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 March 31, 1998
- 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 as of April
30, 1998 was 2,476,419.
1
<PAGE>
INDEX
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
PART 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed consolidated balance sheets - March 31, 1998 and June 30, 1997.................. 3
Condensed consolidated statements of income - three months ended
March 31, 1998 and 1997 and nine months ended March 31, 1998 and 1997..................... 4
Condensed consolidated statements of cash flows - nine months ended
March 31, 1998 and 1997.................................................................. 5
Notes to condensed consolidated financial statements - March 31, 1998.................... 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
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
(Unaudited) (Note)
-----------------------------------
(000's omitted, except share data)
-----------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 218 $ 857
Marketable securities 20,765 21,935
Accounts receivable, less allowances of $95 and $79, respectively 4,103 2,098
Inventories 4,988 4,785
Prepaid expenses 358 204
Other current assets 223 766
-----------------------------------
Total current assets 30,655 30,645
Property, plant and equipment 11,489 10,800
Less accumulated depreciation and amortization 6,185 5,671
-----------------------------------
5,304 5,129
Deferred income taxes, net of valuation allowance 800 800
Excess of cost over assets acquired, net of amortization of $1,287
and $1,172, respectively 1,248 1,363
Other assets 42 70
-----------------------------------
Total assets $38,049 $38,007
===================================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 2,269 $ 1,672
Accrued expenses and taxes payable 1,075 801
Accrued compensation expense 561 617
Loan payable - bank 7,995 7,500
Due to broker 3,290 3,674
Current portion of long-term obligations 430 370
-----------------------------------
Total current liabilities 15,620 14,634
Long-term obligations, less current portion 2,841 2,903
Deferred income - non-compete agreement 50 500
Stockholders' equity
Common stock, par value $.01 per share; authorized 12,000,000 shares; issued
3,058,037 shares as of March 31, 1998 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 (662) (474)
Retained earnings 9,487 7,915
Less treasury shares at cost (565,318 shares at March 31, 1998,
and 399,918 shares at June 30, 1997) (4,086) (2,442)
-----------------------------------
Total stockholders' equity 19,538 19,970
-----------------------------------
Total liabilities and stockholders' equity $38,049 $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
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended, Nine months ended,
March 31 March 31
1998 1997 1998 1997
(000's omitted, except share data)
<S> <C> <C> <C> <C>
Net sales $5,358 $5,405 $15,797 $15,505
Cost of goods sold 3,302 2,981 9,854 8,785
------------------------------------ -------------------------------
Gross profit 2,056 2,424 5,943 6,720
Selling, general and administrative expenses
1,824 1,960 5,213 5,469
Depreciation and amortization of property,
plant and equipment 139 158 422 450
Interest expense 261 190 766 700
Interest and other income - net (493) (669) (2,300) (2,407)
------------------------------------ -------------------------------
Income before income taxes 325 785 1,842 2,508
Provision for income taxes - - 270 345
------------------------------------ -------------------------------
Net income $325 $785 $1,572 $2,163
==================================== ===============================
Net income per common share - basic $ 0.13 $ 0.32 $ 0.62 $ 0.87
==================================== ===============================
Net income per common share-diluted $ 0.13 $ 0.31 $ 0.61 $ 0.86
==================================== ===============================
Average number of outstanding
shares - basic 2,505,211 2,481,815 2,550,665 2,494,956
==================================== ===============================
Average number of outstanding
shares - diluted 2,518,764 2,487,129 2,568,050 2,500,253
==================================== ===============================
</TABLE>
See notes to condensed consolidated financial statements.
4
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended,
March 31
1998 1997
--------------------------------
(000's omitted)
<S> <C> <C>
Operating activities
Net income $ 1,572 $ 2,163
Adjusted to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 629 705
Amortization of non-compete agreement (450) (450)
Unrealized gains on marketable securities (188) (527)
Changes in operating assets and liabilities:
Accounts receivable (2,005) (706)
Inventories (203) (987)
Prepaid expenses and other current assets 389 (239)
Accounts payable and accrued expenses 815 (50)
Other 28 20
--------------------------------
Net cash provided by (used in) operating activities 587 (71)
Investing activities
Purchases of property and equipment (689) (965)
Net sales (purchases) of marketable securities 1,170 (1,610)
--------------------------------
Net cash provided by (used in) investing activities 481 (2,575)
Financing activities
Proceeds from borrowings 794 4,156
Reduction of borrowings (685) (205)
Exercise of warrants 2 22
Repurchase of common stock for treasury (1,644) (1,459)
(Increase) decrease in loans receivable - stockholders (174) 30
--------------------------------
Net cash provided by (used in) financing activities (1,707) 2,544
Net decrease in cash and cash equivalents (639) (102)
Cash and cash equivalents at beginning of period 857 727
--------------------------------
Cash and cash equivalents at end of period $ 218 $ 625
================================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
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 nine month period ended March 31, 1998
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 of 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 owned by
Zing to the shareholders of Zing.
The following information for the period ended March 31, 1997 excludes the
operations of TACTech:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, 1997 March 31, 1997
-----------------------------------------------------------
(000's omitted, except share data)
<S> <C> <C>
Net sales $4,836 $13,900
Cost of goods sold (net) 2,981 8,785
Provision for income taxes 37 345
Net income $ 652 $ 1,859
Net income per common share - basic $ .26 $ .75
Net income per common share - diluted $ .26 $ .74
</TABLE>
6
<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 ("FAS") No. 128, Earnings per Share. FAS No. 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 presented in conformity with FAS No. 128.
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 Nine months ended
March 31 March 31
1998 1997 1998 1997
------------------------------------ -------------------------------
(000's omitted, except share data)
<S> <C> <C> <C> <C>
Numerator
Numerator for basic earnings per share
-income available to common stockholders $ 325 $785 $ 1,572 $2,163
Income attributable to minority interest in
subsidiary - (8) - (18)
==================================== ===============================
Numerator for diluted earnings per share $ 325 $777 $ 1,572 $2,145
==================================== ===============================
Denominator
Denominator for basic earnings per share -
weighted-average shares 2,505,211 2,481,815 2,550,665 2,494,956
Effect of dilutive securities:
Warrants - 5,314 5,297
Options held by Omnirel employees
exercisable into Zing common shares 13,553 17,385
------------------------------------ -------------------------------
Denominator for diluted earnings per share
-adjusted weighted-average shares and
assumed conversions 2,518,764 2,487,129 2,568,050 2,500,253
==================================== ===============================
Basic earnings per share $ .13 $ .32 $ .62 $ .87
==================================== ===============================
Diluted earnings per share $ .13 $ .31 $ .61 $ .86
==================================== ===============================
</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>
March 31, June 30,
1998 1997
----------------------------------------
(000's omitted)
<S> <C> <C>
Raw materials $2,549 $2,540
Work in process 1,587 1,381
Finished goods 852 864
----------------------------------------
$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) which 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 flows.
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 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 March 31, Nine months ended March 31,
1998 1997(a) 1997(b) 1998 1997(a) 1997(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 61.64 61.66 55.15 62.38 63.21 56.66
Gross profit 38.36 38.34 44.85 37.62 36.79 43.34
Selling, general and administrative
expenses 34.05 30.97 36.25 33.01 30.17 35.28
Depreciation and amortization of
property and equipment and excess of
costs over assets acquired 2.59 3.01 2.93 2.67 3.04 2.90
Interest expense 4.87 3.92 3.51 4.85 5.04 4.52
Interest and other income - net (9.19) (13.83) (12.35) (14.56) (17.32) (15.54)
Income before income taxes 6.04 14.27 14.51 11.65 15.86 16.18
Provision for income taxes - .77 - 1.71 2.48 2.23
Net income 6.04 13.50 14.51 9.94 13.38 13.95
</TABLE>
(a) Without TACTech (See notes to condensed consolidated financial statements)
(b) Actual
Three months ended March 31, 1998 Compared to Three months ended March 31, 1997
Zing Technologies, Inc. ("Zing" or the "Company"), a holding company with one
wholly owned operating subsidiary, Omnirel LLC ("Omnirel"), reported net income
of $325,000 or $.13 per share (basic and diluted) for the three months ended
March 31, 1998. During the prior comparable quarter ended March 31, 1997, 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 March 31, 1997, the Company reported
income of $785,000 or $.32 ($.31 diluted) per share, or, exclusive of TACTech,
$652,000 or $.26 per share (basic and diluted). This decrease in reportable
income is solely attributed to the decrease in income generated by Zing's
investment portfolio and an increase in interest expense.
Sales of Omnirel for the three months ended March 31, 1998 were $5,358,000.
Sales for the Company for the three months ended March 31, 1997 were $5,405,000,
comprised of net sales from Omnirel of $4,836,000 and sales from TACTech of
$569,000. 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 11% from the prior comparable quarter is attributed to increases in
revenues generated by the General Electric orders. Sales to General Electric in
each of the three month periods ended March 31, 1998 and 1997 were $1,437,000
and $958,000, respectively, representing 27% and 20%, respectively, of Omnirel's
total sales.
The Company's gross profit for the three months ended March 31, 1998 was
$2,056,000. The $2,424,000 gross profit for the three months ended March 31,
1997 was comprised of $569,000 gross profit from TACTech and $1,855,000 gross
profit from Omnirel. The increase in Omnirel's gross profit of $201,000 for the
three months March 31, 1998 is primarily attributed to the increase in sales
volume. Omnirel's gross profit, expressed as a percentage of sales, was 38% in
both the quarter ended March 31, 1998 and the comparable quarter ended March 31,
1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
Three months ended March 31, 1998 Compared to Three months ended March 31, 1997
(continued)
For the three months ended March 31, 1998 the selling, general and
administrative expenses were $1,824,000 as compared to $1,492,000 (or $1,960,000
including TACTech) for the three months ended March 31, 1997. The increase of
$332,000 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 $141,000, $112,000 and $30,000, respectively,
at Omnirel.
Interest expense increased to $261,000 for the three months ended March 31, 1998
from $190,000 for the three months ended March 31, 1997. This increase is a
result of an increase of approximately $1,400,000 in the average borrowings by
the holding company during the recently ended quarter; the proceeds of which
were used to purchase treasury shares and additional securities to its
investment portfolio.
The backlog of Omnirel as of March 31, 1998 was $14,192,000 of which $1,309,000
was attributable to orders from General Electric. In the comparable 1997
quarter, total backlog stood at approximately $10,900,000 of which approximately
$1,570,000 represented orders from General Electric.
Interest and other income decreased by $176,000 for the three months ended March
31, 1998 from $669,000 for the three months ended March 31, 1997. This decrease
is attributable to a reduction of $195,000 in realized and unrealized gains in
securities offset by an increase of $19,000 in dividend income. The investment
portfolio for the period ended March 31, 1997 was substantially composed of two
preferred stocks, each of which declared extra year end dividends. These stocks
were redeemed in January 1997.
The Company believes that a provision for income taxes for the period ended
December 31, 1997 is sufficient to cover income taxes for the recently ended
quarter.
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
The Company reported net income of $1,572,000 or $.62 ($.61 diluted) per share
for the nine months ended March 31, 1998. During the prior comparable period
ended March 31, 1997, the Company also owned 90% of TACTech which ownership was
distributed to Zing shareholders on June 30, 1997. For the nine months ended
March 31, 1997, the Company reported income of $2,163,000 or $.87 ($.86 diluted)
per share or exclusive of TACTech $1,859,000 or $.75 ($.74 diluted) per share.
Sales for Omnirel for the nine months ended March 31, 1998 were $15,797,000.
Sales for the Company for the nine months ended March 31, 1997 were $15,505,000,
comprised of net sales from Omnirel of $13,900,000 and sales from TACTech of
$1,605,000. 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 14% from the prior comparable period is attributable to increases in
the revenues generated by the General Electric orders. Sales to General Electric
accounted for 27% and 21% of Omnirel sales, respectively, in each of the nine
month periods ended March 31, 1998 and 1997.
The Company's gross profit for the nine months ended March 31, 1998 was
$5,943,000. The $6,720,000 gross profit for the nine months ended March 31, 1997
was comprised of TACTech $1,605,000 and Omnirel $5,115,000. The increase in
Omnirel's gross profit of $828,000 for the nine months ended March 31, 1998 is
primarily attributed to the increase in sales volume. Omnirel's gross profit,
expressed as a percentage of sales, was 37.6% in the period ended March 31, 1998
and 36.8% in the period ended March 31, 1997.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (Continued)
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
(continued)
For the nine months ended March 31, 1998, the selling, general and
administrative expenses were $5,213,000, as compared to $4,175,000 (or
$5,469,000 including TACTech) for the nine months ended March 31, 1997. The
increase of $1,038,000 is primarily attributable to increases in selling
expenses and sales personnel, employee recruiting expenses, research and
development and achievements under the management incentive plan in the amounts
of $359,000, $90,000, $192,000 and $183,000, respectively, at Omnirel.
Interest expense increased by $66,000 for the nine month period ended March 31,
1998 to $766,000. This increase is a result of the increase of approximately
$1,400,000 of average borrowings by the holding company, the proceeds of which
were used to purchase treasury stock.
Interest and other income decreased to $2,300,000 for the nine months ended
March 31, 1998 from $2,407,000 for the prior comparable period. This decrease is
attributable to a net increase in realized and unrealized gains in the
investment portfolio in the amounts of $524,000 and $16,000, respectively, from
the prior comparable period, offset by a decrease in interest and dividends of
$647,000.
For the nine months ended March 31, 1998, the recognition of carryforward
operating tax losses and significant dividend income subject to income tax
exclusion reduced the effective tax rate to 15%. As a result, the Company has
not provided for income taxes for the quarter ended March 31, 1998.
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 nine months ended
March 31, 1998, proceeds from sales of such securities were used, along with
cash provided from operations, to repurchase shares of its common stock in the
open market at a total cost of $1,644,000 or approximately $9.94 per share.
Management expects that the Company's internally generated funds and available
credit facilities will be sufficient to finance the acquisition of fixed assets
and equipment, and the continued operations of the Company.
Impact of Year 2000
Some of the Company's computer systems and electronic devices are based on
computer programs which were written using two digits rather than four to define
the applicable year. As a result of how those computer programs store and
manipulate dates, such systems and devices may assume that all years occur only
the 20th century. This could cause a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, or engage in similar normal business activities.
The Company has completed an assessment of this problem and will have to modify
or replace portions of its software programs 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 systems, and
conversions to new software and systems, 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)
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
(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 converted in a timely manner. A year 2000
failure by a relation could have a material and adverse effect on the Company.
Subsequent Events
In April 1998, the Company acquired for its treasury 16,300 shares of its common
stock for $147,000, at an average price of $8.99 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 and bonds which preferred stocks and bonds
constitute 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
The following exhibits is included herein:
No exhibit is included herein.
The Company did not file any report on Form 8-K during the three months ended
March 31, 1998.
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.
-----------------------
Date: May 13,1998 /s/ ROBERT E. SCHRADER
----------------------
Robert E. Schrader
President and Chief Executive Officer
Date: May 13, 1998 /s/ MARTIN S. FAWER
-------------------
Martin S. Fawer
Treasurer and Chief Financial Officer
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