
contracts with either customers of the United States Government or any
agency of the United States Government. Omnirel sells its products to
subcontractors of certain government agencies through customer purchase
orders. Cancellation of purchase orders from time to time is customary in
the power hybrid component industry. Under standard industry practices, in
the event of cancellation, Omnirel is entitled to reimbursement of costs
incurred and a reasonable profit for work performed prior to the cancel-
lation.
The sale of Omnirel products is not seasonal. However, the timing of
sales to Omnirel's principal customer was concentrated predominantly in the
fourth quarter, and to a lesser extent the third quarter, of fiscal 1995.
Supplier and Materials Used
- ---------------------------
Unpackaged semiconductors, in chip form and other components such as
capacitors and resistor chips or surface mount devices, metal and plastic
packages and ceramic materials are used by Omnirel in the manufacture of
its products. These materials and components, none of which are presently
in short supply, are purchased from time to time on the open market, and
Omnirel has no long term commitments for their purchase. Omnirel is not
dependent on any one supplier for a primary material. Omnirel has
agreements with a number of premier semiconductor manufacturers which allow
Omnirel to buy products directly from such manufacturers. These agreements
allow Omnirel to be apprised of technological advances and developments.
Product Warranty
- ----------------
Omnirel warrants that its products are free from defects in workmanship
and meet the agreed upon specifications supplied by the customer or
Omnirel's current published specifications. Omnirel's liability for
defective products is limited solely to replacement thereof upon receipt
from the customer of notice of breach of warranty within periods varying
between three (3) and twelve (12) months of the date of shipment, depending
upon the product.
Patents, Trademarks and Licenses
- --------------------------------
Omnirel does not possess any patents for proprietary manufacturing
processes. Omnirel believes, however, that its proprietary processes and
product technologies are such that they give it a unique position in the
design and manufacture of power semiconductor hybrids and multi-chip
modules using semiconductor assembly technology. The Omnirel name and logo
are unique trademarks. While Omnirel considers that in the aggregate its
trademarks are important in its operation, it does not consider that one or
any group of trademarks is of such importance that termination could
materially affect its business. TACTech maintains copyright protection for
its computer software and claims
6
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
proprietary trade secret protection through customer licensing agreements.
Inventory
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Omnirel follows industry standards for procurement, sale and return of
its inventory. Materials are procured based upon purchase orders which
have standard terms and conditions including the right of return for
inferior quality or non-compliance with purchase order terms. Omnirel
inventory is maintained at its principal place of business in storage
facilities with temperature and humidity controls. Omnirel stocks inven-
tory for standard products, and for certain of its custom products.
Environmental Compliance
- ------------------------
Omnirel does not use hazardous materials in its manufacturing process
nor does the manufacturing process result in the discharge of potentially
hazardous material. Omnirel does not expect to incur significant expen-
ditures relating to environmental compliance.
Research and Development
- ------------------------
Generally, Omnirel's research and development expenditures involve
engineering and design of custom products for specific applications,
development of new packaging techniques and development of packaging for
new semiconductor devices. Research and development expenditures for the
fiscal years ended June 30, 1995, June 30, 1994 and the nine months ended
June 30, 1993 were $1,055,000, $841,000 and $808,000, respectively or 4.7%,
7.3% and 1.5% of sales in the respective periods.
Employees
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As of June 30, 1995, Zing had 157 employees, 102 of whom were employed
by Omnirel in a manufacturing capacity and 34 in clerical, administrative,
engineering or sales positions at Omnirel. The Company employs five people
in executive or administrative functions, and TACTech employs four computer
programmers and an additional 12 persons in clerical, sales, customer
support and administrative roles. None of Zing's employees are covered by
a collective bargaining agreement.
In March 1995, in exchange for Omnirel's president's shares of Omnirel
common stock and his release of his rights to participate in Omnirel's
Management Incentive Rights Plan ("MIRP"), Omnirel granted its president options
to purchase up to an aggregate of 100,000 shares of Omnirel's common stock
pursuant to Omnirel's 1995 Non-Qualified Stock Option Exchange Plan. Also
in March 1995 and concurrently with the grant of options to Omnirel's
president, Omnirel granted to other executive employees options to purchase
up to an aggregate of 34,000 shares of Omnirel's common stock pursuant to
Omnirel's 1995 Non-Qualified Stock Option Plan in exchange for their MIRP
rights. Such options were issued with exercise prices equal to or greater to
the then fair market value of the Omnirel common stock underlying such options.
As a result of such exchange of shares and the option grants described above,
Zing's direct ownership of Omnirel's outstanding shares increased from
approximately 96% to approximately 98%; and, on a fully diluted basis, Zing's
ownership of Omnirel could be reduced to approximately 84%.
7
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2 - PROPERTIES
The Company leases 750 square feet at a modern office building located
in Valhalla, New York, where it maintains its executive offices. The
Company pays an annual rent of $15,000 for the Valhalla space. The lease
term expires on October 31, 1996. The Company uses all of the leased
space.
Omnirel owns a 6.5 acre parcel of land with a 38,000 square foot, one
story, modern facility located in Leominster, Massachusetts, where Omnirel
manufactures its products in a clean-room environment. Omnirel's processes
are certified to MIL-STD 1772 and registered to ISO 9001. Approximately
12,000 square feet of the Company's facility is rated and certified as a
class 10,000 clean-room environment. This location houses all of the
operations of Omnirel. This clean room facility is equipped with design,
manufacturing, electrical test and environment screen equipment which are
state-of-the-art. Substantially all of Omnirel's facility is productively
in use.
TACTech is currently leasing a facility in Yorba Linda, California from
Arrow Electronics on a month-to-month basis at a cost of $3,500 per month.
Approximately 40% of TACTech's facility is in productive use.
The Company does not currently have a formal policy in place specifical-
ly addressing investments in real estate and real estate related products.
However, the Company's general investment objectives are to invest a
majority of its available funds in relatively low risk liquid investments
or publicly traded securities and to achieve a maximum aggregate return
comprised of both capital appreciation and income distributions consistent
with such investments. Although such investments may include real estate
and real estate related products, other than the real property described
above, they currently do not. The Company can alter its investment
policies and investment portfolio at anytime without shareholder consent.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
A. The Common Stock of the Company is traded on the National Market
System (NMS) of NASDAQ, under the symbol ZING. The following table sets
forth the high and low closing prices of the Company's Common Stock on the
NMS for each quarterly period during the last two years.
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High Low
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1st quarter Fiscal Year '94 2 1/2 1 7/8
2nd quarter Fiscal Year '94 2 1/4 1 5/8
3rd quarter Fiscal Year '94 2 1/4 1 7/8
4th quarter Fiscal Year '94 2 1/4 1 3/4
1st quarter Fiscal Year '95 2 1/2 1 7/8
2nd quarter Fiscal Year '95 2 1/16 6 3/4
3rd quarter Fiscal Year '95 10 1/4 4 5/8
4th quarter Fiscal Year '95 12 7/8 6 5/8
1st quarter Fiscal Year '96 26 1/2 12 1/8
B. There were 2,597,497 shares of Common Stock outstanding and 78
holders of record, and at least 895 beneficial owners of the shares as of
September 27, 1995.
C. No cash dividends have been paid on the Company's Common Stock for
the fiscal years ended June 30, 1995 and 1994. The present policy of the
Company is to retain earnings to provide funds for the operations and
expansion of its business.
9
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE><CAPTION>
Nine Months Year Year
Ended Ended Ended
Year Ended September 30, June 30, June 30, June 30,
----------------------------- ---------- ---------- -----------
1991 1992 1993 (6) 1994 1995
------------------------------------------------------------------
(000's omitted, except per share data)
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<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales $ 96,445 $ 91,698 $ 52,602 $ 11,483 $ 22,591
Cost of goods sold 73,822 70,439 40,624 6,637 13,073
----------- ----------- --------- --------- ---------
Gross profit 22,623 21,259 11,978 4,846 9,518
Selling, general and administrative expenses (1) 21,130 21,238 13,967 5,255 7,579
Interest expense (2) 1,857 2,397 1,443 286 148
Interest and other income - net (3) --- -- -- (860) (1,051)
Income (loss) before income taxes and
extraordinary item (364) (2,376) (3,432) 165 2,842
Provision (credit) for income taxes (64) (215) 36 3 325
----------- ----------- --------- --------- ---------
Income (loss) before extraordinary item (300) (2,161) (3,468) 162 2,517
Extraordinary item (4) 326 29 (155) 53 --
----------- ----------- --------- --------- ---------
NET INCOME (LOSS) $ 26 $ (2,132) $ (3,623) $ 215 $ 2,517
=========== ============ ========== ========= =========
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
PER SHARE DATA (5)
Income (loss) before extraordinary item $ (0.11)$ (0.80)$ (1.25)$ 0.06 $ 0.94
Extraordinary item 0.12 0.01 (0.06) 0.02 --
----------- ----------- --------- --------- ---------
NET INCOME (LOSS) $ 0.01 $ (0.79)$ (1.31)$ 0.08 $ 0.94
=========== ============ ========== ========= =========
Weighted average shares outstanding 2,696 2,696 2,774 2,747 2,671
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
September 30, June 30,
----------------------------- ----------------------------------
1991 1992 1993 1994 1995
----------------------------- ----------------------------------
BALANCE SHEET DATA
Working capital $ 20,632 $ 18,541 6,228 $ 3,878 $ 6,218
Total assets 50,868 43,710 32,264 18,360 22,185
Long-term obligations 14,875 14,431 -- 626 741
Stockholders' equity 18,300 16,168 12,540 12,424 15,129
</TABLE>
<TABLE><CAPTION>
<S> <C>
(1) Includes provision for doubtful accounts, depreciation and amortization of property, plant and equipment.
(2) Includes amortization of deferred note issuance costs for the years ended 1991, 1992, the nine months ended 6/30/93,
and the year ended 1994.
(3) Includes interest income, dividend income, realized and unrealized losses on marketable securities
amortization of the non-compete agreement, and the recognition of a permanent impairment of a non marketable security.
(4) A gain (loss) from the extinguishment of debt, net of income taxes for 1990 through 1994.
(5) Per share data represents income (loss) per common and common equivalent share. See Note A
to Consolidated Financial Statements for additional information regarding per share data.
(6) During 1993 the Company sold the net assets of its high reliability electronic component distribution
business to Arrow Electronics, Inc. See Note B to Consolidated Financial Statements. The Company
changed it's fiscal year from September 30th to June 30th during the same period.
</TABLE>
10
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth for the period indicated the percentage
relationship to net sales of certain items from the Company's consolidated
statements of operations.
Year Year Nine Months
Ended Ended Ended
June 30, June 30, June 30,
1995 1994 1993
---- ---- ----
Net Sales . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . . . 57.9 57.8 77.2
----- ----- -----
Gross profit . . . . . . . . . . . . . . . . 42.1 42.2 22.8
Selling, general and
administrative expenses . . . . . . . . . 28.1 38.9 24.9
Depreciation and amortization of
property, plant and equipment . . . . . . 5.5 6.9 1.7
Interest expense and amortization of
deferred note issuance costs . . . . . . . .6 2.5 2.7
Interest and other income - net . . . . . . 4.7 7.5 ---
----- ----- -----
Income (loss) before income taxes and
extraordinary item . . . . . . . . . . . . 12.6 1.4 (6.5)
Provision for income taxes . . . . . . . . . 1.4 --- .1
----- ----- -----
Income (loss) before extraordinary item . . 11.2 1.4 (6.6)
Extraordinary item . . . . . . . . . . . . . --- .5 (.3)
----- ----- -----
Net income (loss) . . . . . . . . . . . . . . 11.2% 1.9% (6.9%)
===== ===== ====
Results of Operation - Fiscal 1995 Compared to Fiscal 1994
- ----------------------------------------------------------
The Company reported income of $2,517,000 or $.94 per share for the fiscal
year ended June 30, 1995 as compared to income before extraordinary items of
$162,000 or $.06 per share for the fiscal year ended June 30, 1994. This
increase is principally a reflection of the increased profitability of the
business of its one material subsidiary, Omnirel.
Consolidated net sales increased to $22,591,000 during the fiscal year ended
June 30, 1995 from $11,483,000 for the comparable period. Omnirel's net sales
in the 1995 fiscal year accounted for 95% of consolidated net sales as compared
to 92% of consolidated net sales in the 1994 fiscal year. The balance of
consolidated net sales in each period is attributable to operation of the
Company's TACTech subsidiary.
11
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Net sales from the Company's Omnirel subsidiary increased 102% for the
fiscal year ended June 30, 1995 thereby accounting for the significant
increase in consolidated revenues for the reporting period.
The growth in Omnirel's net sales was largely as a result of an ongoing
order placed by General Electric for multi-chip power module systems
containing power hybrid componentry. These orders accounted for 63% of
Omnirel's fiscal 1995 sales compared to 16% for the comparable period.
Net sales in TACTech increased approximately 37% in the fiscal 1995
period compared to the 1994 period due principally to an increase in the
subscriber base and a United States Department of Defense contract.
Consolidated gross profit for the fiscal year ended June 30, 1995 was
$9,518,000 as compared to $4,846,000 for the comparable fiscal period.
Omnirel's cost of goods sold increased comparably to net sales and remained
essentially constant as a percentage of net sales as the increased ef-
ficiency in usage of manufacturing facilities offset an increase in
material costs and applicable reserves.
As a result of the increase in revenues, selling and general and
administrative expenses decreased to 28.1% of revenues for the fiscal year
ended June 30, 1995 compared to 38.9% for the comparable period. The 28.1%
ratio was achieved after $391,500 of expenses were incurred in the third
quarter of the 1995 fiscal year relating to the abandonment of a proposed
restructuring of the Company in which stock of TACTech and Omnirel would
have been distributed to shareholders of the Company.
The Company also recorded an increase in depreciation and amortization
expense in the amount of $386,000 due to a change in estimate of the useful
lives of certain machinery and equipment owned by Omnirel due to Omnirel's
accelerated and additional use of its machinery and equipment in manufac-
turing.
Interest expense declined approximately 50% during the fiscal year 1995
principally due to the Company's retirement in 1994 of all of its Senior
Subordinated Notes, partially offset by an increase in interest charges
during the 1995 fiscal year related to other borrowings of the Company and
Omnirel.
Interest and other income increased approximately 25% during the 1995
fiscal year principally due to interest and dividend income and the fact
that net realized and unrealized gain on marketable securities amounted to
$27,000 in fiscal 1995 as compared to net realized and unrealized losses of
$74,000 in marketable securities for fiscal 1994.
Provision for income taxes in fiscal 1995 in the amount of $325,000 was
after giving effect to the Company's utilization of $3,000,000 of the
Company's net operating losses and the related release of valuation
allowances previously established for such losses. In fiscal 1994, the
Company adopted FASB 109 "Accounting for Income Taxes." Pursuant to FASB
109, the Company recorded a deferred tax asset, a deferred tax liability
and a valuation allowance account which resulted in the provision for
income taxes in fiscal 1994 in an amount of only $3,000. See Note G of the
Consolidation Financial Statements.
12
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Results of Operation - Fiscal 1994 Compared to Nine Months Ended June 30, 1993
- ------------------------------------------------------------------------------
Effective April 30, 1993, Zing sold to Arrow Electronics, Inc. the net
assets of its high reliability electronic component distribution and value-
added service businesses operated under the name "Zeus" ("Sold Business").
The purchase price was $24,254,000. This represents a premium of ap-
proximately $3,000,000 over the net book value of the assets being
transferred which represents the value paid for a non-compete agreement.
Zing is also entitled to receive, three years from the closing of the Arrow
sale, up to $2,000,000 from Arrow as additional purchase price depending on
the performance of Arrow's high reliability electronic components and
value-added business.
Since the disposition of the Sold Business, the Company's operations are
principally a reflection of the business of its one significant subsidiary,
Omnirel. The Company also changed its fiscal year at that time to June 30.
As a consequence of these two changes, management's discussion of the
Company's results of operations are not directly comparable from fiscal
period to fiscal period. To facilitate understanding of the comparative
results of the Company's ongoing operations, operations of the Company
excluding the Sold Business, as well as operations of the Company on a
fully consolidated basis, are described where practical.
The Company reported income before extraordinary items of $162,000 or
$.06 per share, for the twelve month period ended June 30, 1994. For the
nine month transitional fiscal year ended June 30, 1993, which included
results for seven of those months attributable to the Sold Business, the
Company sustained a loss before extraordinary items of $3,468,000 or $1.25
per share.
Fiscal Year 1994 net income of $215,000 or $.08 per share includes
extraordinary income of $53,000 or $.02 per share representing income
realized from the repurchase by the Company of $11,650,000 face value of
its Senior Subordinated Notes. The net loss for the 1993 fiscal period was
$3,623,000 or $1.31 per share, inclusive of an extraordinary loss of
$155,000 or $.06 per share representing deferred financing costs realized
from the repurchase by the Company of $1,600,000 face value of its Senior
Subordinated Notes.
The improvement in 1994 fiscal year operating results compared to 1993
is due to a combination of a greatly reduced loss at Omnirel resulting from
improved sales and gross profit margins and the elimination of the losses
attributable to the Sold Business. Omnirel sustained a net loss of
$440,000 (including the allocation of $150,000 of administrative overhead)
in the 1994 fiscal year, compared to a net loss of $1,773,000 in the prior
nine month period.
Net sales for the 1994 period were $11,483,000, comprised primarily of
net sales of Omnirel of $10,586,000; for the nine month 1993 fiscal period,
excluding the Sold Business, consolidated net sales of $6,412,000 were
comprised primarily of Omnirel sales of $5,907,000. The Company realized a
gross profit on 1994 net sales of $4,846,000 compared to a gross profit of
$2,165,000 on 1993 net sales, exclusive of the Sold Business. Including
the Sold Business, the Company in 1993 realized gross profits of
$11,978,000 on net sales of $52,602,000.
The Company's higher gross profit margins in 1994 compared to the prior
fiscal period are due
13
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
primarily to Omnirel's improvement in net sales without a comparable
increase in fixed costs, as well as to the elimination of less profitable
sales of Sold Business products.
Selling, general and administrative expenses were $4,465,000 for the
1994 period and, excluding the Sold Business, $3,001,000 for the June 30,
1993 fiscal period. While Omnirel's expenses declined from 1993 to 1994 as
a percentage of its net sales, the company's increased as a percentage of
sales on a consolidated basis. The Company's net sales declined much more
sharply, because of the elimination of the Sold Business in 1993, than did
consolidated selling expenses. Corporate overhead is therefore allocated
in 1994 against a smaller revenue base than in 1993.
Interest expense declined in 1994 compared to 1993 as a result of the
redemption by the Company of its Senior Subordinated Notes.
As of July 1, 1993, the Company adopted FASB Statement No. 109, "Accou-
nting for Income Taxes". This standard requires companies to change the
method of accounting for income taxes from the deferred to the liability
method. As permitted under the statements, the Company has elected not to
restate the financial statements of prior years. The adoption of FASB
Statement No. 109, on the 1994 year's operations is discussed in Note G to
the Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
In the 1995 fiscal year, the Company employed most of its cash and cash
equivalents in the acquisition of marketable securities. Omnirel's
operations in fiscal 1995 were funded from internally generated cash and
available bank lines of credit. During the 1995 fiscal year, Omnirel
reduced its intercompany debt owed to the Company by $1,930,000.
In the 1994 fiscal year, the Company employed most of its cash and cash
equivalents, which were the proceeds of the 1993 sale of the Sold Business
to Arrow, to redeem its remaining Senior Subordinated Notes and to acquire
marketable securities. Omnirel's operations, however, are funded from
internally generated cash, from intercompany borrowing, and from available
bank lines of credit.
Impact of Inflation
- -------------------
Inflation did not have significant impact on the operations of the
Company for all periods presented.
14
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Zing Technologies, Inc.
Valhalla, New York
We have audited the consolidated financial statements and the financial
statement schedule of Zing Technologies, Inc. and subsidiaries listed in
the accompanying index to the financial statements (Item 14(a)). These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Zing Technologies, Inc.
and subsidiaries at June 30, 1995 and 1994 and the consolidated results of
their operations and their cash flows for the years ended June 30, 1995 and
June 30, 1994 and the nine months ended June 30, 1993 in conformity with
generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note G to the consolidated financial statements, in 1994
the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
September 12, 1995
White Plains, New York
15
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1994 1995
(000's omitted)
--------------------
ASSETS
Current Assets
Cash and cash equivalents $ 182 $ 1,366
Marketable securities - Note I 1,477 1,489
Accounts receivable, less reserves of
$97 and $66, respectively 2,384 3,533
Inventories - Note D 2,391 3,817
Prepaid expenses 233 248
Other current assets 221 380
--------- ---------
Total Current Assets 6,888 10,833
--------- ---------
Property, Plant and Equipment - Note E 8,178 9,028
Less accumulated depreciation and amortization 3,046 4,427
--------- ---------
5,132 4,601
Marketable Securities - non-current - Note I 3,179 3,787
Deferred Income Taxes, net of valuation allowance - Note G 1,255 1,284
Excess of Cost Over Assets Acquired, net of
amortization of $715 and $868, respectively 1,821 1,668
Other Assets 85 12
--------- ---------
TOTAL ASSETS $ 18,360 $ 22,185
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,383 $ 2,035
Accrued expenses 357 1,566
Accrued compensation expense 300 524
Short positions in marketable equity securities 447
Due to broker 367 259
Current portion of long-term obligations 156 231
--------- ---------
Total Current Liabilities 3,010 4,615
Long-Term Obligations, less current portion - Note F 626 741
Deferred Income - non-compete agreement 2,300 1,700
Stockholders' Equity - Note H
Common Stock, par value $.01 per share: Authorized
12,000,000 shares; issued 2,695,571 shares as of
June 30, 1994, and 2,797,415 issued as of
June 30, 1995. 27 28
Additional paid-in capital 13,146 13,466
Note receivable from stockholder (250) (250)
Net unrealized loss on noncurrent
marketable securities - Note I (288)
Retained earnings (deficit) (163) 2,354
Less: treasury shares at cost
(14,100 shares - 1994; 199,918 shares - 1995) (48) (469)
--------- ---------
12,424 15,129
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,360 $ 22,185
========= =========
See notes to consolidated financial statements
16
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
Nine months
ended June 30, Year ended June 30
1993 1994 1995
------------------ ---------------------------
(000's omitted, except per share data)
<S> <C> <C> <C>
Net sales $ 52,602 $ 11,483 $ 22,591
Cost of goods sold 40,624 6,637 13,073
--------------- ---------- ----------
Gross profit 11,978 4,846 9,518
Selling, general and administrative expenses 13,080 4,465 6,347
Depreciation and amortization of property, plant & equipment 887 790 1,232
Net interest expense and amortization of deferred
note issuance costs 1,443 286 148
Interest and other income - net (860) (1,051)
--------------- ---------- ----------
Income (loss) before income taxes and extraordinary item (3,432) 165 2,842
Provision for income taxes 36 3 325
--------------- ---------- ----------
Income (loss) before extraordinary item (3,468) 162 2,517
Extraordinary item - gain (loss) from extinguishment of debt (155) 53 ---
--------------- ---------- ----------
Net income (loss) $ (3,623) $ 215 $ 2,517
=============== ========== ==========
Income (loss) per common and common equivalent share
Income (loss) before extraordinary item $ (1.25) $ 0.06 $ 0.94
Extraordinary item (0.06) 0.02 ---
--------------- ---------- ----------
Net income (loss) $ (1.31) $ 0.08 $ 0.94
=============== ========== ==========
Number of shares used in computation 2,774,000 2,747,000 2,671,000
=============== ========== ==========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE><CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
===================================================================================================================================
Note
Common Stock Additional Receivable Retained
----------------- Paid-in from Earnings Treasury
(000'S Omitted) Share Amount Capital Stockholder (Deficit) Stock
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992 2,695 $27 $13,146 ($250) $3,245
Net loss (3,623)
Repurchase of Common Stock for Treasury (2) ($5)
===================================================================================================================================
Balance at June 30, 1993 2,693 27 13,146 (250) (378) (5)
Net income 215
Net unrealized loss on noncurrent
marketable securities
Repurchase of Common Stock for Treasury (12) (43)
===================================================================================================================================
Balance at June 30, 1994 2,681 27 13,146 (250) (163) (48)
Net income 2,517
Recognition of unrealized loss on non-current
marketable securities
Repurchase of Common Stock for Treasury (186) (421)
Exercise of Warrants 102 1 320
===================================================================================================================================
Balance at June 30, 1995 2,597 $28 $13,466 ($250) $2,354 ($469)
===================================================================================================================================
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
========================================================================================================
Net Unrealized Total
Loss on Noncurrent Stockholders
(000'S Omitted) Marketable Securit Equity
========================================================================================================
<S> <C> <C>
Balance at September 30, 1992 $16,168
Net loss (3,623)
Repurchase of Common Stock for Treasury (5)
========================================================================================================
Balance at June 30, 1993 12,540
Net income 215
Net unrealized loss on noncurrent
marketable securities (288) (288)
Repurchase of Common Stock for Treasury (43)
========================================================================================================
Balance at June 30, 1994 (288) 12,424
Net income 2,517
Recognition of unrealized loss on non-current
marketable securities 288 288
Repurchase of Common Stock for Treasury (421)
Exercise of Warrants 321
========================================================================================================
Balance at June 30, 1995 $--- $15,129
========================================================================================================
See notes to consolidated financial statements.
18
</TABLE>
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
Nine Months
Ended Year Ended Year Ended
June 30, June 30, June 30,
1993 1994 1995
------------------------------------------
(000's omitted)
------------------------------------------
<S> <C> <c <C>
OPERATING ACTIVITIES
Net income (loss) $ (3,623) $ 215 $ 2,517
Adjusted to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,268 1,165 1,534
Amortization of non-compete agreement (100) (600) (600)
Provision for losses on accounts receivable 76 66 (10)
Extraordinary (gain) loss 155 (53) --
Changes in operating assets and liabilities:
(Increase) in accounts receivable (524) (1,043) (1,139)
(Increase) in inventories (157) (423) (1,426)
(Increase) decrease in prepaid expenses and
other current assets (1,498) 1,177 (174)
Decrease in recoverable income taxes 268 --
(Increase) in net deferred income taxes (1,255) (29)
Decrease in other assets 230 1,511 73
Increase (decrease) in accounts payable and
accrued expenses including a reclassification
of long-term debt to current of $12,225,000
in 1993 16,216 (13,814) 1,530
----------- ----------- ----------
Increase in other, net 205 184
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 12,516 (13,054) 2,460
INVESTING ACTIVITIES
Purchases of property and equipment (961) (381) (850)
Net purchases of marketable securities -- (4,944) (332)
----------- ----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (961) (5,325) (1,182)
----------- ----------- ----------
FINANCING ACTIVITIES
Proceeds from sale of high reliability distribution business 24,254 --
Proceeds from lines of credit and long-term
borrowings including reclassification 467 679 190
Reductions of lines of credit and long-term debt (20,056) --
Exercise of stock warrants 137
Repurchase of common stock for treasury (5) (43) (421)
----------- ----------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,660 636 (94)
----------- ----------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 16,215 (17,743) 1,184
Cash and cash equivalents at beginning of year 1,710 17,925 182
----------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,925 $ 182 $ 1,366
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements
19
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Business Segment Information: The Company operates primarily in one
business segment - sales of high reliability power semiconductor multi-chip
modules for use in military/aerospace and high-end industrial applications.
The Company also markets a turnkey software package and database of
pertinent component information. Prior to the sale described in Note B,
the Company also distributed semiconductors and passive components.
Consolidation: The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All sig-
nificant intercompany accounts and transactions have been eliminated.
Revenue Recognition: The Company recognizes sales at the time of
shipment/services provided. Consistent with industry practice, Omnirel
warrants that its products are free from defects in workmanship and meet
the agreed upon specifications supplied by the customer or Omnirel's
current published specifications. As of June 30, 1995, the Company has a
$343,000 warranty reserve.
Cash and Cash Equivalents: The Company considers all short-term liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Marketable Securities: In May 1993 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 115, "Accou-
nting for Certain Investments in Debt and Equity Securities, " effective
for fiscal years beginning after December 15, 1993. Under the new rules,
debt securities that the Company has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities that
the Company does not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as available-
for-sale or trading and carried at fair value. Unrealized holding gains
and losses on securities classified as available-for-sale are carried as a
separate component of shareholders' equity. Unrealized holding gains and
losses on securities classified as trading are reported in earnings.
As of the beginning of fiscal 1995, the Company adopted the provisions
of Statement 115 and such adoption did not have a material impact on the
Company's financial statements.
Property, Plant and Equipment: Property, plant and equipment,
including equipment
20
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note A - Organization and Summary of Significant Accounting Policies (continued)
-----------------------------------------------------------------------
leased under capital leases, are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets,
ranging from three to twenty five years. Leasehold improvements are
amortized over the terms of the respective leases or the service lives of
the improvements, whichever is shorter. The Company recorded an increase
in depreciation and amortization expense in the amount of $386,000 due to a
change in estimate of the useful lives of certain machinery and equipment
owned by Omnirel due to Omnirel's accelerated and additional use of its
machinery and equipment in manufacturing.
Excess of Cost Over Assets Acquired: The excess cost over assets
acquired is being amortized over fifteen years. The Company periodically
reviews the carrying value of the excess of cost over assets acquired for
recoverability in relation to future earnings.
Net Income Per Common and Common Equivalent Share: Net income per
common and common equivalent share is based on the weighted average number
of shares of Common Stock outstanding during each period, including the
Common Stock equivalents of dilutive stock warrants.
Note B - Sale of High Reliability Distribution Business
----------------------------------------------
As of April 30, 1993, the Company sold its high reliability
distribution business to a subsidiary of Arrow Electronics Corp. for an
approximate net book value of $21,254,000 plus $3,000,000 for a five year
non-compete agreement, which the Company will amortize ratably. All
operations of the division are included in the Company's financial
statements through the date of sale.
The assets and liabilities sold to Arrow are as follows:
(000's omitted)
Accounts receivable, net . . . . . . . . . . . . $12,596
Inventories . . . . . . . . . . . . . . . . . . . 13,175
Deferred taxes . . . . . . . . . . . . . . . . . 168
Prepaid expenses and other current assets . . . . 287
Fixed assets, net . . . . . . . . . . . . . . . . 1,772
Other assets . . . . . . . . . . . . . . . . . . 447
Accounts payable and accrued expenses . . . . . . (6,503)
Other liabilities . . . . . . . . . . . . . . . . (594)
Long-term debt . . . . . . . . . . . . . . . . . (94)
------
$21,254
======
21
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note B - Sale of High Reliability Distribution Business (continued)
----------------------------------------------
The summarized results of operations sold were:
Nine Months Ended
June 30, 1993
(000's omitted)
---------------
Sales . . . . . . . . . . . . . $46,190
Gross profit . . . . . . . . . . 9,814
Loss before income taxes . . . . 1,613
Note C - Acquisition
-----------
On June 26, 1991, the Company acquired substantially all (approximately
96%) of the issued and outstanding shares of common stock of Omnirel
Corporation ("Omnirel").
Under the terms of certain shareholder agreements, Omnirel has agreed
to and, in certain instances, may be required to repurchase the minority
shareholders' interest in Omnirel, at a formula price based on the fair
value, as defined, of the Omnirel stock or earnings. In addition, Omnirel
established an Incentive Rights Plan ("Rights") whereby various members of
management have been granted rights, contingent upon attaining certain
earnings levels or other events, to appreciation in the market value of 20%
of the Omnirel's common stock, as defined, subject to certain forfeiture
and adjustment provisions. The Rights were terminated in the 1995 fiscal
year.
In connection with the acquisition, the Company loaned $250,000 to an
officer/director of Omnirel and the Company, to purchase Common Stock of
the Company on the open market, in exchange for a non-interest bearing
note. The note is due July 1, 2001, is secured by the Company's Common
Stock, and is classified as a reduction of equity. Subsequent to June 30,
1995, $80,000 of this note was repaid. The Company also loaned the
officer/director $300,000 ($60,000 balance at June 30, 1995) in exchange
for a non-interest bearing note due in five equal annual installments,
commencing June 26, 1992, with interest imputed at an effective annual rate
of 9%.
22
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note D - Inventories
-----------
Inventories consist of the following:
June 30, 1994 June 30, 1995
------------------ --------------------
(000's omitted)
----------------------------------------
Raw materials . . . . . . . . . $ 1,341 $ 2,110
Work in process . . . . . . . . 769 1,195
Finished goods . . . . . . . . 281 512
------ ------
$ 2,391 $ 3,817
====== ======
Note E - Property, Plant and Equipment
-----------------------------
Property, plant and equipment consists of:
June 30, 1994 June 30, 1995
------------------ --------------------
(000's omitted)
----------------------------------------
Land . . . . . . . . . . . . . $ 300 $ 300
Building . . . . . . . . . . . 2,572 2,572
Equipment . . . . . . . . . . 4,398 5,033
Furniture and fixtures . . . 381 541
Leasehold improvements . . . . 527 582
------- ------
$ 8,178 $9,028
======= ======
Note F - Long-term Obligations
---------------------
Long-term obligations consists of the following:
June 30, 1994 June 30, 1995
------------------ --------------------
(000's omitted)
----------------------------------------
Note payable to bank (a) . . . $ 782 $ 972
Less current portion . . . . . 156 231
--- ---
$ 626 $ 741
===== =====
23
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note F - Long-Term Obligations (continued)
---------------------
Footnote (a) to table on prior page -- Omnirel has $972,000 outstanding
against the equipment line of credit at June 30, 1995. Interest is payable
at the bank's prime rate plus 3/4% (10 1/2% at June 30, 1995). The bank
has a security interest in the equipment purchased (which has a carrying
amount of $1,472,000 at June 30, 1995). The new debt included a $300,000
line of credit payable on demand and a $1,200,000 equipment line of credit
payable over five years from respective draw downs with interest at the
bank's prime rate plus 1 1/2%. The annual payment requirements for long-
term obligations subsequent to June 30, 1995 are as follows:
1996 $231
1997 230
1998 231
1999 230
2000 50
The Company made interest payments of $1,003,000 during the nine months
ended 1993 and $286,000 during the year ended 1994 and $148,000 during the
year ended 1995.
In fiscal 1993, the Company repurchased $1,600,000 face value of its 12
1/4% Senior Subordinated Notes for $1,548,000 and wrote off $25,000 in
corresponding deferred note issuance cost. Further, the Company repur-
chased the remainder of the bonds ($11,650,000), and in connection
therewith wrote off the balance of the deferred financing costs resulting
in an extraordinary charge of $155,000 (1993) and realized an extraordinary
credit of $53,000 (1994).
Note G - Income Taxes
------------
As of July 1, 1993, the Company adopted FASB Statement No. 109, "Accou-
nting for Income Taxes." Under Statement No. 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of Statement No. 109,
income tax expense was determined using the deferred method. Deferred tax
expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were
measured at the tax rate in effect when the difference originated.
At June 26, 1991 Omnirel had available approximately $6,230,000 of net
operating loss carryforwards for Federal income tax purposes. As a result
of the adoption of Statement No. 109, the excess of cost over assets
acquired was reduced by approximately $1,275,000.
24
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note G - Income Taxes (continued)
------------
Omnirel's net operating loss carry forwards for federal income tax
purposes of approximately $4,100,000 at June 30, 1995 expires through 2007,
subject to annual limitations under Section 382 of the Internal Revenue Code.
Income tax provision consists of the following:
Nine Months Year Year
Ended Ended Ended
June 30, June 30, June 30,
1993 1994 1995
---- ---- ----
---------------------------------
(000's omitted)
---------------------------------
Current: Federal . . . . . . . . $ -- $ -- $266
State . . . . . . . . . 36 -- 88
Deferred: Federal . . . . . . . . -- 3 (29)
State . . . . . . . . . -- -- --
--- --- ---
$ 36 $ 3 $325
==== ==== ====
25
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note G - Income Taxes (continued)
------------
The reasons for the difference between total tax provisions and the amounts
computed by applying the statutory Federal income tax rate to pre-tax income
(loss) are as follows:
Nine Months Year Year
Ended Ended Ended
June 30, June 30, June 30,
1993 1994 1995
---- ---- ----
---------------------------------
(000's omitted)
---------------------------------
Statutory Federal income tax rate (34%) . . . . (1,220) $74 $966
Net operating loss utilization . . . . . . . . -- -- --
Additional net operating losses . . . . . . . 1,047 --
State income tax net of Federal tax benefit . 23 17 59
Adjustment to valuation allowance . . . . . . -- (154) (927)
Adjustment to deferred income taxes . . . . . . -- -- 193
Foreign sales corporation benefit . . . . . . (8) --
Permanent differences resulting from
purchase accounting . . . . . . . . . . . . . 174 52 52
Entertainment expense disallowance . . . . . . 15 12 34
Non-deductible insurance premiums . . . . . . . -- 13 19
Non-deductible capital losses . . . . . . . . . -- 39 --
Tax exempt dividends . . . . . . . . . . . . . -- (65) (100)
Other-net . . . . . . . . . . . . . . . . . . . 5 15 29
--- --- ----
$ 36 $ 3 $325
==== === ====
26
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note G - Income Taxes (continued)
------------
Deferred income taxes reflect the net tax effect of temporary differen-
ces between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred taxes are as follows:
June 30, 1994 June 30, 1995
------------- -------------
(000's omitted)
Net operating losses $2,778 $1,394
Non-compete agreement 782 578
Purchase accounting bases
difference (578) (300)
Warranty reserves --- 117
Inventory reserves --- 155
Unrealized loss on marketable
securities --- 105
Other --- 35
---- ----
Gross deferred tax asset 2,982 2,084
Valuation allowance (1,727) (800)
----- -----
Net deferred tax asset $1,255 $1,284
===== =====
The net change in the valuation allowance for the year ended June 30, 1995
was a decrease of $927,000 resulting from the current year utilization of net
operating loss carryforwards.
The Company made no Federal income tax payments during 1993, 1994 or 1995.
Note H - Stockholders' Equity
--------------------
In the years ended June 30, 1993, 1994 and 1995, the Company purchased for
its treasury 2,600 shares (1993), 11,500 shares (1994) and 185,818 shares (1995)
of its Common Stock at an aggregate purchase price of $5,200 (1993), $43,125
(1994) and $421,090 (1995) or an average price of $2.00 per share (1993), $3.75
per share (1994) and $2.27 per share (1995).
27
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note H - Stockholders' Equity (continued)
--------------------
Warrant activity is as follows: Warrants Price
-------- -----
Outstanding at June 30, 1993, and 1994 199,318 $1.34
Exercised (101,844) $1.34
---------
Outstanding at June 30, 1995 97,474 $1.34
=======
As a result of the issuance of options to purchase Omnirel common stock to
Omnirel employees in fiscal 1995, as of June 30, 1995, the Company's ownership
of Omnirel could be reduced to approximately 84% upon the exercise of such
options.
Note I - Marketable Equity Securities
----------------------------
For the years ended June 30, 1995 and June 30, 1994, equity securities were
carried at market. Marketable equity securities included in current and
non-current assets had a cost of $1,528,000 and $3,785,000, respectively,
as of June 30, 1995. As of June 30, 1994, the cost of the current and
non-current marketable equity securities was $1,539,000 and $3,467,000,
respectively. During fiscal 1994, the Company engaged in short selling which
obligated the Company to replace the securities borrowed by purchasing the
identical securities at its then current market value.
Net realized gains of $357,000 and losses of $74,000 on the sale of
marketable securities were included in the determination of net income for the
years ended June 30, 1995 and 1994, respectively. The cost of securities sold
was based on the first-in first-out method.
For the year ended June 30, 1995, net unrealized losses of $335,000 were
charged to income of which $307,000 was recorded during the fourth quarter of
fiscal 1995 as a reduction in the market value of the non-current marketable
equity securities portfolio which reduction was deemed to be other than
temporary.
To reduce the carrying amount of the current marketable equity securities
to market, which was lower than cost at June 30, 1994, a valuation allowance of
$42,000 (including gross gains of $32,000) was established with a corresponding
charge to net income. To reduce the carrying amount of the non-current
marketable equity securities to market, which was lower than cost at June 30,
1994, a valuation allowance in the amount of $288,000 was established by a
charge to stockholders' equity.
28
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note J - Employee Benefit Plan
---------------------
The Company has a deferred compensation program for all employees, which is
qualified under Section 401(k) of the Internal Revenue Code. Under the program
the contributions to be made by the Company are at the discretion of the Board
of Directors of the Company and were $4,988 for 1995, $11,000 for 1994 and
$17,000 for 1993. The Company does not maintain post-retirement benefit plans.
Note K - Leases
------
The Company has a noncancellable lease expiring October 31, 1996 at an
annual rate of $15,000. As of June 30, 1995 the company had no other sig-
nificant operating leases.
Rental expense for all operating leases consisted of:
1993 1994 1995
---- ---- ----
(000's omitted)
Rental expense $872 $ 35 $ 57
Sublease income (20) -- --
---- -- --
Net rental expense $852 $ 35 $ 57
==== ===== =====
The Company leased certain equipment under capital leases which expired in
fiscal 1994. The equipment under the capital leases had a cost of approximately
$128,000 as of June 30, 1993 and a net book value of approximately $49,000 as of
the same date.
Note L - Research and Development
------------------------
During 1993, 1994 and 1995, research and development expenditures were
$808,000, $841,000 and $1,055,000 respectively.
Note M - Foreign Sales
-------------
Export sales to unaffiliated customers in foreign countries (primarily
Canada and Western Europe) as a percentage of net sales were 15% for the nine
months ended June 30, 1993, 4% for the year ended June 30, 1994, and 2% for
the year ended June 30, 1995.
29
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Note N - Concentration of Credit Risk
-----------------------------
Sales to one customer aggregated 61% of the net sales of the Company for
fiscal 1995. Sales to two customers aggregated 17% and 11% respectively of the
net sales of the Company for fiscal 1994. As of June 30, 1995 and June 30,
1994, amounts due from these customers aggregated $2,414,000 and $909,000,
respectively.
Note O - Related Party Transactions
--------------------------
During the nine months ended June 30, 1993, the years ended June 30, 1994
and 1995, the company incurred costs for legal services rendered by a law firm
(a principal of which is a member of the Board of Directors of the Company)
amounting to $390,000, $54,000 and $347,000 respectively.
30
<PAGE>
<TABLE><CAPTION>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (unaudited)
1995 Fiscal Quarters
---------- ---------- --------- --------- ---------
First Second Third Fourth 1995
---------- ---------- --------- --------- ---------
(000's omitted, except per share data)
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 3,374 $ 3,580 $ 5,832 $ 9,805 $ 22,591
Gross profit 1,330 1,476 2,694 4,018 9,518
Total selling, general and administrative expenses 1,380 1,469 2,489 2,241 7,579
Interest expense and amortization of deferred note
issuance costs 22 45 59 22 148
Interest and other income - net 270 256 353 172 1,051
Income before income taxes 198 218 499 1,927 2,842
Provision for income taxes 3 3 96 223 325
--------- --------- -------- -------- ---------
Net income $ 195 $ 215 $ 403 $ 1,704 $ 2,517
--------- --------- -------- -------- ---------
--------- --------- -------- -------- ---------
Net income per share $ 0.08 $ 0.08 $ 0.15 $ 0.63 $ 0.94
--------- --------- -------- -------- ---------
--------- --------- -------- -------- ---------
Number of shares used in computation 2,572,875 2,642,857 2,666,830 2,680,572 2,670,511
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
1994 Fiscal Quarters
---------- ---------- --------- --------- ---------
First Second Third Fourth 1994
---------- ---------- --------- --------- ---------
(000's omitted, except per share data)
---------- ---------- --------- --------- ---------
Net sales $ 2,697 $ 2,747 $ 2,844 $ 3,195 $ 11,483
Gross profit 1,182 1,296 1,091 1,277 4,846
Total selling, general and administrative expenses 1,304 1,430 1,183 1,338 5,255
Interest expense and amortization of deferred note
issuance costs 229 15 17 25 286
Interest and other income - net 263 249 192 156 860
Income (loss) before income taxes, extraordinary item (88) 100 83 70 165
Provision (credit) for income taxes -- -- 50 (47) 3
Income (loss) before extraordinary item (88) 100 33 117 162
Extraordinary item 53 -- -- -- 53
--------- --------- ---------- -------- ---------
Net income (loss) $ (35) $ 100 $ 33 $ 117 $ 215
--------- --------- ---------- -------- ---------
--------- --------- ---------- -------- ---------
Income (loss) per share before extraordinary item $ (0.03) $ 0.04 $ 0.01 $ 0.04 $ 0.06
Extraordinary item 0.02 -- -- -- 0.02
--------- --------- ---------- -------- ---------
Net income (loss) per share $ (0.01) $ 0.04 $ 0.01 $ 0.04 $ 0.08
--------- --------- ---------- -------- ---------
--------- --------- ---------- -------- ---------
Number of shares used in computation 2,755,247 2,755,447 2,747,246 2,747,246 2,747,246
</TABLE>
31
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Information required under this part will be incorporated by reference from
the Company's definitive Proxy Statement or by amendment on Form 10-K/A, to be
filed within 120 days following the end of the Company's June 30, 1995 fiscal
year.
32
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) AND (2)--LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of Zing Technologies, Inc.
and subsidiaries are included in Item 8:
Consolidated balance sheets -- June 30, 1994 and 1995
Consolidated statements of operations -- Year ended June 30, 1995 and June
30, 1994, and Nine months ended June 30, 1993
Consolidated statements of stockholders' equity -- Year ended June 30,
1995, year ended June 30, 1994, and Nine months ended June 30, 1993
Consolidated statements of cash flows -- Year ended June 30, 1995 and June
30, 1994, and Nine months ended June 30, 1993
Notes to consolidated financial statements
The following consolidated financial statement schedules of Zing Technologies,
Inc. and subsidiaries are included in Item 10(d):
Schedule II -- Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(3) Exhibits required by Item 601 of Regulation S-K.
(b) Reports on Form 8-K -- None.
(c) Exhibits
11 - Statement Re Computation of per share earnings -- Page 35
33
<PAGE>
<TABLE><CAPTION>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
Balance at Charged To Charged To
Beginning Costs and Other Accounts- Deductions- Balance at End
Description of Period Expenses Describe Describe of Period
(000's omitted)
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $97 $31 (1) $66
Valuation allowance - deferred tax asset 1,727 927 (2) 800
------ ---- ----
$1,824 $958 $866
====== ==== ====
Year Ended June 30, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $72 $51 $26 (1) $97
Valuation allowance - deferred tax asset $1,727 (2) 1,727
--- --- ------ --- ------
$72 $51 $1,727 $26 $1,824
=== === ====== === ======
Nine Months Ended June 30, 1993:
Allowance for doubtful accounts $309 $76 $ -- $313 (1)(3) $72
==== === ==== ==== ===
(1) Uncollectible accounts written off, net of recoveries
(2) Amount offsets deferred tax asset.
(3) Amounts transferred as part of sale to Arrow Electronics
34
</TABLE>
<PAGE>
<TABLE><CAPTION>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT II - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
1993 1994 1995
--------------------------------------
(In Thousand, Except Per Share Data)
<S> <S> <C> <C>
Average shares outstanding 2,693 2,681 2,597
Net effect of dilutive stock options and warrants based
on the treasury stock method 81 66 74
--------------------------------------
Shares used for computation 2,774 2,747 2,671
--------------------------------------
--------------------------------------
Income (loss) before extraordinary item ($3,468) $162 $2,517
Extraordinary item (1) ($155) $53 --
--------------------------------------
Net income (loss) used for computation ($3,623) $215 $2,517
--------------------------------------
--------------------------------------
Per share amount:
Income (loss) before extraordinary item ($1.25) $0.06 $0.94
Extraordinary item ($0.06) $0.02 --
--------------------------------------
NET INCOME (LOSS) ($1.31) $0.08 $0.94
--------------------------------------
--------------------------------------
(1) Represents a gain (loss) from the extinguishment of debt, net of
income tax effect.
</TABLE>
35
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirement of Section 13 or 15(d) of Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized on the 28th day of September, 1995.
Zing Technologies, Inc.
By /s/ Robert E. Schrader
-----------------------
Name: Robert E. Schrader
Title: President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President, Chief Executive
/s/ Robert E. Schrader Officer and Chairman of the September 28, 1995
- ---------------------- Board
(Robert E. Schrader) (Principal Executive Officer)
Treasurer and Director
/s/ Martin S. Fawer (Principal Financial Officer) September 28, 1995
- -------------------
(Martin S. Fawer)
/s/ Deborah J. Schrader Secretary and Director September 28, 1995
- -----------------------
(Deborah J. Schrader)
/s/ John F. Catrambone Director September 28, 1995
- ----------------------
(John F. Catrambone)
Director September 28, 1995
- ------------------
(Laurence Higgitt)
/s/ Henry A. Singer Director September 28, 1995
- -------------------
(Henry A. Singer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,366,000
<SECURITIES> 1,489,000
<RECEIVABLES> 3,599,000
<ALLOWANCES> (66,000)
<INVENTORY> 3,817,000
<CURRENT-ASSETS> 10,833,000
<PP&E> 9,028,000
<DEPRECIATION> (4,427,000)
<TOTAL-ASSETS> 22,185,000
<CURRENT-LIABILITIES> 4,615,000
<BONDS> 741,000
<COMMON> 28,000
0
0
<OTHER-SE> 15,101,000
<TOTAL-LIABILITY-AND-EQUITY> 22,185,000
<SALES> 22,591,000
<TOTAL-REVENUES> 22,591,000
<CGS> (13,073,000)
<TOTAL-COSTS> (13,073,000)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (148,000)
<INCOME-PRETAX> 2,842,000
<INCOME-TAX> (325,000)
<INCOME-CONTINUING> 2,517,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,517,000
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.00
</TABLE>
