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
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
New York 13-2650621
-------- ----------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
115 Stevens Avenue, Valhalla, NY 10595
-------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 747-7474
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
------------------- on which registered
--------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value.
-----------------------------
Check 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 past 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 common 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 22, 1997 was $15,917,828.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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. $21,300,000
The number of shares of common stock, $.01 par value, outstanding as of
September 22, 1997 was 2,659,653.
Transitional small business disclosure format Yes ___ No _X_
Exhibit Index/List on Page 37
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TABLE OF CONTENTS
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Part I Page No.
Item 1 - Description of Business ......................................3
Item 2 - Description of Property ......................................7
Item 3 - Legal Proceedings ............................................8
Item 4 - Submission of Matters to a Vote of Security Holders ..........8
Part II
Item 5 - Market for Registrant's Common Stock and Related Stockholder
Matters ......................................................9
Item 6 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................10
Item 7 - Financial Statements .........................................15
Item 8 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .......................37
Part III
Items 9 - Directors and Executive Officers of the Registrant ...........37
Item 10 - Executive Compensation ...................................... 37
Item 11 - Security Ownership of Certain Beneficial Owners
and Management .............................................. 37
Item 12 - Certain Relationships and Related Transactions .............. 37
Item 13 - Exhibits and Reports on Form 8-K ............................ 37
Signatures ............................................................. 38
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Zing Technologies, Inc. ("Zing" or the "Company") is a holding company
with one wholly owned operating subsidiary, Omnirel LLC ("Omnirel"). Prior to
June 30, 1997, the Company owned 98% (84% on a fully diluted basis) of its
Omnirel Corporation subsidiary, and 90% of its Transition Analysis Component
Technology, Inc. subsidiary ("TACTech"). Commencing on June 30, 1997, the
Company distributed its 90% ownership interest in TACTech to the Company's
shareholders. The Company restructured its ownership in its Omnirel Corporation
subsidiary by merging Omnirel Corporation with and into Omnirel LLC, the
Company's newly-formed wholly owned subsidiary. In the Omnirel restructuring,
the minority interests in Omnirel Corporation were obtained by the Company in
exchange for shares of the Company's common stock, and certain options to
purchase Omnirel Corporation common stock became exercisable for the Company's
common stock. See Note B to the Company's Consolidated Financial Statements
contained in this Report for more information concerning the distribution of the
Company's TACTech shares and the restructuring of the Omnirel Corporation
subsidiary. Zing was incorporated in New York on October 17, 1969.
The Company, through Omnirel, engages 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-PRF 19500 for discrete semiconductors;
MIL-STD 883 for monolithic microcircuits; and MIL-PRF 38534 for hybrid circuit
modules, 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.
The operations of the Company included TACTech through June 30, 1997.
TACTech licenses proprietary computer software databases to military
semiconductor manufacturers, the
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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 10% of the Company's net sales during fiscal
1997.
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
total consumption for power hybrids was approximately $300,000,000 in fiscal
1997. The market for power hybrid products which Omnirel addresses is in excess
of $200,000,000 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-five sales representative organizations world-wide.
Omnirel sells both standard and custom products to approximately two hundred
customers world-wide. Standard products are sold both through distributors and
directly to customers. Custom products are sold directly to customers.
Omnirel publishes and distributes to its existing customers and new
customers a catalogue of its standard products. Omnirel also publishes its
standard products on the Internet. Omnirel management has focused its marketing
effort in the United States where eighteen 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, Lockheed Martin, Allied Signal, United
Technologies, Hughes Aircraft, Boeing, Texas Instruments, Raytheon and Motorola.
Sales to General Electric for transportation
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systems aggregated 24% of Omnirel's sales revenues for fiscal year 1997. 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, 1997. Sales to Zeus Electronics (an Arrow company) aggregated 12% of Omnirel
sales revenue for fiscal year 1997.
Omnirel's customers outside the United States and export sales outside the
United States are as follows:
1997 1996 1995
(000's omitted)
------ ------ ------
Canada ............................. $1,193 $ 230 $ 67
Europe ............................. 735 258 172
Mid East (Israel) .................. 104 172 99
Far East (Japan) ................... -- 7 12
South Pacific (Australia) .......... -- -- 12
------ ------ ------
Total: $2,032 $ 667 $ 362
====== ====== ======
Omnirel's backlog on June 30, 1997 was $11,514,000 compared to a backlog
of $9,335,000 on June 30, 1996. Approximately 90% of the current backlog is
anticipated to be delivered over the next twelve month period.
For fiscal years 1997, 1996, and 1995, Omnirel did not enter into any
contracts with 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.
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
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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 thereof could materially affect its business.
Inventory
Omnirel follows industry standards for procurement, sale and return of its
inventory. Materials are procured based upon purchase orders which have standard
terms and conditions including the right of return for inferior quality or
non-compliance with purchase order terms. Omnirel inventory is maintained at its
principal place of business in storage facilities with temperature and humidity
controls. Omnirel stocks inventory for standard products, and for certain of its
custom products.
Environmental Compliance
Omnirel does not use hazardous materials in its manufacturing process nor
does the manufacturing process result in the discharge of potentially hazardous
material. Omnirel does not expect to incur significant expenditures relating to
environmental compliance.
Research and Development
Generally, Omnirel's research and development expenditures involve
engineering and design of custom products for specific applications, development
of new packaging techniques and development of packaging for new semiconductor
devices. Research and development expendi-
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tures for the fiscal years ended June 30, 1997, 1996 and 1995 were $1,773,000,
$1,361,000 and $1,055,000, respectively, or 9.3%, 5.2% and 4.7% of
sales in the respective years.
Employees
As of June 30, 1997, Zing had 150 employees, 105 of whom were employed by
Omnirel in a manufacturing capacity and 40 in clerical, administrative,
engineering or sales positions at Omnirel. The Company employs five people in
executive or administrative functions. None of Zing's employees are covered by a
collective bargaining agreement. In addition, TACTech, which was spun off to the
shareholders of the Company at the end of fiscal 1997, had 34 employees as at
June 30, 1997.
ITEM 2. - DESCRIPTION OF PROPERTY
Real Property
The Company maintains its executive office, leasing 1,500 square feet, at
a modern office building located in Valhalla, New York at an annual rent of
$30,000. The lease was set to expire on October 31, 1997 and was renewed at the
same rental terms for a two year period ending October 31, 1999. The Company
uses all of the leased space.
Omnirel owns a 6.5 acre parcel of land with a 48,000 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-PRF 38534 and registered to ISO 9001. Approximately 15,000
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.
Investment Policies
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, 1997 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
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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.
ITEM 3. - LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings nor,
to the Company's knowledge, is any material legal proceeding threatened.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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.
High Low
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
Second Quarter........................... 10-1/4 8
Third Quarter............................ 13-1/4 8
Fourth Quarter .......................... 10-3/8 8
Fiscal Year Ended June 30, 1998
First Quarter (through September 22, 1997) 10-5/8 9-3/8
There were 2,659,653 shares of Common Stock outstanding and 77 holders of
record, including approximately 912 beneficial owners of the shares as of
September 22, 1997.
No cash dividends have been paid on the Company's Common Stock for the
fiscal years ended June 30, 1997 and 1996. On June 30, 1997, the Company
completed a spin off of the common stock of its 90% owned subsidiary, TACTech,
through the distribution of a dividend to Company stockholders, pursuant to
which TACTech became a separate publicly-held company as of July 1, 1997. The
present policy of the Company is to retain earnings to provide funds for the
operations and expansion of its business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the period indicated the percentage
relationship to net sales of certain items from the Company's consolidated
statements of operations.
Year ended June 30
1997 1996 1995
---- ---- ----
Net sales ........................................... 100.0% 100.0% 100.0%
Cost of goods sold................................. 56.9 54.8 57.9
----- ----- -----
Gross profit....................................... 43.1 45.2 42.1
Selling, general and administrative expenses....... 37.7 28.0 28.1
Depreciation and amortization of property, plant
and equipment................................... 2.8 2.1 5.5
Interest expense .................................. 4.7 1.1 .6
Interest and other income, net..................... (16.9) (11.9) (4.7)
----- ----- -----
Income before income taxes and item shown
below........................................... 14.8 25.9 12.6
Cost in connection with acquisition of minority
interest of subsidiary.......................... 5.8 -- --
----- ----- -----
Income before income taxes ........................ 9.0 25.9 12.6
Provision for income taxes......................... 1.5 9.0 1.4
----- ----- -----
Net income 7.5% 16.9% 11.2%
===== ===== =====
Results of Operations - Fiscal 1997 Compared to Fiscal 1996
The Company reported net income of $1,608,000 or $.64 per share, for the
fiscal year ended June 30, 1997, after deducting a restructuring charge of
$1,227,000 or $.32 after tax benefit per share (see Note B(i) to the
consolidated financial statements) as compared to net income of $4,413,000 or
$1.68 per share, which included the realization by the Company of an additional
$2,000,000 or $.49 after tax per share 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.
Consolidated net sales decreased to $21,300,000 from the prior comparable
year's reportable net sales of $26,049,000. Omnirel's net sales in fiscal 1997
accounted for 90% of consolidated net sales as compared to 94% of consolidated
net sales in fiscal 1996. The balance of consolidated net sales in each period
is attributable to the operations of TACTech, the spun off subsidiary.
There was a net decrease in Omnirel revenue from fiscal 1996 in the
approximate amount of $5,300,000. Included in Omnirel's revenue is a continued
fulfillment of a series of orders placed by General Electric for multi-chip
power module systems which accounted for 24% of Omnirel's revenues for the year
ended June 30, 1997 as compared to 57% in fiscal 1996. The decrease was offset,
in part, by an increase in fiscal 1997 when compared to fiscal 1996 of
approximately 40% (or
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$4,300,000) in revenues of other products and services. This increase was
primarily attributed to an increase in products sold through Omnirel's exclusive
distributor, Zeus Electronics (an Arrow company), and the addition of a
significant customer. Product sold to such distributor and new customers
represented approximately 18% of the 1997 fiscal year's sales volume as compared
to 5% in fiscal 1996.
Revenues for TACTech for the fiscal year ended June 30, 1997 were
$2,206,000 as compared to $1,601,000 for the fiscal year ended June 30, 1996.
This 38% increase in revenues is primarily attributed to a combination of a
larger subscriber base and a general increase in subscription services as
subscribers renew their subscriptions.
The following data indicates the TACTech licensing activity for each year:
Fiscal year ended June 30,
1997 1996
---- ----
Subscribers at beginning of period ........... 73 60
Subscribers who did not renew ................ (12) (14)
Subscribers added during period including
renewal subscribers ........................ 34 27
-- --
Subscribers at end of period.................. 95 73
== ==
Gross profit for the fiscal year ended June 30, 1997 at Omnirel and
TACTech represented 76% and 24%, respectively, of the Company's consolidated
gross profit of $9,184,000 as compared to 86% and 14%, respectively, of the
Company's consolidated gross profit of $11,777,000 for fiscal year 1996.
Omnirel's cost of goods sold increased approximately 5% as a percentage of net
sales for fiscal 1997 as compared to fiscal 1996. This was primarily attributed
to both the reduction of production volume and unit sales price on the series of
orders placed by General Electric, and a change in product mix, which had the
effect of increasing labor and manufacturing overhead rates (expressed as a
percentage of net sales) 1.8% and 1.7%, respectively.
The consolidated selling, general and administrative expenses in fiscal
1997 were approximately $8,030,000, representing an increase of approximately
$750,000 over fiscal 1996. The factors primarily affecting this category were
increases in research and development at Omnirel of approximately $412,000; and
an increase in personnel cost of approximately $390,000 at TACTech, as more
specifically set forth in the following table:
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Number of Employees
-------------------
June 30, June 30,
1997 1996
-------- --------
Sales, marketing, training and customer service.. 5 5
Software development, data base maintenance
and computer maintenance................ 16 9
Data processing................................ 5 3
General and administrative....................... 8 5
-- --
Total 34 22
== ==
Consolidated interest expense grew to $993,000 during the fiscal year
ended June 30, 1997 from $287,000 in fiscal 1996. Approximately $522,000 of the
increase is attributable to borrowings from a bank and a brokerage house for
capital, the proceeds of which were used to increase and maintain the Company's
investment portfolio. In addition, approximately $175,000 of the increase is
attributable to a mortgage executed at the end of calendar 1995 on Omnirel's
plant and facility located in Leominster, Massachusetts, which mortgage was
increased during the current fiscal year to finance the construction of an
additional 10,000 square feet of facility.
For the fiscal year ended June 30, 1997, interest and other income-net
grew to $3,597,000, primarily attributable to realized gains (net of unrealized
losses) from the sale of securities and dividend income. For the fiscal year
ended June 30, 1996, the total interest and other income-net was $3,100,000 of
which $2,000,000 resulted from the realization by the Company of the additional
purchase price on 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. Thus, excluding the $2,000,000 received from Arrow
Electronics, interest and other income-net increased in fiscal 1997 over fiscal
1996 by $2,497,000, comprised of an increase in dividend and interest income of
$1,052,000, and realized and unrealized gains and losses from the sale of
securities of $1,445,000.
Provision for income taxes in fiscal 1997 amounted to $320,000,
representing an effective rate of approximately 16% as compared to $2,345,000 at
an approximate effective rate of 35% in fiscal 1996. As a result of the
redemption of all of its preferred stock portfolio in the third quarter of
fiscal 1997, the Company generated a capital loss for tax purposes, which
significantly offset the reportable recognizable gain for fiscal 1997. This,
coupled with the fact that other income includes non taxable dividends of
approximately $1,300,000 and a covenant not to compete of $600,000 previously
taxed in its entirety in 1993, contributed to the reduction in the effective tax
rate. The Company's provision for income taxes for fiscal 1997 is a result of a
reduction in the deferred tax asset, net of an increase to its deferred tax
liability, each of which has been created pursuant to FASB 109.
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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.
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.
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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.
Liquidity and Capital Resources
In fiscal 1997 and 1996, the Company utilized most of its cash and cash
equivalents in the acquisition of marketable securities and the repurchase of
common shares of its common stock for treasury. Omnirel's operations in fiscal
1997 and 1996 were funded from internally generated cash and available bank
lines of credit.
Impact of Inflation
Inflation did not have significant impact on the operations of the Company
for any period presented.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Zing Technologies, Inc.
Index to Financial Statements
June 30, 1997
Page No.
--------
Report of Independent Auditors..........................................16
Consolidated Balance Sheets.............................................17
Consolidated Statements of Income.......................................19
Consolidated Statements of Stockholders' Equity.........................20
Consolidated Statements of Cash Flows...................................21
Notes to Consolidated Financial Statements..............................22
15
<PAGE>
Report of Independent Auditors
Stockholders 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, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1997. These financial
statements 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
---------------------
September 22, 1997
White Plains, NY
16
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, June 30,
1996 1997
---- ----
(000's omitted)
Assets
Current assets:
Cash and cash equivalents ............................ $ 727 $ 857
Marketable securities ................................ 19,927 21,935
Accounts receivable, less allowances of
$135 and $79, respectively ........................ 2,352 2,098
Inventories .......................................... 4,290 4,785
Prepaid expenses ..................................... 145 204
Other current assets ................................. 341 766
-------- --------
Total current assets .............................. 27,782 30,645
Property, plant and equipment ........................... 10,002 10,800
Less: accumulated depreciation and amortization ......... 5,181 5,671
-------- --------
4,821 5,129
Deferred income taxes, net of valuation allowance ....... 1,095 800
Excess of cost over assets acquired, net of accumulated
amortization of $1,021 and $1,172, respectively ...... 1,515 1,363
Other assets ............................................ 38 70
-------- --------
Total assets $ 35,251 $ 38,007
======== ========
See notes to consolidated financial statements.
17
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
June 30, June 30,
1996 1997
---- ----
(000's omitted)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ....................................... $ 1,495 $ 1,672
Accrued expenses ....................................... 1,698 801
Accrued compensation expense ........................... 666 617
Loans payable bank ..................................... 5,831 7,500
Short positions in marketable equity securities ........ 1,026 --
Due to broker .......................................... 2,229 3,674
Current portion of long-term obligations ............... 39 370
-------- -------
Total current liabilities ................................. 12,984 14,634
Long-term obligations, less current portion ............... 1,445 2,903
Deferred income - non-compete agreement ................... 1,100 500
Stockholders' equity:
Common stock (par value $.01 per share; authorized
12,000,000 shares; issued 2,874,117 shares as of
June 30, 1996 and issued and issuable, 3,058,037
shares as of June 30, 1997 .......................... 28 30
Additional paid-in capital ............................. 13,860 15,111
Note receivable from stockholder ....................... (170) (170)
Net unrealized gain (loss) on marketable
securities .......................................... 220 (474)
Retained earnings ...................................... 6,767 7,915
Treasury shares at cost (255,018 shares - 1996,
399,918 shares - 1997) .............................. (983) (2,442)
-------- -------
19,722 19,970
-------- -------
Total liabilities and stockholders' equity $ 35,251 $38,007
======== =======
18
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------------
1995 1996 1997
----------- ---------- -----------
(000's omitted, except share data)
<S> <C> <C> <C>
Net sales ...................................... $ 22,591 $ 26,049 $ 21,300
Cost of goods sold ............................. 13,073 14,272 12,116
----------- ---------- -----------
Gross profit ................................... 9,518 11,777 9,184
Selling, general and administrative expenses ... 6,347 7,280 8,030
Depreciation and amortization of property,
plant and equipment ........................ 1,232 552 603
Interest expense ............................... 148 287 993
Interest and other income - net ................ (1,051) (3,100) (3,597)
----------- ---------- -----------
Income before income taxes and item
shown below ................................ 2,842 6,758 3,155
Costs in connection with acquisition of
minority interest of subsidiary ............ -- -- 1,227
----------- ---------- -----------
Income before income taxes ..................... 2,842 6,758 1,928
Provision for income taxes ..................... 325 2,345 320
----------- ---------- -----------
Net income ..................................... $ 2,517 $ 4,413 $ 1,608
=========== ========== ===========
Net income per common and common
equivalent share ............................ $ .94 $ 1.68 $ .64
=========== ========== ===========
Number of shares used in computation 2,671,000 2,629,000 2,502,000
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(000's omitted)
<TABLE>
<CAPTION>
Net Unrealized
Note Gain (Loss) Total
Common Stock Additional Receivable Retained on Stock-
-------------- Paid-in From Earnings Treasury Marketable holders's
Shares Amount Capital Stockholder (Deficit) Stock Securities Equity
------ ------ ---------- ----------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 ............ 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
Net income ................................... 1,608 1,608
Net unrealized (loss) on
marketable securities ..................... (694) (694)
Repurchase of common stock for treasury ...... (145) (1,459) (1,459)
Issuance of common stock in exchange for
minority interest of subsidiary ........... 164 1 1,226 1,227
Exercise of warrants 20 1 25 26
Dividend distribution of subsidiary
common stock (460) (460)
----- ---- -------- ------ ------ ------- -------- --------
Balance at June 30, 1997 2,658 $ 30 $ 15,111 $ (170) $7,915 $(2,442) $ (474) $ 19,970
===== ==== ======== ====== ====== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1995 1996 1997
-------- -------- --------
(000's omitted)
<S> <C> <C> <C>
Operating activities
Net income ............................................. $ 2,517 $ 4,413 $ 1,608
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 1,534 907 953
Amortization of non-compete agreement .............. (600) (600) (600)
Deferred income taxes .............................. (29) 189 295
Costs in connection with acquisition of
minority interest of subsidiary .................. -- -- 1,227
Changes in operating assets and liabilities:
Accounts receivable .............................. (1,149) 1,181 (165)
Inventories ...................................... (1,426) (473) (495)
Prepaid expenses and other current assets ........ (174) 142 (631)
Other assets ..................................... 73 (26) (32)
Accounts payable and accrued expenses ............ 1,530 2,730 (369)
Other, net ....................................... 184 291 28
-------- -------- --------
Net cash provided by operating activities .............. 2,460 8,754 1,819
Investing activities
Purchases of property and equipment .................... (850) (974) (1,298)
Net purchases of marketable securities ................. (332) (14,431) (2,701)
-------- -------- --------
Net cash used in investing activities .................. (1,182) (15,405) (3,999)
-------- -------- --------
Financing activities
Proceeds from borrowings ............................... 190 7,375 10,006
Reductions of borrowings ............................... -- (1,032) (6,130)
Exercise of warrants ................................... 137 103 26
Repayment of note receivable from stockholder .......... -- 80 --
Repurchase of common stock for treasury ................ (421) (514) (1,459)
Dividend of investment in subsidiary common stock ...... -- -- (133)
-------- -------- --------
Net cash provided by (used in) financing activities .... (94) 6,012 2,310
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ... 1,184 (639) 130
Cash and cash equivalents at beginning of year ......... 182 1,366 727
-------- -------- --------
Cash and cash equivalents at end of year ............... $ 1,366 $ 727 $ 857
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1997
Note A. Summary of Significant Accounting Policies
Business Segment Information
Zing Technologies, Inc. (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
marketed a turnkey software package and database of pertinent electronic
semiconductor component information through the end of its fiscal year (see Note
B).
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Omnirel, LLC ("Omnirel"), and its formerly 90%
owned subsidiary Transition Analysis Component Technology, Inc. ("TACTech"),
exclusive of TACTech's June 30, 1997 balance sheet (see Note B). All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition
The Company recognizes sales at the time products are shipped/services are
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, 1996 and 1997, the Company has warranty reserves of $222,000 and
$77,000 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.
22
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note A. 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 and 1997, 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 effect of Common Stock equivalents resulting from dilutive stock
options and warrants.
23
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note A. Summary of Significant Accounting Policies (continued)
Supplemental net income per share for the year ended June 30, 1997, assuming
that the issuance of common stock to acquire the minority interest in Omnirel
occurred on July 1, 1996, would have been $0.60.
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 to bank and long-term obligations also approximate fair
value in that interest rates for these credit facilities are based on the
applicable bank's prime lending rates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." The Company adopted SFAS No. 121 in fiscal
1997, and there was no impact.
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 adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" which
provisions did not produce information that differs materially from that
contained in the consolidated financial statements.
24
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note B. Organization
(i) Omnirel
During fiscal 1997, the Company purchased the balance of the outstanding
ownership interests of its Omnirel Corporation subsidiary (the predecessor to
Omnirel LLC) not owned by the Company (2% outstanding and 16% on a fully diluted
basis). In connection therewith, Omnirel Corporation was merged into Omnirel LLC
(a newly formed Delaware limited liability corporation) and became a wholly
owned subsidiary of the Company. The Company issued approximately 164,420 shares
of its Common Stock in exchange for the minority interests in Omnirel (including
132,603 shares in exchange for options to purchase Omnirel Common Stock) to
effect the purchase. Such shares were issuable at June 30, 1997. In connection
with such restructuring, certain Omnirel optionees elected to retain their
options which (assuming full vesting) are exercisable for up to 53,027 shares of
Company common stock. As a result, the Company incurred a pre-tax charge against
earnings in the fourth quarter ended June 30, 1997 of approximately $1.2
million, representing compensation paid to the employee optionholders equal to
the value of the shares issued in exchange for options held by such employees.
(ii) TACTech
The Board of Directors of the Company declared a dividend distribution (the
"Distribution") to the Company shareholders of record as of June 17, 1997 on the
basis of one share of TACTech Common Stock for each 5.0024 shares of Company
Common Stock. The distribution was effective June 30, 1997 and following the
distribution TACTech commenced operations on a stand alone basis. During fiscal
1997, TACTech filed a registration statement on Form SB-1 and Prospectus for the
purpose of distributing the common stock of TACTech to the stockholders of the
Company.
The Company made an additional investment of its intercompany advances excluding
taxes, as of the effective date of the Distribution, of approximately $553,000,
which amount has been accordingly included in additional paid-in capital of
TACTech.
As of the Distribution Date, the Company and TACTech entered into several
agreements to take certain other actions for purposes of governing certain of
the ongoing relationships between the two
25
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note B. Organization (continued)
companies following the Distribution, including reciprocal indemnification
obligations, and the engagement of the certain Company employees by TACTech on a
part time basis. In addition, the Company has assisted TACTech in obtaining a
$1.5 million credit facility from a bank and provided a guaranty of indebtedness
incurred by TACTech thereunder. Pursuant to an indemnification agreement entered
into between the Company and TACTech in connection with the Distribution,
TACTech agreed to indemnify the Company against all expenses and liabilities
resulting from (i) the operations of TACTech from and after the Distribution,
(ii) the Company's operations of TACTech's business prior to the Distribution
other than those based upon the tax consequences of the Distribution and (iii)
any claim, suit or other type of proceeding based upon, arising out of or in
connection with any information furnished by TACTech concerning TACTech for
inclusion in the Prospectus relating to the Distribution; and the Company agreed
to indemnify and save harmless TACTech and its directors, officers, employees,
agents and/or affiliates for any claims incurred or suffered, directly or
indirectly, by them resulting from or attributable to, among other things (i)
the operation of the Company from after the Distribution (ii) any claim, suit or
other type of proceeding based upon, arising out of or in connection with the
operation of the Company's business (other than TACTech's business) prior to the
Distribution, and (iii) any claims, suit or other type of proceeding based upon,
arising out of or in connection with any information concerning the Company in
the Prospectus or any information furnished by the Company concerning the
Company for inclusion in the Prospectus.
Under the terms of the credit facility referred to above, TACTech received a
$1,500,000 revolving line of credit to be used for working capital and equipment
acquisitions subsequent to June 30, 1997. The facility has a three year term and
is guaranteed by the Company. Interest on the borrowings is at a variable rate
tied to the Bank's prime rate. All TACTech's personal property collateralizes
the borrowings under such facility.
26
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note B. Organization (continued)
The net assets transferred at June 30, 1997 in TACTech were as follows:
Current Assets (a) .. $ 671,000
Non-Current Asset ... 190,000
Liabilities ......... (401,000)
---------
Net Assets .......... $ 460,000
=========
(a) Includes $108,000 of prepaid registration costs.
The consolidated financial statements of the Company for the years ended June
30, 1997 include the following applicable to TACTech:
1995 1996 1997
---------- ---------- ----------
Revenues ....................... $1,224,656 $1,601,255 $2,205,679
Expenses ....................... 1,169,931 1,444,054 1,902,809
Charges in lieu of taxes ....... 16,400 50,015 103,400
---------- ---------- ----------
Net Income ..................... $ 38,325 $ 107,186 $ 199,470
========== ========== ==========
Note C. Officer Loan
During 1991, the Company loaned $250,000 to an officer/director of Omnirel
Corporation 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.
Note D. Inventories
Inventories consists of the following:
June 30, June 30,
1996 1997
------- -------
(000's omitted)
Raw materials ............ $2,472 $2,540
Work in process .......... 1,294 1,381
Finished goods ........... 524 864
------ ------
$4,290 $4,785
====== ======
27
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note E. Property, Plant and Equipment
Property, plant and equipment consists of:
June 30, June 30,
1996 1997
------- -------
(000's omitted)
Land ......................... $ 300 $ 300
Building and improvements .... 2,929 3,626
Equipment .................... 5,483 5,892
Furniture and fixtures ....... 744 433
Leasehold improvements ....... 546 549
------- -------
$10,002 $10,800
======= =======
Note F. Credit Facilities
Credit facilities consist of the following:
June 30,
------------------
1996 1997
------- -------
(000's omitted)
Loans payable bank:
Loans payable bank:
Revolving line of credit ..... $ 856 $ --
Line of credit ............... 4,975 7,500
------- -------
$ 5,831 $ 7,500
======= =======
Long-term obligations:
Mortgage payable to bank ..... $ 1,484 $ 1,838
Term loan to bank ............ -- 1,435
Current portion .............. (39) (370)
------- -------
$ 1,445 $ 2,903
======= =======
In July 1996, Omnirel replaced a $5,000,000 line of credit with a new $5,000,000
facility (the "Loan Facility") comprised of (a) a $1,500,000 revolving line of
credit maturing on 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 of credit.
28
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note F. Credit Facilities (continued)
The Loan Facility 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 real estate and related fixtures in December
1995. During fiscal year 1997, an additional $390,000 was added to its existing
mortgage. The outstanding balance on the mortgage at June 30, 1996 and 1997 was
$1,484,000 and $1,838,000, respectively. 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% (10%
at June 30, 1997). Omnirel's mortgage is guaranteed by Zing.
In April 1997, the Company entered into a $7,500,000 line of credit, which
replaced a previously existing $5,000,000 line of credit, with an interest rate
equal to either the prime rate less .75% or the LIBOR plus .70% (6.3875% at June
30, 1997) which has an expiration date of March 2, 1998. Monthly interest
payments commenced in May 1997. Proceeds from the loan were used to reduce
borrowings under the Company's brokerage margin account. Marketable securities,
principally preferred stocks with a fair market value of approximately
$15,000,000 were used to collateralize the borrowings of $7,500,000 at June 30,
1997.
Simultaneously, with the obtaining of the $7,500,000 line of credit, the Company
purchased an interest rate cap for $38,000, which caps the LIBOR on the
$7,500,000 line at 5.6875% through the expiration of the loan facility.
The annual principal payment requirements on the mortgage subsequent to June 30,
1997 are as follows:
1998 - $ 370,000
1999 - 379,000
2000 - 383,000
2001 - 2,065,000
2002 - 76,000
The Company made interest payments relating to credit facilities of $560,000,
$287,000 and $148,000 during the fiscal years ended June 30, 1997, 1996 and
1995, respectively.
29
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note G. 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 expected to be
in effect when the differences reverse.
Omnirel's net operating loss carryforwards for federal income tax purposes of
approximately $3,600,000 at June 30, 1997 expire through 2007, subject to annual
limitations under Section 382 of the Internal Revenue Code.
Income tax provision consists of the following:
Year ended June 30
-------------------------
1995 1996 1997
------ ------ ------
(000's omitted)
Current Federal ...... $ 266 $1,706 $ --
Current State ........ 88 450 25
Deferred Federal ..... (29) 189 232
Deferred State ....... -- -- 63
------ ------ ------
Total $ 325 $2,345 $ 320
====== ====== ======
30
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note G. 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:
Year ended June 30
-----------------------------
1995 1996 1997
------- ------- -------
(000's omitted)
Federal income tax at statutory rate (34%) .... $ 966 $ 2,298 $ 656
State income tax net of Federal tax benefit ... 59 297 17
Adjustment to valuation allowance ............. (927) (173) --
Adjustment of deferred income taxes ........... 193 -- --
Permanent differences resulting
from purchase accounting .................... 52 68 68
Non-taxable dividends ......................... (100) (228) (455)
Other-net ..................................... 82 83 34
------- ------- -------
$ 325 $ 2,345 $ 320
======= ======= =======
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:
June 30
-----------------
1996 1997
------- -------
(000's omitted)
Net operating losses ........................ $ 1,221 $ 1,221
Noncompete agreement ........................ 374 198
Purchase accounting bases differences ....... (284) (268)
Warranty reserves ........................... 75 30
Inventory reserves .......................... 162 165
Unrealized loss on marketable securities .... 110 196
Accumulated depreciation .................... -- (130)
Other ....................................... 64 202
------- -------
Deferred tax asset .......................... 1,722 1,614
Valuation allowance ......................... (627) (814)
------- -------
Net deferred tax asset $ 1,095 $ 800
======= =======
The net change in the valuation allowance for the years ended June 30, 1997 and
1996 was $187,000 and ($173,000), respectively, resulting from the increase in
unrealized losses on marketable securities (1997) and the utilization of net
operating loss carryforwards (1996).
31
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note G. Income Taxes (continued)
The Company made no income tax payments during 1995. In 1996 and 1997, income
tax payments aggregated $1,950,000 and $250,000, respectively.
Note H. Stockholders' Equity
Treasury stock outstanding is as follows:
Fiscal Year Average Price
Ended June 30, Shares Total Cost Per Share
-------------- ------ ---------- ---------
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
1997 144,900 1,459,902 10.07
------- ----------
399,918 $2,442,839
======= ==========
Warrant activity is as follows:
Warrants Price
-------- -----
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
Exercised - fiscal 1997 ................ (19,500) 1.34
-------
Outstanding at June 30, 1997 ........... 1,410 1.34
=======
32
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H. Stockholders' Equity (continued)
Options outstanding at June 30, 1995, 1996 and 1997 represent options to
purchase Omnirel common stock.
Option activity is as follows:
1995
Non-Qualified 1995
Exchange Non-Qualified
Options Options
($8) ($10) Total
-------- ------- --------
Options outstanding July 1, 1995 ...... 134,000 17,000 151,000
Granted ............................... -- 10,000 10,000
-------- ------- --------
Options outstanding June 30, 1996 ..... 134,000 27,000 161,000
Granted ............................... -- 10,000 10,000
Forfeited ............................. (4,100) (14,000) (18,100)
Repurchased by Company ................ (117,350) -- (117,350)
-------- ------- --------
Options outstanding June 30, 1997 ..... 12,550 23,000 35,550
======== ======= ========
Number of shares of Company
Common Stock which outstanding
options are exercisable for
pursuant to restructuring
described below ....................... 14,182 38,845 53,027
======== ======= ========
Exercisable at June 30, 1997 .......... 8,367 5,200 13,567
======== ======= ========
Number of shares of Company
Common Stock which exercisable
options are exercisable for at
June 30, 1997 pursuant to
restructuring described below ......... 9,455 8,782 18,237
======== ======= ========
Vesting ............................... 3 years 5 years
Contractual Life ...................... 10 years 10 years
In connection with the restructuring of Omnirel (see Note B), options to
purchase Omnirel stock which were not repurchased by the Company became, subject
to vesting limitations, exercisable for Company Common stock at the rate of
1.6889 shares for each $10 option and 1.13 shares for each $8 option.
The fair value for the $10 options granted during fiscal 1997 and fiscal 1996
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rates of
6.25%; divided yields of 0%; volatility factors
33
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H. Stockholders' Equity (continued)
of the expected market price of the Company Common Stock of .683; and a weighted
average expected life of the options of five years. The estimated weighted
average fair value per option is approximately $5.08.
Note I. Marketable Equity Securities
For the years ended June 30, 1996 and 1997, marketable securities consisted of
equity securities carried at market value. Marketable securities had a cost of
$19,706,000 as of June 30, 1996 and $22,284,000 as of June 30, 1997. As of June
30, 1997, gross unrealized gains and losses were $129,000 and $603,000,
respectively.
Included in the determination of net income for the years ended June 30, 1995,
1996 and 1997 were realized gains of $388,000, $478,000 and $1,899,000
respectively, and realized losses of $30,000, $587,000 and $1,004,000,
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
1997, the Company covered its short sale obligation and realized additional
gains of $649,000 related to the aforementioned transaction.
During fiscal 1995, 1996 and 1997, unrealized losses of $307,000, $578,000 and
$43,000, respectively, were charged to income representing a reduction in the
market value of certain marketable securities which was deemed to be other than
temporary.
Note J. 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 $5,000 for 1995, $10,500 for 1996 and $18,000
for 1997. The Company does not maintain post-retirement benefit plans.
34
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note K. Leases
The Company has a noncancelable operating lease expiring October 31, 1999 at an
annual rent of $30,000. As of June 30, 1997, the Company had no other
significant operating leases. Rental expense for all operating leases were
$57,000 for 1995, $59,000 for 1996 and $67,000 for 1997.
Note L. Research and Development
During fiscal 1995, 1996 and 1997, research and development expenditures, which
are included in selling, general and administrative expenses, were $1,055,000,
$1,361,000 and $1,773,000, respectively.
Note M. Concentration of Credit Risk
Sales to one customer aggregated 24% of the net sales of Omnirel for fiscal 1997
as compared to sales to the same customer in fiscal 1996 and 1995, aggregating
58% and 61%, respectively. Sales to another customer aggregated 12% of net sales
of Omnirel for fiscal 1997.
Note N. Related Party Transactions
During the years ended June 30, 1995, 1996 and 1997, 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 $347,000, $228,000 and
$372,000, respectively.
Note O. Interest and Other Income, Net.
Interest and other income, net, is comprised of the following:
1995 1996 1997
------ ------- ------
(000's omitted)
Proceeds from sale of business .............. -- $ 2,000 --
Amortization of non-compete agreement ....... $ 600 600 $ 600
Dividend and interest income ................ 400 1,093 2,145
Unrealized and realized gains (losses)
from sale/redemption of securities .......... 51 (593) 852
------ ------- ------
Total $1,051 $ 3,100 $3,597
====== ======= ======
35
<PAGE>
Zing Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note P. Subsequent Events
During July and August 1997, the Company acquired for its treasury 102,400
shares of its common stock for $1,079,670, an average price of $10.54 per share
(including brokerage costs.)
36
<PAGE>
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, 1997 fiscal year.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement Re Computation of per share earnings. (See Page 39 of Report).
(b) Reports on Form 8-K:
None.
37
<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 9th day of October,
1997.
Zing Technologies, Inc.
By: /s/ Robert E. Schrader
----------------------
Robert E. Schrader
President, Chief Executive Officer
and Chairman of the Board
Each person whose signature appears below constitutes and appoints Robert E.
Schrader and Martin S. Fawer, or either of them, each with the power of
substitution, his or her true and lawful attorney-in-fact to sign any amendments
to this report and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each said attorney-in-fact, or his or her
substitute, may do or choose to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert E. Schrader President, Chief Executive October 9, 1997
- ------------------------ Officer and Chairman of the Board
(Robert E. Schrader) (Principal Executive Officer)
/s/ Martin S. Fawer Treasurer and Director October 9, 1997
- ------------------------ (Principal Financial Officer)
(Martin S. Fawer)
/s/ Deborah J. Schrader Secretary and Director October 9, 1997
- ------------------------
(Deborah J. Schrader)
/s/ John F. Catrambone Director October 9, 1997
- ------------------------
(John F. Catrambone)
/s/ Laurence Higgitt Director October 9, 1997
- ------------------------
(Laurence Higgitt)
/s/ Henry A. Singer Director October 9, 1997
- ------------------------
(Henry A. Singer)
38
Zing Technologies, Inc. and Subsidiaries
Exhibit 11 - Statement Re Computation of Per Share Earnings
1995 1996 1997
------ ------ ------
(000's omitted,
Except Per Share Data)
Average shares outstanding ......................... 2,597 2,610 2,500
Net effect of dilutive stock options and warrants
based on the treasury stock method ............... 74 19 2
------ ------ ------
Shares used for computation ........................ 2,671 2,629 2,502
====== ====== ======
Net income used for computation .................... $2,517 $4,413 $1,608
Per share amount:
Net income ......................................... $ .94 $ 1.68 .64
39
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Jun-30-1997
<CASH> 857,000
<SECURITIES> 21,935,000
<RECEIVABLES> 2,177,000
<ALLOWANCES> (79,000)
<INVENTORY> 4,785,000
<CURRENT-ASSETS> 30,645,000
<PP&E> 10,800,000
<DEPRECIATION> (5,671,000)
<TOTAL-ASSETS> 38,007,000
<CURRENT-LIABILITIES> 14,634,000
<BONDS> 2,903,000
0
0
<COMMON> 30,000
<OTHER-SE> 19,940,000
<TOTAL-LIABILITY-AND-EQUITY> 38,007,000
<SALES> 21,300,000
<TOTAL-REVENUES> 21,300,000
<CGS> (12,116,000)
<TOTAL-COSTS> (12,116,000)
<OTHER-EXPENSES> 1,227,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 993,000
<INCOME-PRETAX> 1,928,000
<INCOME-TAX> (320,000)
<INCOME-CONTINUING> 1,608,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,608,000
<EPS-PRIMARY> .64
<EPS-DILUTED> 0
</TABLE>
