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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended December 31, 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.
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(Exact Name of small business issuer 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
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(Address of principal executive offices)
(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)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of during the past 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 and issuable
as of January 31, 1998 was 2,501,519.
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1
<PAGE>
INDEX
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - December 31, 1997 and
June 30, 1997.........................................................3
Condensed consolidated statements of income - three months ended
December 31, 1997 and 1996 and six months ended
December 31, 1997 and 1996............................................4
Condensed consolidated statements of cash flows - six months ended
December 31, 1997 and 1996............................................5
Notes to condensed consolidated financial statements -
December 31, 1997 ....................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................9
PART II. OTHER INFORMATION
Item 5. Other Information....................................................13
Item 6. Exhibits and Reports on Form 8-K.....................................15
Signatures...........................................................16
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
--------------------------
(Unaudited) (Note)
(000's omitted, except
share data)
-------------------------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 776 $ 857
Marketable securities 19,813 21,935
Accounts receivable, less allowances of $89 and $79, 2,301 2,098
respectively
Inventories 4,988 4,785
Prepaid expenses 307 204
Other current assets 516 766
--------------------------
Total current assets 28,701 30,645
Property, plant and equipment 11,365 10,800
Less accumulated depreciation and amortization 6,094 5,671
--------------------------
5,271 5,129
Deferred income taxes, net of valuation allowance 800 800
Excess of cost over assets acquired, net of amortization of
$1,249 and $1,172, respectively 1,286 1,363
Other assets 42 70
--------------------------
Total assets $36,100 $38,007
==========================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 1,450 $ 1,672
Accrued expenses and taxes payable 1,113 801
Accrued compensation expense 456 617
Loan payable - bank 7,695 7,500
Due to broker 2,824 3,674
Current portion of long-term obligations 430 370
--------------------------
Total current liabilities 13,968 14,634
Long-term obligations, less current portion 2,951 2,903
Deferred income - non-compete agreement 200 500
Stockholders' equity
Common stock, par value $.01 per share; authorized
12,000,000 shares; issued and issuable 3,058,037
shares as of December 31, 1997 and June 30, 1997 30 30
Additional paid-in capital 15,113 15,111
Note receivable from stockholders (344) (170)
Net unrealized loss on marketable securities (1,265) (474)
Retained earnings 9,163 7,915
Less treasury shares at cost (523,318 shares at December
31, 1997, and 399,918 shares at June 30, 1997) (3,716) (2,442)
--------------------------
Total stockholders' equity 18,981 19,970
--------------------------
Total liabilities and stockholders' equity $36,100 $38,007
==========================
</TABLE>
Note: The consolidated balance sheet at June 30, 1997 has been derived from the
audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
3
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
------------------------- ------------------------
(000's omitted, except share data)
<S> <C> <C> <C> <C>
Net sales $5,353 $ 5,004 $10,439 $10,100
Cost of goods sold 3,363 2,933 6,551 5,804
------------------------- ------------------------
Gross profit 1,990 2,071 3,888 4,296
Selling, general and
administrative expenses 1,740 1,710 3,390 3,510
Depreciation and amortization of
property, plant and equipment 147 234 283 291
Interest expense 260 259 505 511
Interest and other income - net (497) (1,132) (1,808) (1,739)
------------------------- ------------------------
Income before income taxes 340 1,000 1,518 1,723
Provision for income taxes 65 200 270 345
------------------------- ------------------------
Net income $ 275 $ 800 $ 1,248 $ 1,378
========================= ========================
Net income per common share $ .11 $ .32 $ .48 $ .55
========================= ========================
Net income per common
share-assuming dilution $ .11 $ .32 $ .48 $ .54
========================= ========================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
December 31,
1997 1996
-------------------------
(000's omitted)
<S> <C> <C>
Operating activities
Net income $ 1,248 $1,378
Adjusted to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 500 458
Amortization of non-compete agreement (300) (300)
Unrealized (gains) losses on marketable securities (791) 47
Changes in operating assets and liabilities:
Accounts receivable (203) (601)
Inventories (203) (297)
Prepaid expenses and other current assets 147 (168)
Accounts payable and accrued expenses (71) 224
Other - net 28 21
-------------------------
Net cash provided by operating activities 355 762
Investing activities
Purchases of property and equipment (565) (701)
Net sales (purchases) of marketable securities 2,122 (34)
-------------------------
Net cash provided by (used in) investing activities 1,557 (735)
Financing activities
Proceeds from borrowings 495 2,505
Reduction of borrowings (1,042) (584)
Exercise of warrants 2 4
Repurchase of common stock for treasury (1,274) (1,459)
(Increase) decrease in loans receivable - stockholders (174) 30
-------------------------
Net cash provided by (used in) financing activities (1,993) 496
Net (decrease) increase in cash and cash equivalents (81) 523
Cash and cash equivalents at beginning of period 857 727
-------------------------
Cash and cash equivalents at end of period $ 776 $ 1,250
=========================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1997
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 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,
1997 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1998.
Organization
Prior to June 30, 1997, Transition Analysis Component Technology, Inc.
("TACTech") was a 90% owned subsidiary Zing Technologies, Inc. ("Zing") and the
remaining 10% was owned by one officer of TACTech.
TACTech filed a registration statement on Form SB-1, which became effective June
30, 1997, for the purpose of distributing the Common Stock of TACTech, which was
owned by Zing, to the shareholders of Zing.
The following information for the period ended December 31, 1996 excludes the
operations of TACTech:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, 1996 December 31, 1996
------------------------------------------------
(000's omitted, except share data)
<S> <C> <C>
Net sales $4,494 $9,063
Cost of goods sold (net) 2,933 5,804
Provision for income taxes 185 308
Net income 730 1,206
Net income per common share $.29 $.48
Number of shares used in computation 2,478,968 2,498,046
Net income per common share -
assuming dilution $.29 $.47
</TABLE>
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Summary of Significant Accounting Policies
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share ("EPS") with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been restated to conform to the Statement 128
requirements.
Earnings per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations and other related disclosures as required by
Statement 128.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
------------------------- ------------------------
(000's omitted, except share data)
<S> <C> <C> <C> <C>
Numerator
Numerator for basic earnings
per share - income available
to common stockholders $ 275 $ 800 $ 1,248 $ 1,378
Income attributable to
minority interest in
subsidiary - - - (12)
------------------------- ------------------------
Numerator for diluted earnings
per share $ 275 $ 800 $ 1,248 $ 1,366
========================= ========================
Denominator
Denominator for basic earnings
per share - weighted-average
shares 2,547,873 2,478,968 2,573,392 2,498,046
Effect of dilutive securities
Warrants 1,200 20,821 1,200 20,881
Subsidiary options
exercisable into Zing
common shares 16,998 - 18,664 -
------------------------- ------------------------
Denominator for diluted
earnings per share - adjusted
weighted-average shares and
assumed conversions 2,566,071 2,499,789 2,593,256 2,518,927
========================= ========================
Basic earnings per share $ .11 $ .32 .48 .55
========================= ========================
Diluted earnings per share $ .11 $ .32 $ .48 $ .54
========================= ========================
</TABLE>
7
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Inventories
Inventories are stated at the lower of cost (first in, first out method) or
market. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
---------------------------
(000's omitted)
<S> <C> <C>
Raw materials $2,707 $2,540
Work in process 1,487 1,381
Finished goods 794 864
===========================
$4,988 $4,785
===========================
</TABLE>
Impact of New Accounting Standard
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
(SFAS No. 130) and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131). SFAS No. 130 and SFAS No. 131 are
effective for financial statements for fiscal years beginning after December 15,
1997. The Company is studying the application of the new statements to evaluate
the disclosure requirements. The adoption of these statements will have no
impact on the Company's consolidated results of operations, financial position
or cash flow.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
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 December 31, Six months ended December 31,
1997 1996(a) 1996(b) 1997 1996(a) 1996(b)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of goods sold 62.83 65.26 58.60 62.76 64.04 57.46
Gross profit 37.17 34.74 41.40 37.24 35.96 42.54
Selling, general and
administrative expenses 32.50 30.40 34.17 32.47 29.74 34.75
Depreciation and amortization
of property and equipment
and excess of costs over
assets acquired 2.74 3.38 4.68 2.71 3.06 2.89
Interest expense 4.85 5.77 5.18 4.84 5.63 5.05
Interest and other income - net (9.28) (25.19) (22.62) (17.32) (19.18) (17.21)
Income before income taxes 6.36 20.38 19.99 14.54 16.71 17.06
Provision for income taxes 1.22 4.13 4.00 2.59 3.40 3.42
Net income 5.14 16.25 15.99 11.95 13.31 13.64
</TABLE>
(a) Without TACTech (See notes to condensed consolidated financial statements)
(b) Actual
Three Months Ended December 31, 1997 Compared to Three Months Ended
December 31, 1996
Zing Technologies, Inc. ("Zing" or the "Company"), a holding company with one
wholly owned operating subsidiary, Omnirel LLC ("Omnirel"), reported net income
of $275,000 or $.11 per share for the three months ended December 31, 1997.
During the prior comparable quarter ended December 31, 1996, the Company also
owned 90% of Transition Analysis Component Technology, Inc. ("TACTech"), which
ownership interest was distributed to the Zing shareholders on June 30, 1997.
For the quarter ended December 31, 1996, the Company reported income of $800,000
or $.32 per share, or, exclusive of TACTech, $730,000 or $.29 per share. This
decrease in reportable income is solely attributed to the decrease in income
generated by Zing's investment portfolio.
Sales of Omnirel for the three months ended December 31, 1997 were $5,353,000.
Sales for the Company for the three months ended December 31, 1996 were
$5,004,000, comprised of net sales from Omnirel of $4,494,000 and sales from
TACTech of $510,000. Included in Omnirel sales are revenues generated by the
continued fulfillment of a series of orders placed by General Electric for
multichip power modules containing power hybrid components. The increase in
Omnirel sales revenue of 19% from the prior comparable quarter is attributed to
increases in revenues generated by the General Electric orders. Sales to General
Electric accounted for 31% and 18% of Omnirel sales, respectively, in each of
the three month periods ended December 31, 1997 and 1996.
The Company's gross profit for the three months ended December 31, 1997 was
$1,990,000. The $2,071,000 gross profit for the three months ended December 31,
1996 was comprised of TACTech $510,000 and Omnirel $1,561,000. The increase in
Omnirel's gross profit of $429,000 for the three months December 31, 1997 is
primarily attributed to the increase in sales volume. Gross profit, expressed as
a percentage of sales, was 37% in the quarter ending December 31, 1997 and 35%
for the comparable quarter ended December 31, 1996.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
Three Months Ended December 31, 1997 Compared to Three Months Ended December 31,
1996 (continued)
For the three months ended December 31, 1997 the selling, general and
administrative expenses were $1,740,000 as compared to $1,366,000 (or $1,710,000
including TACTech) for the three months ended December 31, 1996. The increase of
$374,000 is primarily attributable to increases in selling expenses and sales
personnel, research and development and achievements under the management
incentive plan in the amounts of $147,000, $55,000 and $141,000, respectively,
at Omnirel.
The backlog of Omnirel as of December 31, 1997 was $13,020,000 of which
$1,198,000 was attributable to orders from General Electric. In the comparable
1996 quarter, total backlog stood at approximately $11,100,000 of which
approximately $977,000 represented orders from General Electric.
Interest and other income decreased by $635,000 for the three months ended
December 31, 1997 from $1,132,000 for the three months ended December 31, 1996.
This decrease is attributable to a reduction of $605,000 in interest and
dividends. The investment portfolio for the period ended December 31, 1996 was
substantially composed of two preferred stocks, each of which declared extra
year end dividends and then these stocks were redeemed in January 1997.
The difference between the effective rate and the federal tax rate of 34% from
period to period is primarily due to nontaxable dividends included in other
income.
Six Months Ended December 31, 1997 Compared to Six Months Ended December 31,
1996
The Company reported net income of $1,248,000 or $.48 per share for the six
months ended December 31, 1997. During the prior comparable period ended
December 31, 1996, the Company also owned 90% of TACTech which ownership was
distributed to Zing shareholders on June 30, 1997. For the six months ended
December 31, 1996, the Company reported income of $1,378,000 or $.55 ($.54
diluted) per share or exclusive of TACTech $1,206,000 or $.48 ($.47 diluted) per
share.
Sales for Omnirel for the six months ended December 31, 1997 were $10,439,000.
Sales for the Company for the six months ended December 31, 1996 were
$10,100,000, comprised of net sales from Omnirel of $9,063,000 and sales from
TACTech of $1,037,000. Included in Omnirel's sales are revenues generated by the
continued fulfillment of a series of orders placed by General Electric for
multichip power modules containing power hybrid components. The increase in
Omnirel sales revenue of 13% from the prior comparable period is attributable to
increases in the revenues generated by the General Electric orders. Sales to
General Electric accounted for 28% and 21% of Omnirel sales, respectively, in
each of the six month periods ended December 31, 1997 and 1996.
The Company's gross profit for the six months ended December 31, 1997 was
$3,888,000. The $4,296,000 gross profit for the six months ended December 31,
1996 was comprised of TACTech $1,037,000 and Omnirel $3,259,000. The increase in
Omnirel's gross profit of $629,000 for the six months ended December 31, 1997 is
primarily attributed to the increase in sales volume. Gross profit, expressed as
a percentage of sales, was 37% in the period ending December 31, 1997 and 36% in
the period ended December 31, 1996.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
Six Months Ended December 31, 1997 Compared to Six Months Ended December 31,
1996 (continued)
For the six months ended December 31, 1997, the selling, general and
administrative expenses were $3,390,000, as compared to $2,695,000 (or
$3,510,000 including TACTech) for the six months ended December 31, 1996. The
increase of $695,000 is primarily attributable to increases in selling expenses
and sales personnel, research and development, and achievements under the
management incentive plan in the amounts of $304,000, $116,000 and $74,000,
respectively, at Omnirel.
Interest and other income increased to $1,808,000 for the six months ended
December 31, 1997 from $1,739,000 for the prior comparable period. This increase
is attributable to an increase in realized and unrealized gains in the
investment portfolio in the amounts of $148,000 and $588,000, respectively, from
the prior comparable period, offset in part by a decrease in interest and
dividends of $668,000.
The difference between the effective rate and the federal tax rate of 34% from
period to period is primarily due to nontaxable dividends included in the other
income.
Liquidity and Capital Resources
Subject to guidelines established by the Company's Board of Directors, the
Company continues to employ most of its cash and cash equivalents in the
acquisition of marketable securities, primarily tradable on the New York Stock
Exchange and other major stock exchanges. However, during the six months ended
December 31, 1997, proceeds from sales of such securities were used, along with
cash provided from operations, to reduce outstanding borrowings. In addition,
during the six months ended December 31, 1997 the Company repurchased 123,400
shares of its common stock in open market transaction at an acquisition cost of
approximately $10.33 per share. Management expects that the Company's internally
generated funds and available credit facilities will be sufficient to finance
the continued operations of the Company.
Impact of Year 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project cost is estimated at approximately $25,000 for the purchase of new
software that will be expensed as incurred.
The project is estimated to be completed not later than June, 1998, which is
prior to any anticipated impact on the Company's operating systems. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
the Company's computer systems. However, if such modifications and conversions
are not made, or are not completed timely, the Year 2000 Issue could have a
material and adverse effect on the Company.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
Six Months Ended December 31, 1997 Compared to Six Months Ended December 31,
1996 (continued)
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
There is no guarantee that the systems of the Company's business relations are
Year 2000 compliant and will be timely converted. A year 2000 failure by any
Company business relation could have a material effect on the Company.
Subsequent Events
In January 1998, the Company acquired for its treasury 33,200 shares of its
common stock for $290,885, an average price of $8.76 per share.
12
<PAGE>
PART 2. OTHER INFORMATION
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
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 in Item 2 above, and those
discussed 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 undo 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.
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 63%, 58%
and 24% of Omnirel's sales revenues for the fiscal year ended June 30, 1995
(each such fiscal year ended on June 30, a "Fiscal Year"), Fiscal Year 1996 and
Fiscal Year 1997, respectively. A single project accounted for approximately 63%
of Fiscal Year 1995 sales, 58% of Fiscal Year 1996 sales and 24% of Fiscal Year
1997 sales. Omnirel does not anticipate that sales to such customer will change
significantly for Fiscal Year 1998 as compared to Fiscal Year 1997.
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.
13
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Selling Prices
Omnirel is subject to continued or increased pressure to change its selling
prices for its products, 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.
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
expenditures 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 business of Omnirel continues 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 could suffer a
corresponding or greater decline. In such event, Omnirel would have to seek
replacement markets in other industries. There can be no assurance that such
markets would be available or that Omnirel would be successful in penetrating
them.
14
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARIES
Dependence on Key Personnel
The business of Omnirel is substantially dependent upon the active participation
and technical expertise of its executive officers. Omnirel is dependent upon the
services of John F. Catrambone, its President. Omnirel maintains a key-man life
insurance policy on Mr. Catrambone in the amount of $2,500,000. Omnirel's Board
of Directors regularly re-evaluates 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 or 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 favorably 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.
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 in preferred stock which constitutes a majority of the
Company's investment portfolio. 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 Zing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No exhibit is included herein.
The Company did not file any report on Form 8-K during the three months ended
December 31, 1997.
15
<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 13, 1998 /s/ ROBERT E. SCHRADER
------------------------ --------------------------------------
Robert E. Schrader
President and Chief Executive Officer
Date February 13, 1998 /s/ MARTIN S. FAWER
------------------------ --------------------------------------
Martin S. Fawer
Treasurer and Chief Financial Officer
16
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