FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-- OR --
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter period ended December 31, 1996
Commission file number 0-14328
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
115 Stevens Avenue, Valhalla, New York 10595
(Address of principal executive offices)
(Zip Code)
(914) 747-7474
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year,
if changed since last report)
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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock, $.01 par value, outstanding as of December
31, 1996 was 2,477,699.
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INDEX
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - December 31, 1996 and
June 30, 1996..............................................................................3
Condensed consolidated statements of operations - three months ended
December 31, 1996 and 1995; six months ended
December 31, 1996 and 1995.................................................................4
Condensed consolidated statements of cash flows - six months ended
December 31, 1996 and 1995.................................................................5
Notes to condensed consolidated financial statements -
December 31, 1996..........................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................................7-10
PART II. OTHER INFORMATION
Item 5. Other Information......................................................................10-12
Item 6. Exhibits and Reports on Form 8-K..........................................................12
Signatures................................................................................13
Exhibit 11 - Computation of earnings per share - three months
and six months ended December 31, 1996 and 1995...........................................14
</TABLE>
2
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31 June 30
1996 1996
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(unaudited) (note)
----------------------------
(000's omitted)
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<S> <C> <C>
Current Assets
Cash and cash equivalents.................................................. $ 1,250 $ 727
Marketable securities...................................................... 19,961 19,927
Accounts receivable, less reserves of
$138 and $135, respectively............................................. 2,965 2,352
Inventories................................................................ 4,587 4,290
Prepaid expenses........................................................... 166 145
Other current assets....................................................... 488 341
-------- --------
Total Current Assets............................................................ 29,417 27,782
Property, Plant and Equipment .................................................. 10,703 10,002
Less accumulated depreciation and amortization ............................ 5,563 5,181
-------- --------
5,140 4,821
Deferred Income Taxes, net of valuation allowance 1,095 1,095
Excess of Cost Over Assets Acquired, net of amortization
amortization of $1,097 and $1,021, respectively............................ 1,439 1,515
Other Assets.................................................................... 36 38
-------- --------
TOTAL ASSETS............................................................... $ 37,127 $ 35,251
======== ========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
Current Liabilities
Accounts payable........................................................... $ 1,867 $ 1,495
Accrued expenses & taxes payable........................................... 1,807 1,698
Accrued compensation expense............................................... 409 666
Loan payable - bank........................................................ 5,275 5,831
Due to broker.............................................................. 3,983 2,229
Short position in marketable equity securities............................. 277 1,026
Current portion of long-term obligations.................................. 31 39
-------- --------
Total Current Liabilities....................................................... 13,649 12,984
Long-Term Obligations, less current portion..................................... 2,925 1,445
Deferred Income - non-compete agreement......................................... 800 1,100
Stockholders' Equity
Common Stock, par value $.01 per share: authorized 12,000,000
shares; issued 2,877,617 shares as of December 31, 1996 and
2,874,117 shares as of June 30, 1996....................................... 29 28
Additional paid-in capital................................................. 13,894 13,860
Note receivable from stockholder........................................... (140) (170)
Net unrealized gain on marketable securities............................... 267 220
Retained earnings.......................................................... 8,145 6,767
Less: treasury shares at cost 399,918 shares at
December 31, 1996 and 255,018 shares at June 30, 1996).................. (2,442) (983)
-------- --------
Total Stockholders' Equity 19,753 19,722
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 37,127 $ 35,251
======== ========
</TABLE>
Note: The balance sheet at June 30,1996 has been derived from the audited
consolidated statements at that date.
3
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 30, December 31,
-----------------------------------------------
1996 1995 1996 1995
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(000's omitted, except per share data)
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<S> <C> <C> <C> <C>
Net Sales................................................................ $5,004 $7,222 $10,100 $16,509
Cost of goods sold....................................................... 2,933 4,039 5,804 8,671
----- ----- ------- -------
Gross Profit............................................................. 2,071 3,183 4,296 7,838
Selling, general and administrative expenses............................. 1,704 1,804 3,498 3,813
Provision for doubtful accounts ......................................... 6 6 12 12
Depreciation and amortization of property, plant, equipment
and excess of costs over assets acquired............................ 234 130 291 253
Interest expense ........................................................ 259 67 511 97
Interest and other (income) loss - net................................... (1,132) 54 (1,739) (462)
----- ----- ------- -------
Income before income taxes............................................... 1,000 1,122 1,723 4,125
Provision for income taxes............................................... 200 211 345 1,363
----- ----- ------- -------
Net income............................................................... $ 800 $ 911 $ 1,378 $ 2,762
====== ====== ======= =======
Net income per Common and Common Equivalent Share........................ $ 0.32 $ 0.34 $ 0.55 $ 1.03
Number of shares used in computation..................................... 2,494,388 2,690,283 2,515,789 2,690,283
</TABLE>
See notes to condensed consolidated financial statements.
4
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1996 1995
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(000's omitted)
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<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................. $ 1,378 $ 2,762
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization........................................ 458 418
Amortization of non-complete agreement............................... (300) (300)
Provision for losses on accounts receivable.......................... 12 (2)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (613) 1,793
Inventories...................................................... (297) 96
Prepaid expenses and other current assets........................ (168) (153)
Accounts payable and accrued expenses ........................... 224 117
Other ........................................................... 21 --
Unrealized losses (gains) on marketable securities......................... 47 --
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... 762 4,731
INVESTING ACTIVITIES
Purchases of property and equipment........................................ (701) (340)
Net increases of marketable securities..................................... (34) (5,149)
Net borrowing on securities................................................ 1,005 --
------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES....................................... 270 (5,489)
FINANCING ACTIVITIES
Proceeds from lines of credit and long-term borrowings .................... 1,500 720
Repayment of loan receivable shareholder................................... 30 80
Repurchase of common stock for treasury.................................... (1,459) --
Issuance of common stock................................................... -- 214
Exercise of stock warrants................................................. 4 --
Reduction of notes payable and long-term debt.............................. (584) --
-------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES....................................... (509) 1,014
NET INCREASE IN CASH AND CASH EQUIVALENTS...................................... 523 256
Cash and cash equivalents at beginning of period........................... 727 1,366
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 1,250 $ 1,622
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principals for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended December 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1997.
Certain reclassifications have been made to the quarterly information to
conform to the current presentation.
NOTE B -- INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market.
Inventories consist of the following:
December 31, June 30,
1996 1996
------------------------
Raw materials....................... $ 2,669 $ 2,472
Work in process..................... 1,331 1,294
Finished goods...................... 587 524
------- -------
$ 4,587 $ 4,290
======= =======
NOTE C -- 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 common stock equivalents of dilutive stock warrants.
NOTE D -- INCOME TAXES
The Company records income taxes under FASB Statement No. 109,"Accounting
for Income Taxes" . Under Statement 109, the liability method is used in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Deferred tax expense was based on items of income and expenses that were
reported in different years in the financial statements and tax returns and were
measured at the tax rate in effect in the year the difference originated.
NOTE E -- SUBSEQUENT EVENTS
On January 30, 1997, the Company caused the company filed registration
statement with the Securities and Exchange Commission registering the Company's
90% ownership in TACTech for distribution in the previously announced proposed
spinoff of TACTech stock.
A loan in the amount of $5,000,000 due to Fleet Bank as well as all loans
due to a brokerage house, were fully repaid on January 31, 1997 as a result of
all of the preferred stocks in the Company's portfolio being called and
redeemed. The material effect of the resulting gains and losses and dividend
income from such investments has been recorded as of December 31, 1996.
6
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain items from the consolidated statement of
operations:
<TABLE>
<CAPTION>
Percent of Net Sales
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales ..................................................... 100.00% 100.00% 100.00% 100.00%
Cost of goods sold................................................. 58.60 55.92 57.46 52.52
------ ---- ------ -----
Gross profit....................................................... 41.40 44.08 42.54 47.48
Selling, general and administrative expenses....................... 34.05 24.98 34.63 23.10
Provision for doubtful accounts.................................... .12 0.08 .12 0.07
Depreciation and amortization of property and equipment ........... 4.68 1.80 2.89 1.53
Interest expense and amortization of
deferred note issuance cost................................... 5.18 0.94 5.05 0.59
Interest and other income - net.................................... (22.62) 0.75 (17.21) (2.80)
------ ---- ------ -----
Income before income taxes......................................... 19.99 15.53 17.06 24.99
Provision for income taxes......................................... 4.00 2.92 3.42 8.26
------ ---- ------ -----
Net income....................................................... 15.99 12.61 13.64 16.73
</TABLE>
Three Months Ended December 31, 1996 Compared to Three Months Ended December 31,
1995
The Company reported income of $800,000 or $.32 per share, compared to
$911,000 or $.34 per share for the comparable quarter. Compared to the
comparable quarter in 1995 wherein most of the income was derived from Omnirel,
the Company's material operating subsidiary, most of the current reporting
period's income was generated by the Company's investment portfolio.
Revenues for the three months ended December 31, 1996 were $5,004,000
comprised of net sales of the Company's Omnirel subsidiary of $4,494,000 and the
Company's TACTech subsidiary of $510,000. Net sales for the three months ending
December 31, 1995 were $7,222,000 comprised of net sales of the Company's
Omnirel subsidiary of $6,824,000 and TACTech of $398,000.
There was a net decrease in revenue from the comparable quarter in the
amount of $2,218,000. Included in Omnirel's revenues is a continued fulfillment
of a series of orders placed by General Electric for multi-chip power modules
systems which accounted for 18% of Omnirel's revenues for the three months ended
December 31, 1996, as compared to 70% in the comparable quarter in 1995. This
decrease was partially offset by an increase of 78% in revenues of other
products and services from the comparable quarter in 1995.
Net sales of TACTech increased 28% for the three months ended December 31,
1996 compared to the three months ended December 31, 1995 due principally to an
increase of approximately 29% in the number of subscribers.
Profits from Omnirel and TACTech represent 75% and 25% respectively of the
Company's consolidated gross profit of $2,071,000 as compared to 87% and 13%
respectively of consolidated gross profit of $3,183,000 during the comparable
1995 quarter. As a percentage of net sales, Omnirel's cost of goods sold
increased approximately 6% primarily attributable to an increase in
manufacturing absorption rate which was caused by the decline in sales volume.
7
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Three Months Ended December 31, 1996 Compared to Three Months Ended December 31,
1995 (continued)
Selling, general and administrative expenses were reduced during the
current reporting period to $1,704,000 from, $1,804,000 in the comparable 1995
period. The increase in selling, general and administrative expenses expressed
as a percentage of sales revenues increased to 34% from 24% primarily as a
result of the decrease in revenues from period to period.
Consolidated interest expense increased approximately $192,000 during the
current reporting period from the comparable 1995 quarter. Approximately
$141,000 is attributable to borrowings from a bank and a brokerage house for
capital required to both increase and maintain the Company's's investment
portfolio.
Interest income and other income increased to $1,132,000 for the current
reporting quarter as compared to a loss of $54,000 for the comparable period.
Interest and dividend income increased approximately $560,000 over the second
quarter of fiscal 1996. Realized gains on the sale of securities were
approximately $512,000 during the three months ending December 31, 1996 compared
to realized loses of approximately $312,000 during the three months ended
December 31, 1995. Unrealized losses on securities grew to approximately
$417,000 during the current quarter from $220,000 reported in the three months
ended December 31, 1995. The increase in dividends is attributed to the
significantly increased portfolio of preferred stocks as compared to the second
quarter of fiscal 1996. Extra or special calendar year end dividends were
declared on these preferred stocks in anticipation of their redemption on
January 31, 1997.
The backlog as at December 31, 1996 was approximately $11,100,000 of which
less than 9% or $977,000 represented the orders from General Electric compared
to a backlog as at December 31, 1995 of approximately $9,200,000 of which 14%
or $1,325,000 represented orders from General Electric.
Six Months Ended December 31, 1996 Compared to Six Months Ended December 31,
1995
The Company reported income of $1,378,000 or $.55 per share for the six
months ended December 31, 1996 as compared to $2,762,000 or $1.03 per share for
the six months ended December 31, 1995. Compared to the comparable six month
period, wherein substantially all of the income was derived from Omnirel, the
Company's material operating subsidiary, substantially all of the current
reporting period's income was generated by the Company's investment portfolio.
Revenues for the six months ended December 31, 1996 were $10,100,000
comprised of net sales of the Company's Omnirel subsidiary of $9,063,000 and the
Company's TACTech subsidiary of $1,037,000. Net sales for the six months ended
December 31, 1995 were $16,509,000 comprised of net sales of TACTech of $773,000
and Omnirel of $15,736,000.
Omnirel sales include revenues generated by the continued fulfillment of a
series of orders placed by General Electric for multi-chip power modules
containing power hybrid components. During the six months ended December 31,
1996 these revenues declined to approximately $1,920,000 or 21% of total sales
from approximately $11,544,000 or 74% of total sales in the prior comparable
reporting period. Revenues from other products and service segments increased
69% over the comparable period.
Net sales of TACTech increased 34% for the six months ended December 31,
1996 as compared to the comparable 1995 period due principally to an increase of
approximately 29% in the number of subscribers.
Profits at Omnirel and TACTech represent 76% and 24% respectively of the
Company's consolidated $4,296,000 gross profit, as compared to 90% and 10%
respectively of the consolidated gross profit of $7,838,000 during the six
months ended December 31, 1995. Omnirel's cost of goods sold increased 9% as a
percentage of net sales for the current reporting period as compared to the
comparable period in 1995. This was primarily attributed to the reduction of
production volume in the series of orders placed by General Electric. Due to the
reduction of unit volume for these multi-chip power modules, there was an
increase in labor and manufacturing overhead rates (expressed as a percentage of
net sales) of 3.5% and 5.5% respectively .
The consolidated selling, general and administrative expenses decreased
$315,000 from the prior period to $3,498,000 for the six months ended December
31, 1996. The two factors primarily affecting this net decrease are (i) increase
of consolidated selling,
8
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Six Months Ended December 31, 1996 Compared to Six Months Ended December 31,
1995 (continued)
general and administrative cost of $150,000, offset by (ii) a decrease in
management incentive fees of approximately $465,000 at Omnirel.
Consolidated interest expense grew to $511,000 during the six months ended
December 31, 1996 from $97,000 during the comparable 1995 reporting period.
Approximately $361,400 of the increase is attributable to borrowings from a bank
and a brokerage house for capital required to increase and maintain the
Company's investment portfolio. In addition, approximately $73,000 of this
increase is attributable to a mortgage executed at the end of calendar year 1995
on Omnirel's plant facility located in Leominster, Massachusetts.
For the six months ended December 31, 1996 interest and other net income
grew to approximately $1,739,000, an increase of $1,277,000 from the prior
reporting period. This net increase from the comparable period is attributed to
an increase in dividends and interest of approximately $927,000 and realized
gains of approximately $650,000 as offset by an increase of unrealized losses of
approximately $300,000 when compared to the comparable prior year period. There
was an increase in the quantity of preferred shares held during this reporting
period as compared to the six months ended December 31, 1995. In addition, the
increase in dividend income resulted primarily from extra or special calendar
year end dividends declared on preferred stocks held in the portfolio.
The Company's provision for income tax decreased significantly as a result
of the Company's reduction in effective tax rate. A significant portion of the
pre tax income includes dividends on preferred stocks, 70% of which is excluded
from taxation. In addition, the operations reflect the Company's utilization of
net operating loss carryforwards and related release of valuation allowances
previously established for such losses.
Subsequent Events
On January 30, 1997, the Company caused the filing of a registration
statement with the Securities and Exchange Commission registering the Company's
90% ownership in TACTech for distribution in the previously announced proposed
spinoff of TACTech stock.
A loan in the amount of $5,000,000 due to Fleet Bank as well as all loans
due to a brokerage house, were fully repaid on January 31, 1997 as a result of
all of the preferred stocks in the Company's portfolio being called and
redeemed. The material effect of the resulting gains and losses and dividend
income from such investments has been recorded as of December 31, 1996.
Liquidity and Capital Resources
Management expects that its internally generated funds and available bank
lines of credit will be sufficient to finance the continued operations of the
Company.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
When used in this Form 10-QSB, and in future filings by Zing with the
Securities and Exchange Commission, in Zing's press releases and in any oral
statements made with the approval of an authorized Zing executive officer, the
words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under the caption "Risk
Factors and Cautionary Statements" below, that could cause actual results to
differ materially from historical earnings or those presently anticipated or
projected. Zing wishes to caution readers not to place undue reliance on such
"forward-looking statements", which speak only as of the date made. Zing wishes
to advise readers that factors listed below could affect Zing's financial
performance and could cause Zing's actual results for future periods to differ
materially from any opinion or statements expressed with respect to future
periods in any current statements.
9
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Zing will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Sales to Significant Customer
Sales of various industrial products to General Electric represented 19%,
63%, and 58% of Omnirel's sales revenues for the fiscal year ending June 30,
1994 (each such fiscal year ending on June 30, a "Fiscal Year") Fiscal Year 1995
and Fiscal Year 1996. A single project accounted for approximately 16% of Fiscal
Year 1994 sales, 63% of Fiscal Year 1995 sales and 58% of Fiscal Year 1996
sales. Because of Omnirel's dependence on sales to one major customer in Fiscal
1994, 1995 and 1996, and the continued anticipated decrease in sales to such
customer in Fiscal Year 1997, which, based on existing orders are expected to be
less than in Fiscal Year 1996, there can be no assurance that Omnirel will be
able to compensate for the loss of such sales in future Fiscal Years.
The Environment for the Power Hybrid Module Business
The following factors can materially affect the Company's performance: the
rapidly changing environment for the power hybrid module business which might
cause market acceptance of Omnirel's existing products to decrease; the
cancellation or rescheduling of one or several material orders; the perceived
absolute or relative overall value of these products by the purchasers,
including the features and pricing compared to other competitive products, the
level of availability of Omnirel products and substitutes and the ability and
willingness of purchasers to acquire newer or more advanced models; and pricing,
purchasing, financing, operational, advertising and promotional decisions by
intermediaries in the distribution channels, which could affect the supply of,
or end user demand for, Omnirel products.
Selling, General and Administrative Expenses
Changes in the amount and rate of growth in Omnirel's selling, general and
administrative expenses, as well as the impact of unusual items resulting from
Omnirel's ongoing evaluation of its business strategies and organizational
structures can materially affect the Company's performance.
Selling Prices
Omnirel is subject to continued or increased pressure to change its selling
prices for Omnirel's product, which can affect margins.
Raw Materials
Difficulties in obtaining raw materials, supplies and other items needed
for the production of products and capacity constraints may have an affect on
Omnirel's ability to ship some products.
Development and Marketing
Omnirel is subject to difficulties or delays in the development,
production, testing and marketing of products, including, but not limited to,
the failure to ship new products and technologies when anticipated; the failure
of customers to accept these products or technologies when planned; difficulties
or delays in the design and production of custom product orders and changes in
the commercial viability of the end user products of which these products are a
party; any defects in products; the failure of a critical Omnirel vendor or
supplier to deliver material required by Omnirel; and failures of manufacturing
economies to develop when planned.
10
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ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Assets and Expenditures
Omnirel's business is also subject to the acquisition of fixed assets and
other assets, including inventories and receivables; the making or incurring of
any expenditure and expenses including, but not limited to, depreciation and
research and development expenses; and the revaluation of assets including, but
not limited to, specialized inventories or related expenses; and the amount of,
and any changes to, tax rates.
Production Losses and Rework Costs
Omnirel's business is also subject to the occurrences of production losses
and rework costs on new or custom programs in excess of those anticipated during
the pricing process.
Decline in Defense and/or Aerospace Spending
Although Omnirel's military, defense and aerospace business represents a
decreasing percentage of its overall sales in recent years (and, therefore, is
decreasing in its significance), the businesses of both Omnirel and TACTech
continue to depend to a substantial extent upon sales to military, defense and
aerospace contractors. In the event that military, defense and/or aerospace
spending were to decline significantly over the next several years, sales by
Omnirel and TACTech could suffer a corresponding or greater decline. In such
event, both companies would have to seek replacement markets in other
industries. There can be no assurance that such markets would be available or
that either company would be successful in penetrating them.
Dependence on Key Personnel
The businesses of Omnirel and TACTech are substantially dependent upon the
active participation and technical expertise of their executive officers. Zing
is dependent upon the services of its Chief Executive Officer and President,
Robert E. Schrader. Omnirel is dependent upon the services of John F.
Catrambone, its Chief Executive Officer, while TACTech is dependent upon Malcolm
Baca, its Executive Vice President and Chief Operating Officer. The Company
currently maintains key-man life insurance policies on both such executive
officers in the amounts of $1,600,000 and $1,700,000, respectively Omnirel also
maintains a key-man life insurance policy on Mr. Catrambone in the amount of
$2,500,000. Zing does not maintain such insurance on Mr. Schrader. Both the
Company's and Omnirel's Board of Directors regularly re-evaluate the need for
and the amount of such key-man life insurance. There can be no assurance,
however, that Zing or Omnirel can obtain executives of comparable expertise and
commitment in the event of death, or that the business of Zing would not suffer
material adverse effects as the result of the death (notwithstanding coverage by
key-man insurance), disability or voluntary departure of any such executive
officer.
Competition
Although the market for multi-chip power modules and packaged semiconductor
components is fragmented and no single company maintains a dominant position, it
is nevertheless highly competitive among the five manufacturers (including
Omnirel) who collectively account for approximately 50% of sales to such market.
Omnirel believes that its products and technologies can compete favorable with
the products of its principal competitors. Nevertheless a few of these
competitors have greater financial, marketing, servicing and research and
development resources than those of Omnirel. There can be no assurance that
existing or potential competitors will not develop and market products that are
superior or perceived to be superior to multi-chip power modules and other
products supplied by Omnirel.
TACTech's license agreements are cancelable on thirty (30) days notice.
Approximately 50% of TACTech's information for its data bases comes from
numerous companies in the private sector. Accordingly, there can be no assurance
that existing arrangements with private suppliers of data will continue in
effect or, if they are canceled, that TACTech will be able to enter into
arrangements with other suppliers on terms as beneficial to TACTech as those
presently in effect. Moreover, there can be no assurance that other companies,
including existing customers of TACTech, will not avail themselves of sources of
data to develop their own software and data base services either in competition
with TACTech or to enable them to have their own sources for such services.
TACTech's software services and data bases are protected by trade secret
provisions of license agreements and by copyright laws, but because such
provisions and laws are frequently difficult or costly to enforce, there can be
no assurance that such protection will prove effective.
11
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Technological Changes and New Product Development
In the event of changes in the structure of the computer hardware systems
used by subscribers to operate TACTech's data base software, TACTech would incur
capital costs for new equipment and development costs in connection with the
reconfiguring of its software programs, which cost could be substantial and
could have an adverse effect on TACTech's profitability. In addition, TACTech
regularly incurs capital costs in connection with its new product development in
advance of their being ready for market, and there can be no assurance that such
new products will prove profitable.
Investment Portfolio
Consistent with the limitations imposed by the Board of Directors, Zing has
invested in common stock of large capitalization issuers in the field of
electronic equipment manufacturing and/or semiconductor manufacturing or
distribution, and preferred stocks. Like any other investor, Zing is subject to
fluctuations in the trading prices and values of Zing's investments and general
stock market conditions as a result of numerous factors outside the control of
Zing. These fluctuations and stock market conditions could materially and
adversely affect the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is included herein:
(ii) Statement re: computation of earnings per share
The company did not file any report on Form 8-K during the six months ended
December 31, 1996.
12
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
-----------------------
(Registrant)
Date February 14, 1997 \s\ Robert E. Schrader
-------------------------- -------------------------------
Robert E. Schrader, President and
Chief Executive Officer
Date February 14, 1997 \s\ Martin S. Fawer
-------------------------- -------------------------------
Martin S. Fawer, Treasurer and
Chief Executive Officer
13
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF
COMMON AND COMMON EQUIVALENT PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
-------------------------------------------
<S> <C> <C> <C> <C>
Average shares outstanding......................................... 2,479 2,640 2,501 2,640
Net effect of dilutive stock options and warrants - based
on the treasury stock method using average market price....... 15 50 15 50
----- ----- ------- -------
Shares used for computation........................................ 2,494 2,690 2,516 2,690
===== ===== ======= =======
Net income......................................................... $ 800 $ 911 $ 1,378 $ 2,762
===== ===== ======= =======
Income per Common and Common
Equivalent Share:
Net income......................................................... $ 0.32 $ 0.34 $ 0.55 $ 1.03
====== ====== ====== ======
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000756055
<NAME> ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Dec-31-1996
<CASH> 1,250
<SECURITIES> 19,961
<RECEIVABLES> 3,103
<ALLOWANCES> (138)
<INVENTORY> 4,587
<CURRENT-ASSETS> 29,417
<PP&E> 10,703
<DEPRECIATION> (5,563)
<TOTAL-ASSETS> 37,127
<CURRENT-LIABILITIES> 13,649
<BONDS> 0
0
0
<COMMON> 29
<OTHER-SE> 19,724
<TOTAL-LIABILITY-AND-EQUITY> 37,127
<SALES> 5,004
<TOTAL-REVENUES> 5,004
<CGS> 2,933
<TOTAL-COSTS> 2,933
<OTHER-EXPENSES> 812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259
<INCOME-PRETAX> 1,000
<INCOME-TAX> (200)
<INCOME-CONTINUING> 800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 800
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
