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, 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 (I.R.S. Employer Identification No.)
of 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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(Registrants 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 January
31, 1999 was 2,410,523.
1
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INDEX
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed consolidated balance sheets - December 31, 1998 and
June 30, 1998 ............................................................................................3
Condensed consolidated statements of income - three month
and six month periods ended December 31, 1998 and 1997 .......................................4
Condensed consolidated statements of cash flows - six months ended
December 31, 1998 and 1997...................................................................................5
Notes to condensed consolidated financial statements - December 31, 1998.....................................6
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations...............................................................................8
PART II. OTHER INFORMATION
Item 5. Other Information..................................................................................13
Item 6. Exhibits and Reports on Form 8-K...................................................................16
Signatures.......................................................................................................17
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December June 30,
31,1998 1998
-----------------------------------
(Unaudited) (Note)
(000s omitted, except share data)
-----------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 669 $ 1,092
Marketable securities 20,064 19,462
Accounts receivable, less allowances of $84 and $72, respectively 3,205 2,451
Inventories 5,706 5,188
Prepaid expenses 132 192
Other current assets 475 511
----------------- -----------------
Total current assets 30,251 28,896
Property, plant and equipment 12,515 11,657
Less accumulated depreciation and amortization 6,864 6,417
----------------- -----------------
5,651 5,240
Deferred income taxes, net of valuation allowance 771 771
Excess of cost over assets acquired, net of amortization of $1,402 and $1,325, respectively 1,133 1,210
Other assets 55 54
----------------- -----------------
Total assets $37,861 $36,171
================= =================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 1,895 $ 1,418
Accrued expenses and taxes payable 1,091 719
Accrued compensation expense 678 811
Loan payable - bank 7,700 7,700
Due to broker 3,291 2,993
Current portion of long-term obligations 580 502
----------------- -----------------
Total current liabilities 15,235 14,143
Long-term obligations, less current portion 3,070 3,013
Stockholders' equity
Common stock, par value $.01 per share; authorized 12,000,000 shares; issued
3,082,006 shares as of December 31, 1998 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 (32) (654)
Retained earnings 9,622 9,438
Less treasury shares at cost (671,483 shares at December 31, 1998, and 615,638 shares
at June 30, 1998) (4,976) (4,529)
----------------- -----------------
Total stockholders' equity 19,556 19,015
Total liabilities and stockholders' equity $37,861 $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.
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended, Six months ended,
December 31 December 31
1998 1997 1998 1997
----------------- ------------------ ----------------- ------------------
(000s omitted, except share data)
<S> <C> <C> <C> <C>
Net sales $ 6,276 $ 5,353 $ 12,244 $ 10,439
Cost of goods sold 4,001 3,363 7,827 6,551
----------------- ------------------ ----------------- ------------------
Gross profit 2,275 1,990 4,417 3,888
Selling, general and administrative 1,985 1,740 3,738 3,390
expenses
Depreciation and amortization of property, 147 147 302 283
plant and equipment
Interest expense 269 260 541 505
Interest and other income net (481) (497) (428) (1,808)
----------------- ------------------ ----------------- ------------------
Income before income taxes 355 340 264 1,518
Provision for income taxes 80 65 80 270
----------------- ------------------ ----------------- ------------------
Net income $ 275 $ 275 $ 184 $ 1,248
================= ================== ================= ==================
Net income per common share - basic $ .11 $ .11 $ .08 $ .48
================= ================== ================= ==================
Net income per common share - diluted $ .11 $ .11 $ .08 $ .48
================= ================== ================= ==================
Average number of outstanding shares - basic 2,398,257 2,547,873 2,397,985 2,573,392
================= ================== ================= ==================
Average number of outstanding shares - diluted 2,408,342 2,566,071 2,408,961 2,593,256
================= ================== ================= ==================
</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>
Six months ended
December 31
1998 1997
--------------------------------------
(000s omitted)
<S> <C> <C>
Operating activities
Net income $ 264 $ 1,248
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 548 500
Amortization of non-compete agreement - (300)
Changes in operating assets and liabilities:
Accounts receivable (754) (203)
Inventories (518) (203)
Prepaid expenses and other current assets 96 147
Accounts payable and accrued expenses 636 (71)
Other - net (1) 28
-------------------------------
Net cash provided by operating activities 271 1,146
Investing activities
Purchases of property and equipment (883) (565)
Net sales of marketable securities 20 1,331
-------------------------------
Net cash (used in) provided by investing activities (863) 766
Financing activities
Proceeds from borrowings 1,390 495
Reduction of borrowings (956) (1,042)
Exercise of stock options 182 2
Repurchase of common stock for treasury (447) (1,274)
Increase in loans receivable from stockholders - (174)
-------------------------------
Net cash provided by (used in) financing activities 169 (1,993)
Net decrease in cash and cash equivalents (423) (81)
Cash and cash equivalents at beginning of period 1,092 857
-------------------------------
Cash and cash equivalents at end of period $ 669 $ 776
===============================
</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)
December 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 six-month period ended December 31,
1998 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 December 31, 1998
and 1997 amounted to $1,281 and $(1,028), respectively. Total comprehensive
income (loss) for the six months ended December 31, 1998 and 1997 amounted to
$806 and $457, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
December 31, June 30,
1998 1998
------------------- ---------------------
(000s omitted)
Raw materials $ 2,894 $ 2,585
Work in process 1,870 1,795
Finished goods 942 808
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$ 5,706 $ 5,188
============== =============
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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 Financial Accounting Standards Board Statement 128.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31 December 31
1998 1997 1998 1997
----------------------------------------------------------------
(000s omitted, except share data)
<S> <C> <C> <C> <C>
Numerator
Numerator for basic and diluted
earnings per share income
available to common stockholders $ 275 $ 275 $ 184 $ 1,248
========== ========== ========== ==========
Denominator
Denominator for basic earnings per
share weighted-average shares 2,398,257 2,547,873 2,397,985 2,573,392
Effect of dilutive securities
Warrants - 1,200 - 1,200
Options held by Omnirel employees
exercisable into Zing common shares 10,085 16,998 10,976 18,664
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share adjusted weighted-average
shares and assumed conversions 2,408,342 2,566,071 2,408,961 2,593,256
========== ========== ========== ==========
Basic earnings per share $ .11 $ .11 $ .08 $ .48
========== ========== ========== ==========
Diluted earnings per share $ .11 $ .11 $ .08 $ .48
========== ========== ========== ==========
</TABLE>
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
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 Six months ended
December 31, December 31,
1998 1997 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.00% 100.0% 100.00%
Cost of goods sold 63.75 62.83 63.92 62.76
Gross profit 36.25 37.17 36.08 37.24
Selling, general and administrative expenses 31.63 32.50 30.53 32.47
Depreciation and amortization of property 2.34 2.74 2.46 2.71
and equipment and excess of costs over
assets acquired
Interest expense 4.28 4.85 4.42 4.84
Interest and other income net (7.66) (9.28) (3.49) (17.32)
Income before income taxes 5.66 6.36 2.16 14.54
Provision for income taxes 1.27 1.22 .65 2.59
Net income 4.39 5.14 1.51 11.95
</TABLE>
Three months ended December 31, 1998 compared to three months ended December 31,
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1997
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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 (basic and diluted) for the three months ended
December 31, 1998. For the quarter ended December 31, 1997, the Company also
reported income of $275,000 or $.11 per share (basic and diluted).
Sales of Omnirel increased 17% to $6,276,000 for the three months ended December
31, 1998 as compared to $5,353,000 for the three months ended December 31, 1997.
The increase in sales from period to period is primarily attributable to the
delivery of custom power modules to a medical equipment manufacturer of
implantable heart defibrillators. 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 25% and 31% of Omnirel sales, respectively, in each
of the three month periods ended December 31, 1998 and 1997.
The Omnirel gross profit, expressed as a percentage of sales, was 36% and 37%,
respectively, in each of the quarters ended December 31, 1998 and 1997. This
decrease in gross profit percentage is attributable to several factors set forth
as follows:
8
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONTINUED)
Three months ended December 31, 1998 compared to three months ended December 31,
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1997 (continued)
- ----------------
o There was a 7% increase in the average pay rate for direct labor
primarily caused by the diminishing rate of unemployment in the
skilled manufacturing labor pool.
o As a result of the product mix manufactured during the current
reporting period, there was a heavier concentration of material cost
contributing to a decrease in the gross profit percentage of
approximately 1%.
o The labor and material increases were offset by a decrease in
manufacturing overhead of one half of one percent primarily
attributable to the increase in sales volume.
For the three months ended December 31, 1998, selling, general and
administrative expenses were $1,985,000, an increase of approximately $245,000
over the prior reporting period. This increase is substantially attributable to
Omnirel's conversion to a regional direct sales force from sales through
independent sales representatives.
Interest and other income, net, for the three months ended December 31, 1998 and
1997 was $481,000 and $497,000, respectively. Interest and other income is
primarily comprised of revenues from dividends and interest, and from realized
gains and losses on sales of securities. Dividend and interest income increased
by approximately $134,000 during the current period compared to the prior
comparable 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 which emanated 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.
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 and state taxes.
Six months ended December 31, 1998 compared to six months ended December 31,
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1997
- ----
The Company reported net income of $184,000 or $.08 per share (basic and
diluted) for the six months ended December 31, 1998. For the six months ended
December 31, 1997, the Company reported net income of $1,248,000 or $.48 per
share (basic and diluted).
Sales at Omnirel increased $1,805,000 to $12,244,000 for the six months ended
December 31, 1998 as compared to sales of $10,439,000 for the six months ended
December 31, 1997. This increase in sales from period to period is attributable
to the following factors:
o Approximately $925,000 is attributable to shipments of custom power
modules to a medical equipment manufacturer.
9
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONTINUED)
Six months ended December 31, 1998 compared to six months ended December 31,
- ----------------------------------------------------------------------------
1997 (continued)
- ----------------
o Included in the sales is revenue generated by the continued
fulfillment of a series of orders placed by General Electric for
multi-chip power modules containing power hybrid components. Sales to
General Electric accounted for 25% and 28% of the sales, respectively,
in each of the six month periods ended December 31, 1998 and 1997 and,
accordingly, accounted for approximately $220,000 of the sales
increases for the six month period ended December 31, 1998.
Gross profit increased approximately $530,000 to $4,417,000 for the six months
ending December 31, 1998 as compared to $3,888,000 for the six months ending
December 1, 1997. Expressed as a percentage of sales, the gross profit decreased
1% to 36% for the six months ended December 31, 1998. This decrease in gross
profit from period to period is primarily attributable to the following factors:
o Custom power hybrids and custom power modules contain a heavier
concentration of material cost. This revenue generating product group
increased 50% in the six month period ended December 31, 1998, thereby
increasing material cost by 1% for such period as compared to the
prior comparable reporting quarter.
o Omnirel commenced production and process control of its new Cermod and
motion control product lines. The increase in manufacturing overhead
in those manufacturing start up expenses were approximately $350,000
which also contributed to the lower gross profit margin.
For the six months ended December 31, 1998, the selling, general and
administrative expenses increased approximately $348,000 from the prior
comparable reporting period to $3,738,000. Approximately $385,000 of the Omnirel
total increase of $440,000 were expenses relating to the termination of
Omnirel's independent sales representatives during the latter part of the fiscal
year ended June 30, 1998. Pursuant to the terminated agency agreements, Omnirel
was obligated to pay commissions on revenues generated in each of the
geographical areas covered by such agreements for a period of 180 days beyond
the termination date. During the recently ended six month reporting period,
Omnirel converted to a direct sales force, hiring regional sales managers and
augmenting the sales staff at its manufacturing facility. The Omnirel total
expenses were offset by decreases of parent company expenses of approximately
$92,000 relating to savings in salaries, legal and professional expenses, and
financing costs.
Interest and other income, net, decreased approximately $1,380,000 from
$1,808,000 for the six months ended December 31, 1997 to $428,000 for the six
months ended December 31, 1998. The Company realized losses on the sales of
securities of approximately $247,000 during the recently ended six month
reporting period compared to realized gains on sales of securities of
approximately $777,000 during the six months ended December 31, 1997, accounting
for approximately $1,024,000 of the decline in income during the recently ended
six month period. The Company had been reporting quarterly income of $150,000
attributable to the amortization of a covenant not to compete (which terminated
in the last reporting quarter of the fiscal year ending June 30, 1998) which
accounts for a decrease of $300,000 in other income from the six months ended
December 31, 1997.
10
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONTINUED)
Six months ended December 31, 1998 compared to six months ended December 31,
- ----------------------------------------------------------------------------
1997 (continued)
- ----------------
Interest expense increased approximately $36,000 during the six months ending
December 31, 1998 as compared to the prior comparable reporting period which
increase is primarily attributable to Omnirel's 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 and state taxes.
Liquidity and Capital Resources
During the six months ended December 31, 1998, the Company generated cash from
operations, from borrowings at Omnirel and from cash reserves. Cash was used to
acquire marketable securities and purchase property and equipment. In addition,
the Company repurchased, during the six months ended December 31, 1998, 55,845
shares of its common stock both in the open market and from former Omnirel
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, 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.
11
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONTINUED)
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 is currently evaluating its secondary software systems used to minimize
clerical tasks, a process expected to be completed by March 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 March 1999.
Telecommunications Systems
Omnirel's telephone system was replaced in September 1998 and is certified as
Year 2000 compliant.
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, Omnirel has
determined that individual units that have integrated computer systems will not
accurately process 21st Century dates, and Omnirel 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 expects to achieve compliance from all critical suppliers by June 1999.
In January 1999, Omnirel commenced requesting similar compliance certificates
from its principal customers, a process that it expects to complete by June
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
12
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CONTINUED)
of compliance will adversely affect Omnirel's 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 October and December 1998, the Company expended approximately $12,000
for its Year 2000 compliance efforts ($22,000 has been spent during the current
fiscal 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.
PART 2. 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 Zings financial performance and could cause Zings
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.
13
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 5. OTHER INFORMATION (CONTINUED)
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.
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.
14
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 5. OTHER INFORMATION (CONTINUED)
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.
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.
15
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
ITEM 5. OTHER INFORMATION (CONTINUED)
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 Zings 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 are included herein:
No exhibit is included herein.
The Company did not file any report on Form 8-K during the six months ended
December 31, 1998.
16
<PAGE>
ZING TECHNOLOGIES, INC. AND SUBSIDIARY
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 12, 1999 Robert E. Schrader
----------------- --------------------------------------
Robert E. Schrader
President and Chief Executive Officer
Date February 12 , 1999 Martin S. Fawer
------------------ --------------------------------------
Martin S. Fawer
Treasurer and Chief Financial Officer
17
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ZING TECHNOLOGIES, INC. AND SUBSIDIARY
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