SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
(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, 1994
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 (I.R.S. Employer
or organization) 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
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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:_____
------
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 March 30, 1995 was $9,130,217.
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
March 30, 1995 was 2,555,640.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I
ITEM 1 - BUSINESS
General
- -------
Zing is a holding company with one material operating subsidiary, Omnirel
Corporation ("Omnirel") and one non-material operating subsidiary, Transition
Analysis of Component Technology, Inc. ("TACTech").
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. It 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, 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. Since June, 1991,
when it acquired Omnirel, Zing also manufactured and sold power hybrid units in
its niche market and has expanded into the high-end industrial market.
Power hybrid components are single-package devices with a power dissipation
of five watts or more combining semiconductors and passive devices.
Manufacturing techniques and design standards for the military and high-
reliability markets are more exacting than for commercial general purpose hybrid
circuit components. The products manufactured by Omnirel include custom
designed products as well as standard commodity products.
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. Zing is also entitled to receive, three years from the
closing of the Arrow Sale, up to $2,000,000 from Arrow (the "Arrow Deferred
Payment") as additional purchase price depending on the performance of Arrow's
high reliability electronic components and value-added business.1
Defense Electronics
- -------------------
Before the Arrow Sale, the Company focused on the military/aerospace niche
for a variety of reasons.
Military components generally have a longer life cycle than electronic
components used in the general commercial market, principally because the
military demands standardization to ensure product availability and reliability,
the risk of product obsolescence is accordingly reduced. The demand for
reliability also results in relatively long lead times (up to 52 weeks) for some
products. Since individual orders are often small, distributors play an
important role in supplying such components to customers on short notice.
Furthermore, semiconductor
--------------------
1 The amount of the Arrow Deferred Payment is calculated as follows: If
during the 2 year measuring period of May 1, 1994 through April 30, 1996
Arrow's average annual revenues from high- reliability electronic component
distribution sales and related value added services in North America
("Specified Sales Revenue") exceed the aggregate of (a) 80% of Specified
Sales Revenues realized by Zing during the 12 month period ended April 30,
1993 (the "Base Period") and (b) 100% of Specified Sales Revenues realized
by Arrow in the Base Period (the "Base Amount"), then Zing is to be paid
approximately 10% of the amount by which such average Specified Sales Revenues
exceed the Base Amount, with a payment cap of $2 million. Payment is due by
May 30, 1996.
2
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
products had consumed an increasing percentage of the Defense Department's
procurement budget, even as that budget shrank in recent years.
In recent years the military procurement budget began and continued to
shrink, causing the overall market for milspec components to contract.
Distributors in the commercial market attempted to increase their market share
in this declining market, thereby putting pressure on the Company's margins and
market share. The Company decided to sell its distribution and value-added
service business to Arrow, and to change its focus by concentrating on the
development of Omnirel.
Omnirel (Zing's approximately 96% owned subsidiary on a fully diluted
basis) is a manufacturer of power hybrid circuits and semiconductor multi-chip
components, serving the high reliability military and industrial markets. Power
hybrids combine active and passive components in one package to produce a
functional electronic circuit which regulates the input and output of power to
the device of which it forms a part. Omnirel produces both standard and custom
products in a clean room environment and is certified to MIL-STD 1772, the
highest level military certification for a hybrid circuit facility. 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 aircraft 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. Omnirel was organized in
July 15, 1985 and acquired by Zing on June 26, 1991.
TACTech licenses proprietary computer software databases to military
semiconductor manufacturers, the Department of Defense and defense contractors.
The databases provide the 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
specifications 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 upon sources of supply. The TACTech database is 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. TACTech is not presently a material subsidiary of Zing.
Except as otherwise specified, the following discussion relates solely to
the business of Omnirel since the operations of neither Zing nor TACTech
materially alter the information presented.
Competition
- -----------
The market for power hybrid components is fragmented. There is no single
firm which maintains a dominant position, either in technology or in market
share. Based on industry publications, the total market for power hybrids
within the United States was approximately $300,000,000 in 1993 and is expected
to grow at a rate greater than 10% during each of 1994 and 1995. The market for
Omnirel products 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
products are power hybrid circuits. The principal competitors of Omnirel are
other power hybrid manufacturers, original equipment manufacturers with internal
capability and general purpose semiconductor manufacturers who offer power
hybrids as a complementary product line. Omnirel distinguishes itself in the
marketplace principally on the strength of its focus on power hybrid circuits.
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.
3
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Marketing and Sales
- -------------------
Omnirel markets its products through five 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 potential
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.
Sales of various products to a single customer, representing multiple
industrial and military/aerospace programs at four separate locations aggregated
19% of Omnirel's sales revenues for the fiscal year 1994 and a single project
accounted for approximately 16% of 1994 sales. The customer, due to orders
already placed, is expected to represent a larger portion of Omnirel's fiscal
year 1995 sales. Sales to Arrow Electronics, Omnirel's primary distributor,
were 13% of sales revenues for 1994. At the time of the Arrow Sale, Arrow was
appointed Omnirel's exclusive distributor of its single and multi-chip
semiconductor devices for a period ending in May, 1996. If the exclusive
distributorship were to end after such period, the Company does not expect
significant difficulty in selling Omnirel's single and multi-ship products to
and/or through other distributors and customers.
Omnirel's customers outside the United States and export sales outside the
United States are as follows:
(000's omitted)
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1994 1993 1992
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Canada $ 89$ --$ --
Europe 183 249 55
Mid East (Israel) 30 24 54
Far East (Japan) 5 4 10
South Pacific (Australia) 151 44 107
---- --- ---
Total $458 $321 $226
=== === ===
Omnirel's backlog on June 30, 1994 was $10,200,000, 98% of which is
deliverable over the period July 1, 1994 through June 30, 1995.
For the fiscal year 1994, 1993 and 1992 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 for costs incurred and a reasonable profit
for work performed prior to the cancellation.
The sale of Omnirel products is not seasonal.
4
<PAGE>
Suppliers 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 is 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.
Patents, Trademarks and Licenses
- --------------------------------
Omnirel does not possess any patents for proprietary manufacturing process.
The Omnirel name and logo are unique trademarks. While Omnirel considers that
in the aggregate its trademarks are important in its operations, 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 proprietary trade secret
protection through customer licensing agreements.
Inventory
- ---------
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 inventory 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 expenditures 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, 1994, the nine months ended June 30, 1993 and the fiscal year ended
September 30, 1992 were $841,000, $808,000, and $735,000, respectively.
Employees
- ---------
As of June 30, 1994, Zing had 124 employees, 39 of whom were employed by
Omnirel in a manufacturing capacity and 67 in clerical, administrative,
engineering or sales positions at Omnirel. The Company employs four people in
executive or administrative functions, and TACTech employs four computer
programmers and an additional 10 persons in clerical, sales, customer support
and administrative roles. None of Zing's employees are covered by a collective
bargaining agreement.
5
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE><CAPTION>
Nine Months Year
Ended Ended
Year Ended September 30, June 30, June 30,
----------------------- -------- -----------
1990 1991 1992 1993 1994
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(000's omitted, except per share data)
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<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross revenues . . . . . . . . . . . . . . . . . . . . $94,933 $96,445 $91,698 $52,602 $11,483
Cost of goods sold . . . . . . . . . . . . . . . . . . 73,415 73,822 70,439 40,624 6,637
------ ------ ------ ------- ------
Gross profit . . . . . . . . . . . . . . . . . . . . . 21,518 22,623 21,259 11,978 4,846
Selling, general and administrative expenses (1) . . . 19,514 21,130 21,238 13,967 5,255
Interest expense (2) . . . . . . . . . . . . . . . . . 2,151 1,857 2,397 1,443 286
Interest and other income - net (3) . . . . . . . . . . -- -- -- -- (860)
Income (loss) before income taxes and
extraordinary item . . . . . . . . . . . . . . . . . (147) (364) (2,376) (3,432) 165
Provision (credit) for income taxes . . . . . . . . . . (53) (64) (215) 36 3
------ ------ ------ ------- ------
Income (loss) before extraordinary item . . . . . . . . (94) (300) (2,161) (3,468) 162
Extraordinary item (4) . . . . . . . . . . . . . . . . 347 326 29 (155) 53
------- ------- ------- ------- ------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . $ 253 $ 26 $(2,132) $(3,623) $ 215
======= ======= ======= ======= ======
- ------------------------------
PER SHARE DATA (5)
Income (loss) before extraordinary item . . . . . . . . $ (.03) $ (.11) $ (.80) $ (1.25) $ .06
Extraordinary item . . . . . . . . . . . . . . . . . . .12 .12 .01 (.06) .02
------ ----- ------ ----- -----
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ .09 $ .01 $ (.79) $ (1.31) $ .08
====== ===== ====== ===== =====
Weighted average shares outstanding . . . . . . . . . . . 2,725 2,696 2,696 2,774 2747
- ------------------------------
September 30, June 30,
------------------------------- --------------------
1990 1991 1992 1993 1994
BALANCE SHEET DATA
Working capital . . . . . . . . . . . . . . . . . . . . $32,245 $20,632 $18,541 $ 6,228 $ 3,878
Total assets . . . . . . . . . . . . . . . . . . . . . 42,622 50,868 43,710 32,264 18,360
Long-term obligations . . . . . . . . . . . . . . . . . 16,867 14,875 14,431 -- 626
Stockholders' equity . . . . . . . . . . . . . . . . . 18,524 18,300 16,168 12,540 12,424
</TABLE>
- ------------------------------
(1) Includes provision for doubtful accounts, depreciation and amortization
of property and equipment.
(2) Includes amortization of deferred note issuance costs.
(3) Includes interest income, dividend income, realized and unrealized
losses on marketable securities and amortization of the non-compete
agreement.
(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 changed its year end from September 30 to June
30.
(7) See Note B to Consolidated Financial Statement for information regarding
the Company's high reliability electronic component distribution and
value added services businesses which were sold in 1993.
6
<PAGE>
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 periods indicated the percentage
relationship to net sales of certain items from the Company's consolidated
statements of operations.
Year Nine Months Year
Ended Ended Ended
June 30, June 30, September
1994 1993 1992
-------- -------- --------
Gross revenues . . . . . . . . . 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . 57.8 76.8 76.8
---- ----- -----
Gross profit . . . . . . . . . . 42.2 23.2 23.2
Selling, general and administrative expenses 38.3 24.7 21.4
Provision for doubtful accounts . .6 .2 .1
Depreciation and amortization of property
and equipment . . . . . . . . . 6.9 1.7 1.6
Interest expense and amortization of
deferred note issuance costs . 2.5 2.7 2.6
Interest and other income - net . (7.5) -- --
--- -- --
Income (loss) before income taxes and
extraordinary item . . . . . . 1.4 (6.1) (2.5)
Provision (credit) for income taxes
-- .1 (.2)
-- --- ----
Income (loss) before extraordinary item 1.4 (6.2) (2.3)
Extraordinary item . . . . . . . .5 (.3) --
----- ---- --
Net income (loss) . . . . . . . . 1.9% (5.9)% (2.3)%
=== ===== =====
Results of Operations - 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 approximately
$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, managements'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 for the nine months
ended June 30, 1993.
7
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
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 $290,000 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 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 $4,399,000 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,
"Accounting 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 statement, the Company has elected not to restate the
financial statements of prior years. The adoption of FASB Statement No. 109, on
the current years financial statements is stated in Note G of the Consolidated
Financial Statements.
Results of Operations - Nine Months Ended June 30, 1993 Compared to Fiscal 1992
- -------------------------------------------------------------------------------
Results of the Company's operations in the period ended June 30, 1993 are
not directly comparable to the 1992 fiscal year since the June 30, 1993 period
includes only nine months and only seven of such months did the Company operate
its Sold Business.
The Company incurred a loss before extraordinary items of $3,468,000 or
$1.25 per share, for the nine month period ended June 30, 1993, on net sales of
$52,602,000, compared to a loss of $2,161,000 or $.80 per share for its fiscal
year ended September 30, 1992. The net loss for the 1993 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 net loss
for 1992
8
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
was $2,132,000 or $.79 per share, inclusive of an extraordinary gain of $29,000
or $.01 per share realized from the repurchase by the Company of $250,000 face
value of its Senior Subordinated Notes for $200,000.
Excluding operations of the Sold Business, net sales were $6,412,000 in the
nine month 1993 period and $9,484,000 for the 12 month 1992 fiscal year.
The Company realized gross profits of $11,978,000 in the 1993 period, of
which the Sold Business accounted for $9,814,000. In the 1992 fiscal year, the
Company realized gross profit of $21,259,000, of which the Sold business
accounted for $17,436,000. Gross margins declined however, largely due to lower
sales and increased competition between the two fiscal periods.
Selling, general and administrative expenses for the Company, excluding the
Sold Business, were $3,001,000 for the 1993 period and $3,211,000 for fiscal
1992. Selling, general and administrative expenses for the Sold Business were
$10,003,000 for the nine-month 1993 period and $16,415,000 for fiscal 1992.
Interest expense declined from 1992 to 1993 as a result of the redemption
by the Company during the 1993 fiscal year of a portion of its Senior
Subordinate Notes.
Liquidity and Capital Resources
- -------------------------------
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. See Note I of Notes to Consolidated Financial
Statements. Omnirel operations, however, are funded from internally generated
cash, from intercompany borrowings, and from available bank lines of credit. As
of the end of the 1994 fiscal year, $782,000 was outstanding under such line
of credit. After the end of the 1994 fiscal year such line of credit was
replaced with a $1,200,000 equipment line of credit and a $300,000 accounts
receivable and inventory line of credit. The new credit lines are guaranteed by
the Company, include various financial covenants, including maintenance of a
minimum tangible net worth of $2,800,000 and maintenance of liabilities to
tangible net worth and debt service coverage ratios of 3.0:1.0 and 1.2:1.0,
respectively, and prohibit the payment of dividends by Omnirel. The Company
does not foresee the need to expend capital beyond its ability to obtain
financing from such sources.
In the 1993 fiscal period the proceeds of the sale to Arrow of the Sold
Business permitted the Company to satisfy $6,000,000 in bank notes and
repurchase $1,600,000 face value of its Senior Subordinated Notes. The receipt
of sales proceeds resulted in a significant increase in the Company's cash and
cash equivalents holdings as of the end of the 1993 fiscal year compared to the
prior year.
Impact of Inflation
- -------------------
In fiscal 1994, inflation did not have a significant impact on the
operations of the Company.
9
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
PART III
<TABLE><CAPTION>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names and ages of all Directors of the Company and nominees
therefor, their positions with the Company, their term of office and their
business background are set forth below:
Director of
Name, Age, Principal Occupation, Other Directorships Zing Since
- ---------------------------------------------------- ------------
<S> <C>
JOHN F. CATRAMBONE, 54, has been President and Chairman of the Board of Omnirel 1986
Corporation, a manufacturer of power hybrid semiconductor devices since 1985.
Omnirel has been a subsidiary of the Company since June 1991.
MARTIN S. FAWER, 60, became Chief Financial Officer and Treasurer in February 1984
1988. From October 1984 to January 1988 Mr. Fawer was Treasurer of the Company.
He is also a director of Transition Analysis Component Technology, Inc., a
subsidiary of the Company. For more than five years, Mr. Fawer has been a
principal of Fawer and Kupczyk, P.C. and its predecessors, certified public
accountants.
LAURENCE W. HIGGITT, 47, has been employed by Stephen Rose & Partners, Limited, 1985
investment bankers, in London, England since 1984 and has been on its Board of
Directors since 1985. Prior to 1984, he was a fund manager for Lazard Brothers
& Co. Ltd., merchant bankers, London, England.
DEBORAH J. SCHRADER, 47, has been Secretary of the Company since its 1969
incorporation. She is also the Secretary and a director of Transition Analysis
Component Technology, Inc., a subsidiary of the Company. She is the wife of
Robert E. Schrader.
ROBERT E. SCHRADER, 50, is the founder of the Company and has been President and 1969
Chief Executive Officer since its incorporation in 1969. Prior to organizing
the Company, Mr. Schrader was an account executive with a division of Lafayette
Radio Corporation, a district sales manager of Arrow Electronics, Inc. and held
purchasing manager positions with two electronic equipment manufacturers. He is
also a director and vice-president of Transition Analysis Component Technology,
Inc. and Omnirel Corporation, each a subsidiary of the Company. He is the
husband of Deborah J. Schrader.
HENRY A. SINGER*, 57, has been a member of the law firm of Morrison Cohen Singer & 1988
Weinstein, LLP and its predecessor for more than the past five years. Morrison
Cohen Singer & Weinstein, LLP serves as general counsel to the Company.
</TABLE>
- ---------------------------
*See "Compensation Committee Interlocks and Insider Participation" for a
discussion of the legal fees received by Mr. Singer's firm since June 30, 1993.
10
<PAGE>
No director is a director of any company with a class of securities
registered pursuant to Section 12 of the Act or of any company registered
as an Investment Company under the Investment Company Act of 1940. Other
than Robert E. Schrader and Deborah J. Schrader, who are married to each
other, there is no family relationship among any of the members of the
Board of Directors or the officers of the Company.
In November 1992, Henry A. Singer settled a civil suit filed by the
Securities and Exchange Commission alleging that in August and November of
1987 he purchased shares of common stock of a company listed on the New
York Stock Exchange based upon material non-public information. Mr. Singer
denied these allegations except that he in fact purchased the shares of
such company and sold them for a profit of approximately $34,000 in April
1988. Subsequently, in connection with the settlement of the suit, without
admitting or denying the allegations in the complaint, Mr. Singer consented
to the entry of a final judgment of permanent injunction against his
violating securities laws in future trading of any securities. In
connection therewith, Mr. Singer paid $34,050, representing the profits
from the transaction described in the complaint, together with interest
thereon, as well as a civil money penalty in the same amount.
Executive Officers
- ------------------
Position with Company and Business
Name Age Experience During Past Five Years
- ---- --- ----------------------------------
Robert E. Schrader*
Deborah J. Schrader*
Martin S. Fawer*
John F. Catrambone*
Malcolm Baca 54 Vice President and Treasurer of the
Company's TACTech subsidiary since
1987.
* See "Directors" above.
Based upon an examination of Forms 3, 4 and 5 furnished to the
registrant in respect of the 1994 Fiscal Year, no persons have failed timely to
file any of the foregoing forms in respect of transactions in such year or in
respect of a prior year.
11
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The following table shows, for the three most recently ended fiscal
years, the cash compensation paid or accrued for those years to the Chief
Executive Officer of the Company and to each of the four most highly
compensated executive officers of the Company other than the Chief
Executive Officer whose aggregate annual salary and bonus paid in
compensation for services rendered in all the capacities in which they
served exceeded $100,000 for the Company's last fiscal year (the "Named
Executives"):
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
----------------------------------------------- ------------------------ --------
Securities All Other
Name and Other Restricted Underlying Compen-
Principal Annual Stock Options/ LITP sation(2)
Position Year(1) Salary($) Bonus($) Compensation($) Awards($) SARs (#) Payouts($) ($)
- ------------ --------- -------- ---------- --------------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Schrader 1994 162,500 1,800
President, Chief Executive 1993 220,600 1,481
Officer and Chairman of the 1992 318,270 1,974
Board
John F. Catrambone(3) 1994 185,004 50,000 58,512
President of Omnirel 1993 146,750 45,110
Corporation 1992 257,000 8,000 52,744
Malcolm Baca 1994 161,479 1,044
Vice President and Treasurer 1993 111,754 783
of TACTech 1992 147,541 1,044
</TABLE>
- -------------------------
(1)On May 19, 1993 the Company's Board of Directors voted to change the
Company's fiscal year end to June 30 from September 30. Information for
the 1993 Fiscal Year is for the nine months ended June 30, 1993.
Information for the 1992 fiscal year is for the fiscal year ended September
30, 1992.
(2)The amounts reflect the following payments of annual life insurance
premiums in the 1994 Fiscal Year: $1,800 on behalf of Mr. Robert E.
Schrader, $36,012 on behalf of Mr. John Catrambone and $1,044 on behalf of
Mr. Malcolm Baca. The amounts for Mr. Catrambone in each of 1992, 1993 and
1994 include $22,500 representing interest imputed at 9% per annum on the
$250,000 interest free loan provided by Zing to Mr. Catrambone for the
purchase of Zing common stock.
(3)Amounts recorded as Salary included a contractually required annual
bonus of $60,000. See "Employment Contracts and Termination of Employment
and Change-of-Control Arrangements" below.
The above amounts do not include certain personal benefits, which do not
exceed, as to any executive officer identified above, 10% of his total
Annual Compensation.
12
<PAGE>
GRANTS OF WARRANTS
During the 1994 Fiscal Year no warrants, options or Stock Appreciation
Rights were granted to any Named Executive.
<TABLE><CAPTION>
AGGREGATED WARRANT EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END WARRANT VALUES
Value of Unexercised
Shares Number of Unexercised In-the-Money
Acquired Option/SARs at Option/SARs at
on FY-End (#) FY-End ($)
Value ---------------------------- ----------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable(1) Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Catrambone 3,000 2,355
</TABLE>
- -------------------------
(1) Based on the fair market value per share of the Common Stock of
$2.125, which was the closing bid price of the Common Stock as reported by
the National Association of Securities Dealers, Inc.
COMPENSATION OF DIRECTORS
The Company pays each director who is not an officer or employee of
the company (other than Henry A. Singer) $4,000 per year for his services
as a director plus $250 for each Board of Directors meeting attended and
for each Committee meeting attended if not held on the same day as a Board
meeting. Mr. Singer does not receive such fee, since the firm of which he
is a partner is paid its customary legal fees for Mr. Singer's attendance
and participation. Such firm was paid $179,548 for legal services rendered
to the Company for the 1994 Fiscal Year, of which $5,491.50 was paid in
respect of Mr. Singer's attendance and Board and Committee Meetings. See
---
"Compensation Committee Interlocks and Insider Participation", below.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
John Catrambone has an employment agreement with the Company's Omnirel
subsidiary. The five year agreement, expiring in June of 1996, provides
for a base salary of $125,000 per year, a guaranteed bonus of $60,000 per
year and an incentive bonus linked to a set of performance criteria
determined annually by Omnirel's Board of Directors and subject to
percentage limitations of Mr. Catrambone's base salary (70% for 1994). Mr.
Catrambone was loaned $300,000, without interest, by the Company in
connection with the purchase of Omnirel by the Company. The Company has
guaranteed to Mr. Catrambone the base compensation payments under such
employment agreement and pays the $60,000 annual bonus, which is used by
Mr. Catrambone to repay such loan. The Company also loaned Mr. Catrambone
$250,000, without interest, to purchase shares of the Company's common
stock. Such loan, which is due in June, 2001, is secured by the stock so
purchased by Mr. Catrambone.
Malcolm Baca has an employment agreement with the Company's TACTech
subsidiary. The term of Mr. Baca's employment is set to expire on May 1,
1997. Mr. Baca's agreement entitles him to a salary of $120,000 per annum,
plus five percent (5%) of TACTech's collected revenues in each year, except
that on revenues
13
<PAGE>
attributable to another commissioned member of TACTech's management Mr.
Baca's commission is two and one-half percent (2 1/2%). Effective as from the
middle of the 1995 fiscal year, all commissions to Mr. Baca are subject to
his required contribution of one-half of one percent ( 1/2%) of TACTech's
collected revenues to a bonus pool fund for the benefit of non-commissioned
members of management, which contribution is matched by TACTech. Mr. Baca
does not participate in such bonus pool fund. In addition to other
customary terms, pursuant to the agreement, Mr. Baca's compensation is
subject to a $350,000 per annum maximum. The annual maximum is subject to
increase based upon the National Consumer Price Index. In the event Mr.
Baca is terminated without good cause, TACTech is obligated to continue to
pay compensation to Mr. Baca through April 30, 1997.
Mr. Schrader does not have an employment agreement with the Company
and his compensation is set by the Compensation Committee subject to the
approval of the Board of Directors. In connection with the 1993 sale of
the Company's high reliability electronic component distribution and value-
added businesses to Arrow Electronics, Inc., Mr. Robert E. Schrader entered
into a Consulting and Non-Competition Agreement with Arrow and Mr. Martin
Fawer (the Company's Chief Financial Officer) entered into a one year
Consulting Agreement with Arrow. As a consequence of such agreements,
Messrs. Schrader and Fawer do not devote their full time to the Company.
Pursuant to the terms of his agreement with Arrow, Mr. Schrader is required
to devote up to five business days per quarter to the business of Arrow.
Mr. Fawer, upon reasonable request of and notice by Arrow, was required to
provide consulting services to Arrow through March 19, 1994. Mr. Fawer
assigned his rights to receive his consulting fees under his agreement with
Arrow to the Company in exchange for the Company setting his salary for
part time services at $75,000 for Fiscal Year 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the 1994 Fiscal Year
were Laurence W. Higgitt and Henry A. Singer. Henry A. Singer, a director
of the Company during the 1994 Fiscal Year, is a partner of Morrison Cohen
Singer & Weinstein, LLP, counsel to the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for reviewing levels and
methods of executive compensation and making recommendations to the Board
of Directors. Such recommendations were made in the past primarily based
upon comparisons of executive compensation in other comparable companies
engaged in the distribution of high reliability electronic components.
The comparable companies which were reviewed by the Compensation
Committee in 1994 included only in part those companies which are included
in the index used in the performance graph set forth on page 15. The other
comparable companies chosen were based upon those having a more comparable
size to that of Zing. The compensation levels for the company's executives
are in the medium range of compensation of these comparable companies.
While performance of these companies were looked at in relation to that of
Zing it was also noted that Zing's almost exclusive reliance on the
military marketplace for its component distribution business made it more
difficult for Zing to attain comparable performance with that of other
distributors whose marketplace was predominantly commercial and that no
company was truly comparable to the position of Zing.
Compensation in the 1994 Fiscal Year of the Named Executive Officers
other than the Registrant's Chief Executive Officer was the result of
contractual arrangements entered into between such persons and their
respective employers prior to the beginning of the 1994 Fiscal Year, and
were not reviewed by the Compensation Committee. Members of the
Compensation Committee, which did not formally meet in the 1994 Fiscal
Year, informally
14
<PAGE>
concurred in management's decision to set 1994 compensation for Mr.
Schrader at $150,000 per annum, except that in the first fiscal quarter of
such year he was paid at his 1993 annual rate of $300,000 per annum. Such
reduction was due to the sale in 1993 of the Company's high reliability
electronic component distribution and value-added businesses and the
resulting reduction in Mr. Schrader's responsibilities. The Committee has
not met to determine 1995 compensation for Mr. Schrader or any other
executive officer, and as a result such compensation continues at the 1994
annual rate.
The Compensation Committee did not consider any specific factor in the
performance of Zing in concurring with Mr. Schrader's compensation for
fiscal 1994. Rather the Committee noted that (i) both subsidiaries of Zing
continued to make progress in growing their business and that Mr. Schrader
was actively involved in developing a business plan with the chief
executives charged with running those subsidiaries to achieve such growth
and (ii) that Mr. Schrader was instrumental in obtaining the sale of the
distribution business at the end of fiscal 1993 at what the board
considered the high range of fair value. Furthermore it was difficult to
determine compensation for Mr. Schrader since he became the chief executive
officer of what essentially became a holding company. Based upon the
foregoing factors but without guidance on a comparable basis with other
companies, the Compensation Committee concurred with Mr. Schrader's request
that his compensation continue at the rate of $150,000 per year.
The Zing Technologies, Inc. Compensation Committee
Laurence W. Higgitt
Henry A. Singer
With respect to Mr. Catrambone, the Omnirel Board of Directors
establishes performance criteria for his incentive bonus in accordance with
his employment agreement. Such performance criteria include the amount of
increase in Omnirel's pre-tax profit and the amount of reduction in
Omnirel's indebtedness to the Company. The amount of the bonus, in each
case, is based upon the percentage of the goal achieved.
Omnirel Corporation Board of Directors
Robert E. Schrader
Martin S. Fawer
John F. Catrambone
15
<PAGE>
COMPARATIVE STOCK PERFORMANCE GRAPH
The following is a graph comparing the annual percentage change in the
cumulative total shareholder return of the Company's common stock with the
cumulative total returns of the published Dow Jones Equity Market Index and
the Dow Jones Semiconductors and Related Index for the Company's last five
(5) fiscal years (assuming the Company's last five fiscal years each ended
on June 30, the current fiscal year-end of the Company).
COMPARISON OF FIVE YEARS CUMULATIVE TOTAL RETURN
Among Zing Technologies, Inc., Dow Jones Equity Market
Index and Semiconductors & Related Index Fiscal Years Ended
September 30, 1989 through 1992 and June 30, 1993 and 1994
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994
- --------------------------------------------------------------------------------
Zing Technologies, Inc. 100 72 76 44 68 64
- --------------------------------------------------------------------------------
Dow Jones Equity Market 100 115 124 142 162 164
- --------------------------------------------------------------------------------
Semiconductors & Related 100 142 140 167 326 361
- --------------------------------------------------------------------------------
16
<PAGE>
Signature
---------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ZING TECHNOLOGIES, INC.
By: s/ Martin S. Fawer
-------------------------
Dated: June 27, 1995 Name: Martin S. Fawer
Title: Chief Financial Officer and
Treasurer
17
