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, 1999
- 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, 1999 was 2,410,523
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INDEX
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 1999 and
June 30, 1998..........................................................3
Condensed consolidated statements of income - three month
and nine month periods ended March 31, 1999 and 1998...................4
Condensed consolidated statements of cash flows - nine months ended
March 31, 1999 and 1998................................................5
Notes to condensed consolidated financial statements - March 31, 1999..6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................8
PART II. OTHER INFORMATION
Item 5. Other Information.....................................................14
Item 6. Exhibits and Reports on Form 8-K..................................... 17
Signatures............................................................18
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PART I. FINANCIAL INFORMATION
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
----------------------------------
(Unaudited) (Note)
(000's omitted, except share data)
----------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 535 $ 1,092
Marketable securities 20,487 19,462
Accounts receivable, less allowances of $90 and $72, respectively 3,387 2,451
Inventories 5,247 5,188
Prepaid expenses 102 192
Other current assets 509 511
------- -------
Total current assets 30,267 28,896
Property, plant and equipment 12,873 11,657
Less accumulated depreciation and amortization 7,090 6,417
------- -------
5,783 5,240
Deferred income taxes, net of valuation allowance 771 771
Excess of cost over assets acquired, net of amortization of $1,440
and $1,325, respectively 1,095 1,210
Other assets 55 54
------- -------
Total assets $37,971 $36,171
======= =======
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 1,480 $ 1,418
Accrued expenses and taxes payable 989 719
Accrued compensation expense 812 811
Loan payable - bank 8,000 7,700
Due to broker 3,437 2,993
Current portion of long-term obligations 580 502
------- -------
Total current liabilities 15,298 14,143
Long-term obligations, less current portion 2,920 3,013
Stockholders' equity
Common stock, par value $.01 per share; authorized 12,000,000 shares;
issued 3,082,006 shares as of March 31, 1999 and 3,058,037
shares as of June 30, 1998 30 30
Additional paid-in capital 15,295 15,113
Note receivable from stockholders (383) (383)
Accumulated other comprehensive loss (1,052) (654)
Retained earnings 10,839 9,438
Less treasury shares at cost (671,483 shares at March 31, 1999, and 615,638
shares at June 30, 1998) (4,976) (4,529)
------- -------
Total stockholders' equity 19,753 19,015
------- -------
Total liabilities and stockholders' equity $37,971 $36,171
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at June 30, 1998 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
1999 1998 1999 1998
----------------- ------------------ ----------------- ------------------
(000's omitted, except share data)
<S> <C> <C> <C> <C>
Net sales $ 6,409 $ 5,358 $18,653 $15,797
Cost of goods sold 4,077 3,302 11,904 9,854
----------------- ------------------ ----------------- ------------------
Gross profit 2,332 2,056 6,749 5,943
Selling, general and administrative
expenses 1,610 1,300 4,482 3,879
Research and development of product and
process technology 468 524 1,334 1,334
Depreciation and amortization of property,
plant and equipment 139 139 441 422
Interest expense 260 261 801 766
Interest and other income - net (1,478) (493) (1,905) (2,300)
----------------- ------------------ ----------------- ------------------
Income before income taxes 1,333 325 1,596 1,842
Provision for income taxes 115 - 195 270
----------------- ------------------ ----------------- ------------------
Net income $ 1,218 $ 325 $ 1,401 $ 1,572
================= ================== ================= ==================
Net income per common share - basic $ 0.51 $ 0.13 $ 0.58 $ 0.62
================= ================== ================= ==================
Net income per common share - diluted $ 0.50 $ 0.13 $ 0.58 $ 0.61
================= ================== ================= ==================
Average number of outstanding shares -
basic 2,410,523 2,505,211 2,416,338 2,550,665
================= ================== ================= ==================
Average number of outstanding shares -
diluted 2,418,700 2,518,764 2,428,355 2,568,050
================= ================== ================= ==================
</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
1999 1998
------------------- ------------------
(000's omitted)
--------------------------------------
<S> <C> <C>
Operating activities
Net income $ 1,401 $ 1,572
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 821 629
Amortization of non-compete agreement - (450)
Changes in operating assets and liabilities:
Accounts receivable (936) (2,005)
Inventories (59) (203)
Prepaid expenses and other current assets 92 389
Accounts payable and accrued expenses 333 815
Other - net (1) 28
--------------------------------------
Net cash provided by operating activities 1,651 775
Investing activities
Purchases of property and equipment (1,249) (689)
Net sales (purchases) of marketable securities (1,423) 982
--------------------------------------
Net cash (used in) provided by investing activities (2,672) 293
Financing activities
Proceeds from borrowings 1,835 794
Reduction of borrowings (1,106) (685)
Exercise of stock options 182 2
Repurchase of common stock for treasury (447) (1,644)
Increase in loans receivable from stockholders - (174)
--------------------------------------
Net cash provided by financing activities 464 (1,707)
Net decrease in cash and cash equivalents (557) (639)
Cash and cash equivalents at beginning of period 1,092 857
--------------------------------------
Cash and cash equivalents at end of period $ 535 $ 218
======================================
</TABLE>
See notes to condensed consolidated financial statements.
5
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
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 three-month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1999.
Comprehensive Income
As of July 1, 1998, the Company adopted Statement 130, "Reporting Comprehensive
Income." Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components' however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity. Statement 130
requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
Total comprehensive income (loss) for the three months ended March 31, 1999 and
1998 amounted to $(1,020) and $603, respectively. Total comprehensive income
(loss) for the nine months ended March 31, 1999 and 1998 amounted to $(398) and
$(188), respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
March 31, June 30,
1999 1998
------------------- ---------------------
(000's omitted)
Raw materials $2,152 $2,585
Work in process 2,139 1,795
Finished goods 956 808
------------------- ---------------------
$5,247 $5,188
=================== =====================
6
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Earnings per Share
The following is a reconciliation of the numerators and denominators for the
basic and diluted per share computations and other related disclosures as
required by Statement 128.
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31 March 31
1999 1998 1999 1998
----------------- ------------------ ----------------- -----------------
(000's omitted, except share data)
<S> <C> <C> <C> <C>
Numerator
Numerator for basic and diluted earnings
per share - income available to
common stockholders $1,218 $ 325 $ 1,401 $1,572
================= ================== ================= ==================
Denominator
Denominator for basic earnings per share
- weighted-average shares 2,410,523 2,505,211 2,416,338 2,550,665
Effect of dilutive securities
Options held by Omnirel employees
exercisable into Zing common shares
8,177 13,553 12,017 17,385
----------------- ------------------ ----------------- ------------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 2,418,700 2,518,764 2,428,355 2,568,050
================= ================== ================= ==================
Basic earnings per share $0.51 $0.13 $0.58 $0.62
Diluted earnings per share $0.50 $0.13 $0.58 $0.61
================= ================== ================= ==================
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following table sets forth the periods indicating 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
1999 1998 1999 1998
------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of goods sold 63.61 61.63 63.82 62.38
Gross profit 36.39 38.37 36.18 37.62
Selling, general and administrative
expenses 25.13 24.27 24.03 24.56
Research and development of product and
process technology 7.30 9.78 7.15 8.44
Depreciation and amortization of property
and equipment and excess of costs over
assets acquired 2.17 2.59 2.36 2.67
Interest expense 4.06 4.87 4.29 4.85
Interest and other income - net (23.06) (9.20) (10.21) (14.56)
Income before income taxes 20.79 6.06 8.56 11.66
Provision for income taxes 1.79 - 1.05 1.71
Net income 19.00 6.06 7.51 9.95
</TABLE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Zing Technologies, Inc. ("Zing" or the "Company"), a holding company with one
wholly owned operating subsidiary, Omnirel LLC ("Omnirel"), reported net income
of $1,218,000 or $.51 per share ($.50 diluted) for the three months ended March
31, 1999. For the quarter ended March 31, 1998, the Company reported income of
$325,000 or $.13 per share (basic and diluted).
Sales of Omnirel increased 20% to $6,409,000 for the three months ended March
31, 1999 as compared to $5,358,000 for the three months ended March 31, 1998.
The net increase in sales from period to period is primarily attributable to the
delivery of discrete power semi-conductor devices to a manufacturer of undersea
telecommunication cable systems. Also included in Omnirel sales are revenues
generated by the continued fulfillment of a series of orders placed by General
Electric for multi-chip power modules containing power hybrid components. Sales
of this product represented 21% and 27% of Omnirel sales, respectively, in each
of the three month periods ended March 31, 1999 and 1998.
8
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
(continued)
The Omnirel gross profit, expressed as a percentage of sales, was approximately
36% and 38%, respectively, in each of the quarters ended March 31, 1999 and
1998. The decrease of 2% is attributable to several offsetting factors as
follows:
o Material costs increased approximately one-half percent,
expressed as a percentage of sales, essentially due to the
product mix and declining selling prices caused by decreasing
demands in the power semi-conductor sector for the industry
and thereby resulting in competitive pricing pressures.
o Manufacturing overhead accounted for a substantial part of the
increase as a result of additional manpower costs,
depreciation (new equipment) and other transitional costs
related to the introduction of new products into the
manufacturing process.
Selling, general and administrative expenses increased $310,000 to $1,610,000
for the three month period ended March 31, 1999 as compared to a total of
$1,300,000 for the three month period ended March 31, 1998. The increase was
attributable to an increase of $73,000 in salaries and commissions related to
Omnirel's conversion to a regional sales force from sales through independent
sales representatives and an increase in the Company's management incentive plan
of $186,000.
In the three month period ending March 31, 1999 the Company began to state
separately research and development costs previously included in selling,
general and administrative expenses. The amounts expended for such costs were
$468,000 in three months ended March 31, 1999 and $524,000 in three month period
ended March 31, 1998, a decrease of $56,000 representing new product development
costs for power modules in the 1998 period. Amounts for 1998 have been restated
to conform to the 1999 presentation.
Interest and other income, net, for the three months ended March 31, 1999 and
1998 was $1,478,000 and $493,000, respectively. Interest and other income is
primarily comprised of dividends, interest and realized gains and losses on
sales of securities. Realized gains and losses increased approximately
$1,256,000 during the current period compared to the prior reporting period. In
addition, the Company, since May 1993 had been reporting quarterly income of
$150,000 attributable to amortization of a covenant not to compete from the sale
of the net assets of its electronic component distribution business to Arrow
Electronics. This covenant terminated in the last reporting quarter of the
fiscal year ended June 30, 1998.
For the fiscal quarter ending March 31, 1999, the Company recorded a provision
for income taxes largely because the increase in earnings for the quarter
exceeded expected offsets based on earnings in the 1998 period. The difference
between the effective tax rate and the federal tax rate of 34% is primarily due
to non-taxable dividends included in other income, tax credits and state taxes.
9
<PAGE>
Nine Months Ended March 31, 1999 Compared to Nine Months Ended March 31, 1998
The Company reported net income of $1,401,000 or $.58 per share (basic and
diluted) for the nine months ended March 31, 1999. For the nine months ended
December 31, 1998, the Company reported net income of $1,572,000 or $.62 per
share ($.61 diluted).
Sales at Omnirel increased $2,856,000 to $18,653,000 for the nine months ended
March 31, 1999 as compared to $15,797,000 for the nine months ended March 31,
1998. This increase in sales from period to period is attributable to the
following factors:
o Approximately $1,543,000 is attributable to shipments of discrete
power semi-conductor devices to a manufacturer of undersea
telecommunication cable systems.
o Approximately $977,000 is attributable to shipments of custom power
hybrids and power modules to a medical equipment manufacturer.
o Approximately $100,000 of the sales increase was generated by the
continued fulfillment of a series of orders placed by General
Electric (a significant customer) for multi-chip power modules
containing power hybrid components. General Electric accounted for
24% and 27% of the sales, respectively, in each of the nine month
periods ended March 31, 1999 and 1998.
Gross profit on the higher sales volume increased approximately $806,000 to
$6,749,000 for the nine months ending March 31, 1999 as compared to $5,943,000
for the nine months ending March 31, 1998. Gross profit margin, however,
decreased approximately 1.5% to 36% from 37.5%. This decrease in gross profit
margin is a result of the following factors:
o Cost of materials increased 1% percentage of sales in accordance
with Omnirel's ongoing policy of providing for inventory reserves
resulting from changes in technology and technology processing. The
percentage increase was offset by favorable variances resulting from
product mix.
o The Company has invested in manpower and equipment during the nine
months ended March 31, 1999 to improve existing production
technology and in expanding production capacity for new products. Of
the total increase in overhead of $708,000, $430,000 was
attributable to personnel costs and equipment depreciation, and
$265,000 to plant expansion for new products.
For the nine months ended March 31, 1999, the selling, general and
administrative expenses increased approximately $603,000 from the prior
reporting period to $4,482,000. Approximately $521,000 of the increase were
expenses of Omnirel relating to the conversion to a direct sales force, hiring
regional sales managers and augmenting the sales staff at its manufacturing
facility, compared to the use of independent
10
<PAGE>
Nine Months Ended March 31, 1999 Compared to Nine Months Ended March 31, 1998
(continued)
sales representatives. The balance of the increase was attributable to the
Company management incentive plan.
Research and development costs stated separately in the 1999 period, and
restated for the 1998 period for consistent presentation, amounted to $1,334,000
in both fiscal periods and represented 7.2% and 8.4% of sales for the respective
periods.
Interest and other income-net decreased approximately $395,000 from $2,300,000
for the nine months ended March 31, 1998 to $1,905,000 for the nine months ended
March 31, 1999, due principally to the termination of the Arrow Electronics
covenant not to complete.
Interest expense increased approximately $35,000 during the nine months ending
March 31, 1999 as compared to the prior comparable reporting period which is
primarily attributable to Omnirel borrowing for working capital and equipment
purchases.
The difference between the effective tax rate and the federal tax rate of 34%
from period to period is primarily due to non-taxable dividends included in
other income, tax credits and state taxes.
Liquidity and Capital Resources
During the nine months ended March 31, 1999, the Company generated cash from
operations and from borrowings at Omnirel. Cash was used to acquire marketable
securities and purchase property and equipment. In addition, the Company
repurchased, during the nine months ended March 31, 1999, 55,845 shares of its
common stock both in the open market and from former employees at an acquisition
cost of approximately $8.00 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
Computer systems and electronic devices which are based on software programs
which process dates with two digits rather than four to define the applicable
year may assume that all years occur only in the 20th century. This could cause
a system failure or miscalculation causing disruptions of operations controlled
by such systems or devices, including, among other things, an inability to
process transactions, send invoices, control equipment or engage in similar
normal business activities. In the Company's case, its exposure to this
potential phenomenon is concentrated principally in the operations of its
Omnirel subsidiary.
The following discussion is based on management's best estimates, which were
derived using numerous assumptions of future events, including the continuing
availability of basic utilities and other resources,
11
<PAGE>
the availability of trained personnel at reasonable cost, and the ability of
third parties to cure noncompliant software. There can be no guarantee that
these assumptions will prove accurate, and accordingly the actual results may
materially differ from those anticipated.
Evaluation Efforts
The Company's Omnirel subsidiary is well along in its assessment of all systems
that could be significantly affected by the Year 2000 problem, including
information technology systems, software and hardware (embedded chips) used in
production and manufacturing systems, manufacturing equipment, and HVAC systems.
Based on a review of Omnirel's product line, the Company does not believe that
the products Omnirel has sold and will continue to sell will require remediation
to be Year 2000 compliant. Additionally, the Company is gathering information
about the Year 2000 compliance efforts of Omnirel's significant suppliers and
subcontractors and continues to monitor their compliance.
Readiness and Compliance Plan
Omnirel has separated its Year 2000 compliance efforts into four major segments:
Information Technology (Software and Hardware): Telecommunications Systems;
Manufacturing Equipment; and Compliance by Vendors and Customers.
Information Technology
Omnirel upgraded its main business system software in March 1998, and upgraded
its networking software in December 1998. As a result, those systems are capable
of processing transactions with dates beyond December 31, 1999.
Omnirel uses secondary software programs to minimize clerical tasks. Omnirel has
determined that some of these programs will not process transactions after
December 31, 1999. Omnirel has selected replacement software programs and will
perform an upgrade by September 1999.
Omnirel completed its evaluation of all information technology hardware, other
than computer systems used with manufacturing equipment, and determined that
most of these systems can be made Year 2000 compliant with minor operating
system software modifications. A few hardware systems will require
microprocessor board replacement, but the Company does not anticipate that any
computer hardware systems will require replacement to become compliant. Omnirel
expects to complete all needed upgrade efforts by September 1999.
Telecommunications Systems
Omnirel's telephone system was replaced in September 1998 and is certified as
Year 2000 compliant.
12
<PAGE>
Manufacturing Equipment
The Company is engaged in the evaluation of Omnirel's manufacturing and HVAC
equipment, a process it expects to complete by June 1999. To date it has
determined that individual units that have integrated computer systems will not
accurately process 21st Century dates, and it is working with the relevant
equipment manufacturers to assess and, if necessary, upgrade the integrated
computer systems. Omnirel's manufacturing equipment does not require date
processing for efficient operation, and accordingly the Company does not
anticipate an interruption in manufacturing as a result of the advent of the
Year 2000.
Compliance by Vendors and Customers
Omnirel is engaged in the process of requesting Year 2000 compliance
certificates from its vendors. Most have provided such certification. The
Company has received favorable responses from the majority of its vendors and is
in the process of sending a second request to vendors who did not reply and
expects this process to be complete by June 1999.
Beginning in May 1999, Omnirel intends to begin requesting similar compliance
certificates from its principal customers, a process that it expects to complete
by September 1999. Omnirel cannot ensure that its customers will either be in
Year 2000 compliance, or will comply with Omnirel's request for certification.
Omnirel may assist its customers, to the extent of its ability, to become Year
2000 compliant if it appears that lack of compliance will adversely affect its
customers' ability to continue ordering and paying for Omnirel products.
Cost of Year 2000 Compliance
The Company estimates, based on its evaluations and actions taken to date, that
the aggregate cost of achieving Year 2000 compliance will be approximately
$100,000. The costs are comprised of internal personnel expenses and outside
consulting service costs for evaluation and upgrade of systems, acquisition
costs for new equipment and componentry and licensing and purchase fees for new
or upgraded software.
Between January and March 1999, the Company expended approximately $5,000 for
its Year 2000 compliance efforts ($27,000 has been spent year to date).
Contingency Plan
Since the Company believes that Omnirel's information technology systems will be
Year 2000 compliant, it has not developed and does not plan on developing a
contingency plan for noncompliant information technology systems.
Since Omnirel's manufacturing systems do not require accurate date processing
for its operations, the Company plans, in the event of its inability to upgrade
such systems, to power down and restart the equipment with a fictitious
historical date so that normal operations can continue until compliance is
achieved.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
When used in this Form 10-QSB, and in future filings by Zing with the Securities
and Exchange Commission, in Zing's press releases and in any oral statements
made with the approval of an authorized Zing executive officer, the words or
phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed 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 58%, 24%
and 27% of Omnirel's sales revenues for the Fiscal Year ended June 30, 1996
(each such fiscal year ended on June 30, a "Fiscal Year"), Fiscal Year 1997 and
Fiscal Year 1998, respectively. A single project accounted for approximately 58%
of Fiscal Year 1996 sales, 24% of Fiscal Year 1997 sales and 27% of Fiscal Year
1998 sales. Omnirel does not anticipate that sales to such customer will change
significantly for Fiscal Year 1999 as compared to Fiscal Year 1998.
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.
14
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ITEM 5. OTHER INFORMATION (Continued)
Selling, General and Administrative Expenses
Changes in the amount and rate of growth in Omnirel's selling, general and
administrative expenses, as well as the impact of unusual items resulting from
Omnirel's ongoing evaluation of its business strategies and organizational
structures can materially affect the Company's performance.
Selling Prices
Omnirel is subject to continued or increased pressure to change its selling
prices for 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
15
<PAGE>
ITEM 5. OTHER INFORMATION (Continued)
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.
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. 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.
16
<PAGE>
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 nine months
ended March 31, 1999.
17
<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 May 12, 1999 /s/ Robert E. Schrader
-------------------------------------
Robert E. Schrader
President and Chief Executive Officer
Date May 12, 1999 /s/ Martin S. Fawer
-------------------------------------
Martin S. Fawer
Treasurer and Chief Financial Officer
18
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