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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 1996
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 ___________
COMMISSION FILE NUMBER 0-14328
ZING TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
New York 13-2650621
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
115 Stevens Avenue, Valhalla, NY 10595
- ----------------------------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (914) 747-7474
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------------------------
<S> <C>
Common Stock, $.01 Par Value
---------------------------- -------------------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None.
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 September 25, 1996 was $10,760,081.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. _
State issuer's revenues for its most recent fiscal year. $26,049,000
The number of shares of common stock, $.01 par value, outstanding as of
September 25, 1996 was 2,494,199.
Transitional small business disclosure format Yes ____ No _X_
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Page 1 of 35, Exhibit Index on Page 32
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TABLE OF CONTENTS
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...............9
PART II
Item 5 - Market for Registrant's Common Stock and Related Matters..........9
Item 6 - Management's Discussion and Analysis of Financial Condition and
Results of Operations ...........................................10
Item 7 - Financial Statements and Supplementary Data .....................15
Item 8 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........................32
PART III
Items
9-12 - Directors and Executive Officers of the Registrant;
Executive Compensation; Security Ownership of Certain
Beneficial Owners and Management; Certain Relationships
and Related Transactions.........................................32
Item 13 - Exhibits and Reports on Form 8-K.................................32
2
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PART I
ITEM 1. BUSINESS
GENERAL
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 multi-chip power semiconductors,
integrated power modules and packaged semiconductor components in its niche
market and has expanded its distribution into the high-end commercial and
industrial market.
High reliability multi-chip power semiconductors and integrated power modules
are defined as electronic components and are single-package devices with a power
dissipation of five watts or more. They combine active power semiconductor
components and passive components (such as capacitors and resistors) which form
integrated intelligent 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 contractors.
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 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 represent approximately 6% of the
Company's net sales.
3
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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 $21,254,000, representing a
premium of approximately $3,000,000 over the net book value of the assets
transferred. In accordance with the terms of the original sales agreement, in
June 1996, Zing received an additional $2,000,000 from Arrow Electronics based
on the performance of Arrow's high reliability electronic components and
value-added business.
COMPETITION
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 various industry publications, the
resale market for Omnirel's product was approximately $300,000,000 in 1995 and
is expected to grow at a rate between 8% and 10% through the 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 manufacturers 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.
MARKETING AND SALES
Omnirel markets its products through four regional sales managers in the United
States and twenty-three 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.
4
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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 sixteen independent sales
representatives are coordinated by Omnirel's sales management. Key accounts are
also covered by area managers in each sales region. Seven
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, Allied Signal, United
Technologies, 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 58% of
Omnirel's sales revenues for fiscal year 1996 of which a single project
accounted for approximately 57% of 1996 sales. Revenues from General Electric
are expected to decline significantly over the next several years. The amount of
the decline will be dependent upon factors such as the level of General
Electric's own business, whether and to what extent Omnirel continues as General
Electric's supplier and whether Omnirel can produce the products required by
General Electric based upon changing technology. Arrow Electronics is Omnirel's
exclusive distributor in the Continental United States 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:
<TABLE>
<CAPTION>
(000's omitted)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Canada $230 $ 67 $ 89
Europe 258 172 183
Mid East (Israel) 172 99 30
Far East (Japan) 7 12 5
South Pacific (Australia) - 12 151
---------- ----------- ----------
Total $667 $362 $458
========== =========== ==========
</TABLE>
Omnirel's backlog on June 30, 1996 was $9,335,000, of which $156,000 is related
to General Electric. This compares to a backlog of $15,900,000 on June 30, 1995
of which $9,100,000 was accounted for by General Electric. In addition,
Omnirel's backlog attributable to non-General Electric business increased from
approximately $6,800,000 at June 30, 1995 to approximately $9,200,000 at June
30, 1996. Approximately 90% of the current backlog is anticipated to be
delivered over the next twelve month period.
For the fiscal years 1996, 1995, and 1994 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 cancellation.
5
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<PAGE>
The sale of Omnirel products is not seasonal. However, the timing of sales to
Omnirel's principal customer was concentrated predominantly in the first
quarter, and to a lesser extent, the second quarter of fiscal 1996.
SUPPLIER AND MATERIALS USED
Unpackaged semiconductors, in chip form, and other components such as capacitors
and resistor chips or surface mount devices, metal, 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. Omnirel disclaims any
liability for a customer's cost of replacement of defective products, lost
profits, loss of use and consequential damages. Omnirel also disclaims any
warranty of merchantability and all other warranties, expressed or implied.
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 modules 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 the trademarks are 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.
6
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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, 1996,
June 30, 1995 and June 30, 1994 were $1,361,000, $1,055,000 and $841,000,
respectively or 5.2%, 4.7% and 7.3% of sales in the respective years.
EMPLOYEES
As of June 30, 1996, Zing had 186 employees, 115 of whom were employed by
Omnirel in a manufacturing capacity and 43 in clerical, administrative,
engineering or sales positions at Omnirel. The Company employs six people in
executive or administrative functions, and TACTech employs three computer
programmers and an additional 19 persons in clerical, sales, customer support
and administrative roles. None of Zing's employees are covered by a collective
bargaining agreement.
As of June 30, 1996, as a result of the issuance of 151,000 options to purchase
Omnirel common stock, at or above fair market value at the grant date, to
Omnirel employees in fiscal 1995, the Company's ownership of Omnirel could be
reduced to approximately 84% upon the exercise of such options. 134,000 options
with an exercise price of $8 vest over a three year period and 17,000 options
with an exercise price of $10 vest over a five year period. During 1996, Omnirel
granted an additional 10,000 options with an exercise price of $10. As of June
30, 1996, 44,667 $8 options and 3,400 $10 options were exercisable.
7
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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 lease provides for two consecutive one year extensions at
the Company's option. The Company intends to exercise its option to extend the
lease until October 31, 1997 at the same annual rent of $15,000 per annum. 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. The clean
room facility is equipped with design, manufacturing, electrical test and
environment screen equipment which are state-of-the-art. Omnirel utilizes all of
its available space within the facility.
In April 1996, Omnirel began expansion on its Leominster facility. This
expansion is expected to be complete in October 1996, adding 10,000 square feet
of manufacturing space.
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 specifically
addressing investments in real estate and real estate related products. Current
investments do not include real estate or real estate related products other
than real property discussed above. The Company has a policy of investing its
liquid assets in equity securities primarily tradable on the New York and other
major stock exchanges. The Company's policy is to invest in companies whose
securities have a significant public float providing liquidity in the event of
sale. The investment portfolio at June 30, 1996 consists primarily of preferred
stock.
The Company's investing activities have been limited by resolution of the Board
of Directors. The Company's Board directed that the Company cannot invest more
than 25% of its invested capital in common stocks, and cannot invest in common
stocks issued by companies other than companies engaged in the field of
electronic equipment manufacturing and/or semiconductor manufacturing or
distribution. The Board authorized the Company to maintain a margin account to
provide the Company with additional funds used to facilitate the purchase of
preferred stocks. The Board authorization additionally provides that dividend
returns on the preferred stock so purchased must exceed the interest expense on
the debt incurred to purchase the securities. The Company also engaged in one
short sale against the box in fiscal 1996 in order to lock in a significant gain
and defer a tax liability on a security until the Company closed the short sale.
Subject to the limitations imposed by the Board of Directors, the Company can
alter its investment policies and investment portfolio at any time without
shareholder consent.
8
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ITEM 3.
LEGAL PROCEEDINGS
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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.
<TABLE>
<CAPTION>
HIGH LOW
---------------------
<S> <C> <C>
Fiscal Year Ended June 30, 1995
First Quarter 2 1/2 1 7/8
Second Quarter 6 3/4 2 1/16
Third Quarter 10 1/4 4 5/8
Fourth Quarter 12 7/8 6 5/8
Fiscal Year Ended June 30, 1996
First Quarter 24 3/4 12 1/8
Second Quarter 20 1/2 9 3/4
Third Quarter 13 7 7/8
Fourth Quarter 14 9 1/4
Fiscal Year Ended June 30, 1997
First Quarter 10 3/4 9 1/8
</TABLE>
There were 2,494,199 shares of Common Stock outstanding and 81 holders of
record, and at least 1,232 beneficial owners of the shares as of September 25,
1996.
No cash dividends have been paid on the Company's Common Stock for the fiscal
years ended June 30, 1996 and 1995. 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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ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30, YEAR ENDED JUNE 30
1992 1993 (6) 1994 1995 1996
-------------- ------------- ------------ ------------ ------------
(000's omitted, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales $91,698 $52,602 $11,483 $22,591 $26,049
Cost of goods sold 70,439 40,624 6,637 13,073 14,272
-------------- ------------- ------------ ------------ ------------
Gross profit 21,259 11,978 4,846 9,518 11,777
Selling, general and
administrative expenses (1) 21,238 13,967 5,255 7,579 7,791
Interest expense (2) 2,397 1,443 286 148 287
Interest and other income - net
(3) - - (860) (1,051) (3,100)
Minority interest in income of
consolidated subsidiary - - - - 41
-------------- ------------- ------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item (2,376) (3,432) 165 2,842 6,758
Provision (credit) for income
taxes (215) 36 3 325 2,345
-------------- ------------- ------------ ------------ ------------
Income (loss) before
extraordinary item (2,161) (3,468) 162 2,517 4,413
Extraordinary item (4) 29 (155) 53 - -
-------------- ------------- ------------ ------------ ------------
Net income (loss) $(2,132) $(3,623) $ 215 $ 2,517 $ 4,413
============== ============= ============ ============ ============
PER SHARE DATA (5)
Income (loss) before
extraordinary item $ (.80) $ (1.25) $ .06 $ .94 $ 1.68
Extraordinary item .01 (.06) .02 - -
-------------- ------------- ------------ ------------ ------------
Net income (loss) $ (.79) $ (1.31) $ .08 $ .94 $ 1.68
============== ============= ============ ============ ============
Weighted average shares outstanding 2,696,000 2,774,000 2,747,000 2,671,000 2,629,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30
1992 1993 1994 1995 1996
-------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $18,541 $ 6,228 $ 3,878 $ 6,218 $14,798
Total assets 43,710 32,264 18,360 22,185 35,251
Long-term obligations 14,431 - 626 741 1,445
Stockholders' equity 16,168 12,540 12,424 15,129 19,722
</TABLE>
(1) Includes provision for doubtful accounts, depreciation and amortization of
property and equipment.
(2) Includes amortization of deferred note issuance costs (1992, 1993 and
1994).
(3) Includes interest income, dividend income, realized and unrealized losses
on marketable securities and amortization of the non-compete agreement
and, in 1996, $2,000,000 from Arrow Electronics as an additional purchase
price realized from the sale of its electronic component distribution
assets in May, 1993.
(4) A gain (loss) from the extinguishment of debt, net of income taxes.
(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
and sold the net assets of its high reliability electronic component
distribution business to Arrow Electronics, Inc.
10
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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.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995 1994
------------- -------------- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 54.8 57.9 57.8
------------- -------------- -------------
Gross profit 45.2 42.1 42.2
Selling, general and administrative expenses 27.8 28.1 38.9
Depreciation and amortization of property, plant
and equipment 2.1 5.5 6.9
Interest expense and amortization of deferred
note issuance costs 1.1 .6 2.5
Interest and other income, net (11.9) (4.7) (7.5)
Minority interest in income of consolidated
subsidiary .2 - -
------------- -------------- -------------
Income before income taxes and extraordinary item 25.9 12.6 1.4
Provision for income taxes 9.0 1.4 -
------------- -------------- -------------
Income before extraordinary item 16.9 11.2 1.4
Extraordinary item - - .5
------------- -------------- -------------
Net income 16.9% 11.2% 1.9%
============= ============== =============
</TABLE>
RESULTS OF OPERATIONS - FISCAL 1996 COMPARED TO FISCAL 1995
The Company reported net income of $4,413,000 or $1.68 per share for the fiscal
year ended June 30, 1996 as compared to net income of $2,517,000 or $.94 per
share for the fiscal year ended June 30, 1995. This significant increase is
principally attributable to the following factors: the realization by the
Company of an additional $2,000,000 from the sale of the net assets of its high
reliability electronic semiconductor component distribution and value-added
services business to Arrow Electronics in May 1993 (the "Arrow Sale") and the
increased profitability of its material subsidiary, Omnirel Corporation.
Consolidated net sales increased to $26,049,000. This represented an increase of
$3,458,000 over the prior comparable period. Omnirel's net sales in the 1996
fiscal year accounted for 94% of consolidated net sales as compared to 95% of
consolidated net sales in the 1995 fiscal year. The balance of consolidated net
sales in each period is attributable to the operations of the Company's TACTech
subsidiary.
Net sales from the Company's Omnirel subsidiary increased $3,065,000 (14%) for
the fiscal year ended June 30, 1996 thereby accounting for 89% of the increase
in the Company's consolidated revenues over the prior comparable period.
Of the growth in Omnirel's net sales, 25% was attributable to an order placed by
General Electric for multi-chip power module systems containing power hybrid
components. These orders accounted for 57% of Omnirel's 1996 fiscal year sales
compared to 63% for the comparable prior period.
11
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Net sales in TACTech increased approximately 32% in the fiscal 1996 period
compared to the 1995 period due principally to a 22% increase in the subscriber
base.
Consolidated gross profit for the fiscal year ended June 30, 1996 was
$11,777,000 as compared to $9,518,000 for the comparable prior fiscal period.
Omnirel's cost of goods sold decreased approximately 2.7% (expressed as a
percentage of Omnirel's net sales) resulting from lower material and labor costs
due primarily to improvements in yield and component purchase costs.
Selling, general and administrative expenses during fiscal year 1996 increased
approximately $892,000 over the prior year. This increase was substantially
attributable to costs incurred for research and development at Omnirel in the
amount of $300,000. In addition, TACTech incurred new product costs of $100,000
in 1996.
The Company experienced a decrease in depreciation and amortization expense in
the amount of $680,000 during the fiscal year ended June 30, 1996 as compared to
the prior comparable period. During the fiscal year ended June 30, 1995, Omnirel
changed the estimated useful lives of certain machinery and equipment due to
Omnirel's accelerated and additional use of such machinery and equipment. As a
result of the aforementioned change and prior year charge of $386,000 and the
fact that various machinery and equipment became fully depreciated, Omnirel's
depreciation decreased approximately $710,000 during the 1996 fiscal year.
Interest expense of the Company increased approximately $139,000 during the
fiscal year ended June 30, 1996 as compared to the prior comparable reporting
period. Of this increase, approximately $90,000 related to additional Omnirel
indebtedness during the 1996 fiscal year, primarily for the acquisition of
building and capital equipment.
Interest and other income increased by $2,049,000 during the fiscal year ended
June 30, 1996 as compared to the fiscal year ended June 30, 1995. This increase
was primarily attributable to the realization during the fourth quarter of the
1996 fiscal year of the additional $2,000,000 received from the Arrow Sale.
Included in interest and other income is dividend income aggregating $956,000 in
fiscal 1996 and $421,000 in fiscal 1995. In addition, net realized and
unrealized losses on marketable securities aggregated $578,000 in fiscal 1996
and net realized and unrealized gains aggregated $27,000 in fiscal 1995.
Provision for income taxes in fiscal 1996 amounted to $2,345,000, representing
an effective tax rate of 34.7%. The 1996 income tax provision was reduced by the
release of $173,000 of valuation allowances related to net operating losses. The
provision in fiscal 1995 was $325,000 (or an 11.4% effective tax rate) after
giving effect to the Company's utilization of $3,000,000 of net operating losses
and the related release of valuation allowances previously established for such
losses.
RESULTS OF OPERATIONS 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.
12
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<PAGE>
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.
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 components. 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 efficiency 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 manufacturing.
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.
13
<PAGE>
<PAGE>
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 F of the Consolidation Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996 and 1995, the Company employed most of its cash and cash
equivalents in the acquisition of marketable securities. Omnirel's operations in
fiscal 1996 and 1995 were funded from internally generated cash and available
bank lines of credit. During the 1996 fiscal year, Omnirel repaid its remaining
intercompany debt to the Company of approximately $3,600,000.
IMPACT OF INFLATION
Inflation did not have significant impact on the operations of the Company for
all periods presented.
14
<PAGE>
<PAGE>
ITEM 7.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Shareholders and Board of Directors
Zing Technologies, Inc. and Subsidiaries
Valhalla, New York
We have audited the accompanying consolidated balance sheets of Zing
Technologies, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1996. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 referred to above present fairly, in
all material respects, the consolidated financial position of Zing Technologies,
Inc. and subsidiaries at June 30, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, 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.
ERNST & YOUNG LLP
September 17, 1996
White Plains, NY
15
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1995 1996
----------------------------------
(000's omitted)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,366 $ 727
Marketable securities (Note H) 1,489 19,927
Accounts receivable, less allowances of
$66 and $135, respectively 3,533 2,352
Inventories (Note C) 3,817 4,290
Prepaid expenses 248 145
Other current assets 380 341
----------------------------------
Total current assets 10,833 27,782
Property, plant and equipment (Note D) 9,028 10,002
Less: accumulated depreciation and amortization 4,427 5,181
----------------------------------
4,601 4,821
Marketable securities - non-current (Note H) 3,787 -
Deferred income taxes, net of valuation allowance (Note F) 1,284 1,095
Excess of cost over assets acquired, net of accumulated
amortization of $868 and $1,021, respectively 1,668 1,515
Other assets 12 38
----------------------------------
Total assets $22,185 $35,251
==================================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30
1995 1996
----------------------------------
(000's omitted)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,035 $ 1,495
Accrued expenses 1,566 1,698
Accrued compensation expense 524 666
Loans payable bank - 5,831
Short positions in marketable equity securities (Note H) - 1,026
Due to broker 259 2,229
Current portion of long-term obligations 231 39
----------------------------------
Total current liabilities 4,615 12,984
Long-term obligations, less current portion (Note E) 741 1,445
Deferred income - non-compete agreement 1,700 1,100
Stockholders' equity (Note G):
Common stock (par value $.01 per share;
authorized 12,000,000 shares; issued
2,797,415 shares as of June 30, 1995 and issued
2,874,117 shares as of June 30, 1996 28 28
Additional paid-in capital 13,466 13,860
Note receivable from stockholder (250) (170)
Net unrealized gain on marketable
securities (Note H) - 220
Retained earnings 2,354 6,767
Less treasury shares at cost (199,918 shares - 1995,
255,018 shares - 1996) (469) (983)
----------------------------------
15,129 19,722
----------------------------------
Total liabilities and stockholders' equity $22,185 $35,251
==================================
</TABLE>
17
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1994 1995 1996
-------------------------------------------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 11,483 $ 22,591 $ 26,049
Cost of goods sold 6,637 13,073 14,272
-------------------------------------------
Gross profit 4,846 9,518 11,777
Selling, general and administrative expenses 4,465 6,347 7,239
Depreciation and amortization of property,
plant and equipment 790 1,232 552
Net interest expense and amortization of
deferred note issuance costs 286 148 287
Interest and other income - net (860) (1,051) (3,100)
Minority interest in income of
consolidated subsidiary - - 41
-------------------------------------------
Income before income taxes and
extraordinary item 165 2,842 6,758
Provision for income taxes 3 325 2,345
-------------------------------------------
Income before extraordinary item 162 2,517 4,413
Extraordinary item - gain from
extinguishment of debt 53 - -
-------------------------------------------
Net income $ 215 $ 2,517 $ 4,413
===========================================
Income per common and common equivalent share:
Income before extraordinary item $ .06 $ .94 $ 1.68
Extraordinary item .02 - -
-------------------------------------------
Net income $ .08 $ .94 $ 1.68
===========================================
Number of shares used in computation 2,747,000 2,671,000 2,629,000
===========================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(000's omitted)
<TABLE>
<CAPTION>
Net
Unrealized
Note Gain (Loss) on
Common Stock Additional Receivable Retained Noncurrent Total
---------------- Paid-in From Earnings Treasury Marketable Stockholders'
Shares Amount Capital Stockholder (Deficit) Stock Securities Equity
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 2,693 $ 27 $ 13,146 $ (250) $ (378) $ (5) $ 12,540
Net income 215 215
Net unrealized loss on noncurrent
marketable securities $ (288) (288)
Repurchase of common stock for treasury (12) (43) (43)
-----------------------------------------------------------------------------------------
Balance at June 30, 1994 2,681 27 13,146 (250) (163) (48) (288) 12,424
Net income 2,517 2,517
Recognition of unrealized loss on
noncurrent marketable securities 288 288
Repurchase of common stock for treasury (186) (421) (421)
Exercise of warrants 102 1 320 321
-----------------------------------------------------------------------------------------
Balance at June 30, 1995 2,597 28 13,466 (250) 2,354 (469) 15,129
Net income 4,413 4,413
Net unrealized gain on noncurrent
marketable securities 220 220
Repurchase of common stock for treasury (55) (514) (514)
Repayment of note receivable 80 80
from stockholder
Exercise of warrants 77 394 394
-----------------------------------------------------------------------------------------
Balance at June 30, 1996 2,619 $ 28 $ 13,860 $ (170) $ 6,767 $ (983) $ 220 $ 19,722
=========================================================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1994 1995 1996
-------------------------------------------
(000's omitted)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 215 $ 2,517 $ 4,413
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,165 1,534 907
Amortization of non-compete agreement (600) (600) (600)
Provision for losses on accounts receivable 66 (10) 90
Provision for deferred income taxes (1,255) (29) 189
Extraordinary gain (53) - -
Changes in operating assets and liabilities:
Accounts receivable (1,043) (1,139) 1,091
Inventories (423) (1,426) (473)
Prepaid expenses and other current assets 1,177 (174) 142
Other assets 1,511 73 (26)
Accounts payable and accrued expenses (13,814) 1,530 2,730
Other, net - 184 291
-------------------------------------------
Net cash provided by (used in) operating activities (13,054) 2,460 8,754
INVESTING ACTIVITIES
Purchases of property and equipment (381) (850) (974)
Net purchases of marketable securities (4,944) (332) (14,431)
-------------------------------------------
Net cash used in investing activities (5,325) (1,182) (15,405)
===========================================
FINANCING ACTIVITIES
Proceeds from lines of credit and long-term
borrowings including reclassification 679 190 7,375
Reductions of lines of credit and long-term debt - - (1,032)
Exercise of stock warrants - 137 103
Repayment of note receivable from stockholder - - 80
Repurchase of common stock for treasury (43) (421) (514)
-------------------------------------------
Net cash provided by (used in) financing activities 636 (94) 6,012
-------------------------------------------
Net increase (decrease) in cash and cash equivalents (17,743) 1,184 (639)
Cash and cash equivalents at beginning of year 17,925 182 1,366
-------------------------------------------
Cash and cash equivalents at end of year $ 182 $ 1,366 $ 727
===========================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
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.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries (Omnirel Corporation ("Omnirel") and Transition
Analysis of Component Technology, Inc. ("TACTech)). All significant 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
and 1996, the Company has warranty reserves of $343,000 and $222,000,
respectively.
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.
21
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
As of the beginning of fiscal 1995, the Company adopted the provisions of
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities," and such adoption did not have a material impact on the Company's
financial statements. 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 either
available-for-sale or trading and are 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 June 30,
1996, all marketable securities are held as available for sale.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including equipment 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. During the fiscal
year 1995 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 manufacturing machinery and equipment.
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 options and warrants.
22
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and accrued
expenses reasonably approximate fair value due to the short maturity of these
items. Marketable securities are based upon quoted market prices. The carrying
amounts of loans payable bank and long-term obligations also approximate fair
value in that interest rates for the credit facilities are tied to the
applicable bank's prime lending rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to Be Disposed Of." The Company will adopt Statement No. 121 in fiscal
1997, and the impact, if any, is not expected to be material.
The Company accounts for warrants and stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company generally prices its warrants and stock options at fair
market value on the date of grant and, therefore, no compensation expense is
recognized when granted. In fiscal 1997, the Company intends to adopt the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
NOTE B. ACQUISITION/OFFICER LOAN
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, as defined, based on the fair value of
the Omnirel stock or earnings.
23
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 84,000 shares of the Company's
common stock owned by the officer/director, and is classified as a reduction of
equity. During the 1996 fiscal year, $80,000 of this note was repaid. The
Company also loaned the officer/director $300,000, the balance of which ($60,000
at June 30, 1995) was repaid in fiscal 1996.
NOTE C. INVENTORIES
Inventories consists of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1996
--------------------------
(000's omitted)
<S> <C> <C>
Raw materials $2,110 $2,472
Work in process 1,195 1,294
Finished goods 512 524
--------------------------
$3,817 $4,290
==========================
</TABLE>
NOTE D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
JUNE 30
1995 1996
--------------------------
(000's omitted)
<S> <C> <C>
Land $ 300 $ 300
Building and improvements 2,572 2,929
Equipment 5,033 5,483
Furniture and fixtures 541 744
Leasehold improvements 582 546
--------------------------
$9,028 $10,002
==========================
</TABLE>
24
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE E. CREDIT FACILITIES
Credit facilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30
1995 1996
--------------------------
(000's omitted)
<S> <C> <C>
Loans payable bank:
Revolving line of credit-Omnirel $ - $ 856
Line of credit-Zing - 4,975
--------------------------
$ - $5,831
==========================
Long-term obligations:
Mortgage payable to bank $ - $1,484
Note payable to bank 972 -
Less current portion (231) (39)
--------------------------
$ 741 $1,445
==========================
</TABLE>
At June 30, 1995, Omnirel Corporation had $972,000 outstanding against an
equipment line of credit. In December 1995, Omnirel converted the equipment line
of credit to a $5,000,000 revolving line of credit (the "Line") expiring
November 30, 1996, which bears interest at the bank's base rate plus .5% (8.75%
at June 30, 1996). Maximum borrowings under the Line are determined by a formula
based upon eligible accounts receivable and inventory balances. At June 30,
1996, borrowings under the Line aggregated $856,000.
The Line requires maintenance of certain financial ratios and contains other
restrictive covenants, including a restriction on the payment of dividends.
Substantially all assets, excluding real estate and related fixtures, have been
pledged as collateral.
Omnirel obtained a mortgage on its facility in December, 1995. The outstanding
balance on the mortgage at June 30, 1996 was $1,484,000. The mortgage matures on
December 18, 2000 and monthly payments are made for principal, using a twenty
year amortization, and for interest based on the bank's lending rate plus 1.5%
(9.75% at June 30, 1996). Omnirel's mortgage is guaranteed by Zing.
During May 1996, Zing entered into a $5,000,000 line of credit expiring May 1,
1997, which bears interest at the option of the Company equal to either the
prime rate less .75% or the bank's cost of funds rate (6.3% at June 30, 1996).
At June 30, 1996, marketable securities with a fair value of approximately
$10,000,000 collateralized borrowings aggregating $4,975,000.
25
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE E. CREDIT FACILITIES (CONTINUED)
In July 1996, Omnirel replaced the $5,000,000 Line with a new $5,000,000
facility comprised of (a) a $1,500,00 revolving line of credit maturing in
November 30, 1997, (b) a $1,500,000 term loan, maturing August 1, 2001, (c) a
$500,000 equipment line of credit, expiring November 30, 1997 and (d) a
$1,500,000 standby term loan, expiring November 30, 1997. In connection with the
refinancing, Omnirel repaid the outstanding balance on the Line and borrowed an
additional $640,000 from the $1,500,000 term loan facility. The new facility's
covenants and collateral requirements are identical to the original $5,000,000
Line.
The annual payment requirements on the mortgage subsequent to June 30, 1996 are
as follows:
1997 $ 39,000
1998 28,000
1999 31,000
2000 34,000
2001 1,352,000
The Company made interest payments of $287,000 during the year ended June 30,
1996, $148,000 during the year ended June 30, 1995 and $286,000 during the year
ended June 30, 1994.
NOTE F. INCOME TAXES
The Company records taxes under the liability method of 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.
Omnirel's net operating loss carryforwards for federal income tax purposes of
approximately $3,600,000 at June 30, 1996 expire through 2007, subject to annual
limitations under Section 382 of the Internal Revenue Code.
Income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1994 1995 1996
-----------------------------------------
(000's omitted)
<S> <C> <C> <C>
Current:
Federal $- $266 $1,706
State - 88 450
Deferred Federal 3 (29) 189
-----------------------------------------
$3 $325 $2,345
=========================================
</TABLE>
26
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE F. INCOME TAXES (CONTINUED)
The reconciliation of the differences between the tax provision and the amounts
computed by applying the statutory Federal income tax rate to pre-tax income
follow:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1994 1995 1996
-----------------------------------------
(000's omitted)
<S> <C> <C> <C>
Statutory Federal income tax rate (34%) $ 74 $ 966 $2,298
State income tax net of Federal tax benefit 17 59 297
Adjustment to valuation allowance (154) (927) (173)
Adjustment of deferred income taxes - 193 -
Permanent differences resulting from purchase
accounting 52 52 68
Entertainment expense disallowance 12 34 25
Non-deductible insurance premiums 13 19 12
Non-deductible capital losses 39 - -
Tax exempt dividends (65) (100) (228)
Other-net 15 29 46
-----------------------------------------
$ 3 $ 325 $2,345
=========================================
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences 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:
<TABLE>
<CAPTION>
JUNE 30
1995 1996
--------------------------
(000's omitted)
<S> <C> <C>
Net operating losses $1,394 $1,221
Noncompete agreement 578 374
Purchase accounting bases differences (300) (284)
Warranty reserves 117 75
Inventory reserves 155 162
Unrealized loss on marketable securities 105 110
Other 35 64
--------------------------
Gross deferred tax asset 2,084 1,722
Valuation allowance (800) (627)
--------------------------
Net deferred tax asset $1,284 $1,095
==========================
</TABLE>
27
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE F. INCOME TAXES (CONTINUED)
The net decrease in the valuation allowance for the years ended June 30, 1996
and 1995 was $173,000 and $927,000, respectively, resulting from the current
year utilization of net operating loss carryforwards.
The Company made no income tax payments during 1994 and 1995. In 1996, income
tax payments aggregated $1,950,000.
NOTE G. STOCKHOLDERS' EQUITY
Treasury stock outstanding is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AVERAGE PRICE
ENDED JUNE 30, SHARES TOTAL COST PER SHARE
-------------------- --------------- -------------- ----------------
<S> <C> <C> <C>
1993 2,600 $ 5,200 $2.00
1994 11,500 43,125 3.75
1995 185,818 421,090 2.27
--------------- --------------
199,918 469,415
1996 55,100 513,522 9.32
--------------- --------------
255,018 $982,937
=============== ==============
</TABLE>
Warrant activity is as follows:
<TABLE>
<CAPTION>
WARRANTS PRICE
-------------- -------------
<S> <C> <C>
Outstanding at June 30, 1994 199,318 $1.34
Exercised - fiscal 1995 (101,844) 1.34
--------------
Outstanding at June 30, 1995 97,474 1.34
Exercised - fiscal 1996 (76,564) 1.34
--------------
Outstanding at June 30, 1996 20,910 1.34
==============
</TABLE>
Subsidiary option activity is as follows:
As of June 30, 1996, as a result of the issuance of 151,000 options to purchase
Omnirel common stock, at or above fair market value at the grant date, to
Omnirel employees in fiscal 1995, the Company's ownership of Omnirel could be
reduced to approximately 84% upon the exercise of such options. 134,000 options
with an exercise price of $8 vest over a three year period and 17,000 options
with an exercise price of $10 vest over a five year period. During 1996, Omnirel
granted an additional 10,000 options with an exercise price of $10. As of June
30, 1996, 44,667 $8 options and 3,400 $10 options had vested and were
exercisable.
28
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE H. MARKETABLE EQUITY SECURITIES
For the years ended June 30, 1995 and 1996, marketable securities consist of
equity securities carried at market value. Marketable securities had a cost of
$5,313,000 as of June 30, 1995 and $19,706,000 as of June 30, 1996. As of June
30, 1996 gross unrealized gains and losses were $866,000 and $646,000,
respectively.
Included in the determination of net income for the years ended June 30, 1994,
1995 and 1996 were realized gains of $73,000, $388,000 and $478,000,
respectively, and realized losses of $147,000, $30,000 and $587,000,
respectively.
During fiscal 1996, the Company engaged in one short sale which obligated the
Company to replace securities borrowed by purchasing additional securities at
its then current market value. At June 30, 1996, the Company's short sale
obligation aggregated $1,026,000. Included in the determination of fiscal 1996
net income was a gain of $94,000 related to the difference between the proceeds
from the short sale and the related obligation at June 30, 1996.
During fiscal 1995 and 1996, net unrealized losses of $307,000 and $578,000 were
charged to income representing a reduction in the market value of certain
marketable securities which was deemed to be other than temporary.
NOTE I. EMPLOYEE BENEFIT PLANS
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,
contributions to be made by the Company are at the discretion of the Board of
Directors of the Company and were $11,000 for 1994, $5,000 for 1995 and $10,500
for 1996. The Company does not maintain post-retirement benefit plans.
NOTE J. LEASES
The Company has a noncancelable operating lease expiring October 31, 1997 at an
annual rent of $15,000. As of June 30, 1996 the Company had no other significant
operating leases. Rental expense for all operating leases were $35,000 for 1994,
$57,000 for 1995 and $59,000 for 1996.
29
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE K. RESEARCH AND DEVELOPMENT
During fiscal 1994, 1995 and 1996, research and development expenditures, which
are included in selling, general and administrative expenses, were $841,000,
$1,055,000 and $1,361,000, respectively.
NOTE L. CONCENTRATION OF CREDIT RISK
For fiscal 1994, sales to two customers aggregated 17% and 11% of the net sales
of the Company. Sales to one customer aggregated 58% of the net sales of the
Company for fiscal 1996 as compared to sales to the same customer in fiscal
1995, aggregating 61%. As of June 30, 1994, amounts due from these customers
aggregated $909,000. As of June 30, 1996 and 1995, amounts due from this
customer aggregated $223,000 and $2,414,000, respectively.
NOTE M. RELATED PARTY TRANSACTIONS
During the years ended June 30, 1994, 1995 and 1996, 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 $54,000, $347,000 and
$228,000, respectively.
NOTE N. SUBSEQUENT EVENTS
During July and August 1996, the Company acquired for its treasury 128,400
shares of its common stock for $1,297,000 at an average price of $10.10 per
share.
30
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1996 FISCAL QUARTERS
----------------------------------------------------------
FIRST SECOND THIRD FOURTH 1996
----------------------------------------------------------
(000's omitted, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Net sales $9,287 $7,222 $4,910 $4,630 $26,049
Gross profit 4,655 3,183 2,108 1,831 11,777
Total selling, general and
administrative expenses 2,139 1,940 1,734 1,978 7,791
Interest expense and amortization of
deferred note issuance costs 30 67 58 132 287
Interest and other income, net (516) 54 (394) (2,244)(a) (3,100)
Minority interest in income of
consolidated subsidiary - - 31 10 41
----------------------------------------------------------
Income before income taxes 3,002 1,122 679 1,955 6,758
Provision for income taxes 1,152 211 188 794 2,345
==========================================================
Net income $1,850 $ 911 $ 491 $1,161 $4,413
----------------------------------------------------------
Net income per share $ .69 $ .34 $ .18 $ .44 $ 1.68
==========================================================
Number of shares used in computation 2,687,000 2,690,000 2,680,000 2,662,000 2,629,000
</TABLE>
(a) Includes $2,000 of additional proceeds from the Arrow Electronics sale in
May 1993.
<TABLE>
<CAPTION>
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)(b) (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 $ .08 $ .08 $ .15 $ .63 $ .94
==========================================================
Number of shares used in computation 2,573,000 2,643,000 2,667,000 2,681,000 2,671,000
</TABLE>
(b) Includes a charge of $307 for the reduction of fair value of marketable
securities deemed to be other than temporary.
31
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Information required under items 9 through 12 of this part will be incorporated
by reference from the Company's definitive Proxy Statement or by amendment on
Form 10-KSB/A, to be filed within 120 days following the end of the Company's
June 30, 1996 fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of Zing Technologies, Inc.
and subsidiaries are included in Item 7: Consolidated balance sheets-June
30, 1995 and 1996
Consolidated statements of income-Years ended June 30, 1994, 1995
and 1996
Consolidated statements of shareholders' equity-Years ended June 30,
1994, 1995 and 1996
Consolidated statements of cash flows-Years ended June 30, 1994,
1995 and 1996
Notes to consolidated financial statements
(b) Exhibits required by Items 601 of Regulation S-B.
11 - Statement Re Computation of per share earnings - Page 34.
23 - Consent of Ernst & Young LLP - Page 35.
(c) Reports on Form 8-K:
On June 25, 1996, the Company filed reports on Form 8-K responding to Item
5 and reporting the receipt, on June 13, 1996, of an additional $2.0
million from the Arrow Sale.
32
<PAGE>
<PAGE>
SIGNATURES
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 on the 28th day of
September, 1996.
Zing Technologies, Inc.
--------------------------------------------
(Registrant)
By /s/ Robert E. Schrader
--------------------------------------------
Robert E. Schrader
President, Chief Executive Officer
and Chairman of the Board
Date: September 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed bel9ow by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
by /s/ Robert E. Schrader President, Chief Executive September 28, 1996
------------------------------- Officer and Chairman of the Board
(Robert E. Schrader) (Principal Executive Officer)
by /s/ Martin S. Fawer Treasurer and Director September 28, 1996
------------------------------- (Principal Financial Officer)
(Martin S. Fawer)
by /s/ Deborah J. Schrader Secretary and Director September 28, 1996
-------------------------------
(Deborah J. Schrader)
by /s/ John F. Catrambone Director September 28, 1996
-------------------------------
(John F. Catrambone)
by Director September 28, 1996
-------------------------------
(Laurence Higgitt)
by /s/ Henry A. Singer Director September 28, 1996
-------------------------------
(Henry A. Singer)
</TABLE>
33
<PAGE>
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Exhibit 11 - Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
1994 1995 1996
-----------------------------------------
(000's omitted, Except Per Share Data)
<S> <C> <C> <C>
Average shares outstanding 2,681 2,597 2,610
Net effect of dilutive stock options and warrants
based on the treasury stock method 66 74 19
-----------------------------------------
Shares used for computation 2,747 2,671 2,629
=========================================
Income before extraordinary item $ 162 $2,517 $4,413
Extraordinary item (1) 53 - -
-----------------------------------------
Net income used for computation $ 215 $2,517 $4,413
=========================================
Per share amount:
Income before extraordinary item $ .06 $ .94 $ 1.68
Extraordinary item (1) .02 - -
-----------------------------------------
Net income $ .08 $ .94 $ 1.68
</TABLE>
(1) Represents a gain from the extinguishment of debt, net of income tax effect.
<PAGE>
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
SB-2 No. 33-64091) pertaining to the registration of 199,318 shares of common
stock of Zing Technologies, Inc. of our report dated September 17, 1996, with
respect to the consolidated financial statements of Zing Technologies, Inc.
included in its Annual Report (Form 10-KSB) for the year ended June 30, 1996.
/s/ ERNST & YOUNG LLP
White Plains, New York
October 3, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 727,000
<SECURITIES> 19,927,000
<RECEIVABLES> 2,487,000
<ALLOWANCES> (135,000)
<INVENTORY> 4,290,000
<CURRENT-ASSETS> 27,782,000
<PP&E> 10,002,000
<DEPRECIATION> (5,181,000)
<TOTAL-ASSETS> 35,251,000
<CURRENT-LIABILITIES> 12,984,000
<BONDS> 1,445,000
<COMMON> 28,000
0
0
<OTHER-SE> 19,694,000
<TOTAL-LIABILITY-AND-EQUITY> 35,251,000
<SALES> 26,049,000
<TOTAL-REVENUES> 26,049,000
<CGS> (14,272,000)
<TOTAL-COSTS> (14,272,000)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (287,000)
<INCOME-PRETAX> 6,758,000
<INCOME-TAX> (2,345,000)
<INCOME-CONTINUING> 4,413,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,413,000
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 0
</TABLE>
