UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-18672
ZOOM TELEPHONICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Canada 04-2621506
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
207 South Street, Boston, Massachusetts 02111
(Address of Principal Executive Offices in the U.S.) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 423-1072
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
The number of shares outstanding of the registrant's Common Stock, No Par
Value, as of August 12, 1999 was 7,474,871 shares.
<PAGE>
ZOOM TELEPHONICS, INC.
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the Three
Months Ending June 30, 1999 and 1998 4
Consolidated Statements of Operations for the Six
Months Ending June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the Six
Months Ending June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
<TABLE>
<CAPTION>
ZOOM TELEPHONICS, INC.
CONSOLIDATED BALANCE SHEETS
06/30/99 12/31/98
(Unaudited) (Audited)
--------- -------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,803,526 $ 5,324,579
Investment securities 5,132,546 13,529,052
Accounts receivable, net of reserves for doubtful
accounts, returns, and allowances of $4,754,091
at 6/30/99 and $5,687,751 at 12/31/98 7,423,534 7,244,374
Inventories 13,573,479 8,893,269
Refundable income taxes 870,010 63,378
Net deferred tax assets 3,226,590 3,226,233
Prepaid expenses and other current assets 981,929 230,355
---------- ----------
Total current assets 36,011,614 38,511,240
Property, plant and equipment, net 4,053,301 3,748,303
Goodwill, net of accumulated amortization of 3,558,851 1,226,184
$651,542 at 6/30/99 and $408,728 at 12/31/98
Other assets 19,163 74,668
---------- ----------
Total assets $ 43,642,929 $ 43,560,395
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,252,437 $ 3,326,391
Accrued expenses 3,661,640 1,808,637
---------- ----------
Total current liabilities $ 5,914,077 $ 5,135,028
Long-term liabilities:
Other non-current liabilities $ 719,709 $ -
---------- ----------
Total liabilities $ 6,633,786 $ 5,135,028
Stockholders' equity:
Common stock, no par value. Authorized 25,000,000
shares; issued and outstanding 7,474,871 shares
at June 30, 1999 and December 31, 1998 25,190,579 25,190,579
Retained earnings 11,771,241 13,180,234
Accumulated other comprehensive income 47,323 54,554
---------- ----------
Total stockholders' equity $ 37,009,143 $ 38,425,367
---------- ----------
Total liabilities and stockholders 'equity $ 43,642,929 $ 43,560,395
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ZOOM TELEPHONICS, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ending June 30,
1999 1998
----------- -----------
Net sales $ 15,837,559 $ 12,114,906
Costs of goods sold 9,969,263 10,029,523
----------- -----------
Gross profit 5,868,296 2,085,383
Operating expenses:
Selling 3,718,456 2,835,152
General and administrative 1,636,341 974,187
Research and development 1,806,134 1,059,660
----------- -----------
Total operating expenses 7,160,931 4,868,999
----------- -----------
Loss from operations (1,292,635) (2,783,616)
Other income, net 115,666 281,129
----------- -----------
Loss before income taxes (1,176,969) (2,502,487)
Income tax benefit (458,031) (929,620)
----------- -----------
Net loss $ (718,938) $ (1,572,867)
=========== ===========
Loss per common and common
equivalent share:
Basic $ (.10) $ (.21)
=========== ===========
Diluted $ (.10) $ (.21)
=========== ===========
Weighted average number of common
shares outstanding:
Basic 7,474,871 7,474,871
=========== ===========
Diluted 7,474,871 7,474,871
========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ZOOM TELEPHONICS, INC.
Consolidated Statements of Operations
(Unaudited)
Six Months Ending June 30,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 27,224,966 $ 30,873,609
Costs of goods sold 17,295,518 23,587,341
----------- -----------
Gross profit 9,929,448 7,286,268
Operating expenses:
Selling 6,217,854 5,679,177
General and administrative 3,011,597 2,240,244
Research and development 3,309,684 2,027,156
----------- -----------
Total operating expenses 12,539,135 9,946,577
----------- -----------
Loss from operations (2,609,687) (2,660,309)
Other income, net 394,062 480,488
----------- -----------
Loss before income taxes (2,215,625) (2,179,821)
Income tax benefit (806,632) (806,534)
----------- -----------
Net loss $(1,408,993) $ (1,373,287)
============ ============
Loss per common and common
equivalent share:
Basic $ (.19) $ (.18)
=========== ===========
Diluted $ (.19) $ (.18)
=========== ===========
Weighted average number of common
shares outstanding:
Basic 7,474,871 7,473,683
=========== ===========
Diluted 7,474,871 7,473,683
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ZOOM TELEPHONICS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ending June 30,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,408,993) $ (1,373,287)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 731,611 498,913
Deferred income taxes (357) (126,159)
Changes in assets and liabilities:
Accounts receivable 1,423,477 5,747,728
Inventories (3,636,903) 2,171,700
Refundable income taxes (806,632) 3,498,777
Prepaid expenses and other assets (317,581) (10,486)
Accounts payable and accrued expenses (479,952) (5,058,566)
Tax benefit from exercise of non-qualified
stock options - 809
Net cash provided by (used in)
operating activities (4,495,330) 5,349,429
----------- -----------
Cash flows from investing activities:
Cash paid for the acquisition of Hayes, net
of cash acquired (3,812,258) -
Sale of investment securities 8,324,468 -
Additions to licenses (40,000) -
Additions to property, plant and equipment (490,690) (271,073)
----------- -----------
Net cash provided by (used in)
investing activities 3,981,520 (271,073)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options - 20,312
---------- -----------
Net cash provided by financing activities - 20,312
---------- ----------
Effect of exchange rate changes on cash (7,243) -
---------- ----------
-
Net increase (decrease) in cash and cash equivalents (521,053) 5,098,668
Cash and cash equivalents, beginning of period 5,324,579 11,281,337
----------- ----------
Cash and cash equivalents, end of period $ 4,803,526 $ 16,380,005
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ - $ -
========== ===========
Income taxes $ - $ -
========== ===========
</TABLE>
<PAGE>
ZOOM TELEPHONICS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements of Zoom Telephonics, Inc., (the
"Company") presented herein have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do
not include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year
ending December 31, 1998 included in the Company's 1998 Annual Report on Form
10-K.
The consolidated balance sheet as of June 30, 1999, the consolidated
statements of operations for the three months and six months ending June 30,
1999 and 1998, and the consolidated statements of cash flows for the six months
ending June 30, 1999 and 1998 are unaudited, but, in the opinion of management,
include all adjustments (consisting of normal, recurring adjustments) necessary
for a fair presentation of results for these interim periods.
The results of operations for the six months ending June 30, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 1999.
(2) Earnings Per Share
The reconciliation of the numerators and denominators of the basic and
diluted net loss per common share computations for the Company's reported net
loss is as follows:
<TABLE>
<CAPTION>
Three months ending June 30, Six months ending June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
--------------- --------------- ---------------- ---------------
Basic:
Net loss $ (718,938) $ (1,572,867) $ (1,408,993) $ (1,373,287)
Weighted average shares
outstanding 7,474,871 7,474,871 7,474,871 7,473,683
--------- --------- --------- ---------
Net loss per share $ (.10) $ (.21) $ (.19) $ (.18)
========= ======== ========= =========
Diluted:
Net loss $ (718,938) $ (1,572,867) $ (1,408,993) $ (1,373,287)
Weighted average shares
outstanding 7,474,871 7,474,871 7,474,871 7,473,683
========= ========= ========= =========
Net effect of dilutive
stock options based on
the Treasury stock - - - -
method using average
market price
Weighted average shares
outstanding 7,474,871 7,474,871 7,474,871 7,473,683
========= ========= ========= =========
Net loss per share $ (.10) $ (.21) $ (.19) $ (.18)
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(3) Inventories
Inventories consist of the following: 06/30/99 12/31/98
Raw materials $ 7,012,750 $ 5,021,373
Work in process 2,359,591 1,764,123
Finished goods 4,201,138 2,107,773
------------ -----------
$ 13,573,479 $ 8,893,269
============ ============
</TABLE>
(4) Acquisition
In March 1999 the Company entered into a series of separate agreements to
purchase various assets, licenses, and inventory from Hayes Microcomputer
Products, Inc. ("Hayes"). Hayes engaged in the business of design, manufacture,
and support of computer communications products for business, government, and
consumers worldwide. On October 9, 1998 Hayes filed for reorganization under
Chapter 11 of the United States Bankruptcy Code, Case No. 98-2276 through
98-2281, in the United States Bankruptcy Court ("the Court") for the District
of Delaware.
In March 1999 Zoom Telephonics acquired most of the modem assets of Hayes
Corporation for $5.0 million in cash. The purchase included the Hayes,
Practical Peripherals, Accura, Optima, Century 2, and Cardinal brands and
product rights for the USA, Canada, South & Central America, Europe, and the
Middle East. Currently Zoom is attempting to finalize the purchase of some of
the remaining Hayes assets, including Hayes Asia Pacific. The acquisitions were
accounted for as purchases. The excess of cost over fair value of net assets
acquired is being amortized on a straight-line method over five years.
The following summarizes the assets acquired and liabilities assumed in
the series of transactions:
<TABLE>
<CAPTION>
Assets acquired:
<S> <C>
Cash $ 1,216,221
Accounts receivable 1,530,589
Inventory 1,043,307
Property and equipment 278,479
Goodwill (excess of cost over fair value
of assets) 2,575,481
Other assets 400,993
---------
$ 7,045,070
Liabilities assumed:
Cash paid 5,028,479
Accounts payable 554,861
Accrued expenses 704,140
Negative Goodwill - other
non-current liabilities 757,590
---------
$ 7,045,070
</TABLE>
The negative goodwill resulted from the purchase of the Hayes U.K.
business, where the net assets acquired exceeded the cost. This transaction was
independent of other Hayes purchases. The negative goodwill is reflected on the
Consolidated Balance Sheet as a reduction to current assets, totalling
$757,590. The negative goodwill is being amortized on a straight-line method
over five years.
<PAGE>
(5) Comprehensive Income
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income" establishes rules for the reporting and display of
comprehensive income and its components; however, it has no impact on
the Company's net income or shareholders' equity. SFAS No. 130 requires all
changes in equity from nonowner sources to be included in the determination of
comprehensive income.
The components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three months ending June 30, Six months ending June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (718,938) $ (1,572,867) $ (1,408,993) $ (1,373,287)
Foreign currency
translation adjustment 64,805 - 64,805 -
Net unrealized holding
loss on investment securities (35,245) - (72,037) -
securities
------------- ------------- ------------- -------------
Comprehensive loss $ (689,378) $ (1,572,867) $ (1,416,225) $ (1,373,287)
============= ============= ============= =============
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Zoom Telephonics, Inc. ("Zoom" or the "Company") recorded net sales of
$15,837,559 and a net loss of $718,938 for the Company's second quarter ending
June 30, 1999 compared to net sales of $12,114,906 and a net loss of $1,572,867
for the second quarter ending June 30, 1998. Earnings per share improved to a
loss of $0.10 for the second quarter of 1999 compared with a loss of $0.21 for
the second quarter of 1998. Zoom's net sales for the six months ending June 30,
1999 were $27,224,966 with a net loss of $1,408,993 or $.19 per share versus
net sales of $30,873,609 and a net loss of $1,373,287 or $.18 per share for the
six months ending June 30, 1998.
Net sales for the quarter ending June 30, 1999 were 31% higher than the
prior year's quarter. The sales increase resulted from a 49% increase in modem
unit volume partially offset by a 20% decline in average selling prices. Sales
of 56K modem units rose significantly, outweighing the decline in 33.6/28.8K
modem sales. The overall 31% net sales increase compared to the quarter ending
June 30, 1998 was comprised of a sales increase of 17% in North America and a
sales increase of 89% in markets outside North America. The sales increase for
the quarter ending June 30, 1999 in markets outside of North America excluding
the impact of the new Hayes European sales was 12% compared to the comparable
period in the prior year.
Net sales for the six months ending June 30, 1999 were 12% lower than the
comparable period in the prior year, comprised of a sales decline of 22% in
North America and a sales increase of 38% in markets outside North America. The
sales in markets outside North America for the six months ending June 30, 1999
excluding the impact of the new Hayes European sales were relatively consistent
with the sales for the comparable period in the prior year.
Gross profit as a percentage of net sales increased to 37% in the quarter
ending June 30, 1999 from 17% in the quarter ending June 30, 1998. Gross profit
as a percentage of net sales increased to 37% in the six months ending June 30,
1999 from 24% in the six months ending June 30, 1998. The increase was due to
the favorable impact of advantageously negotiated modem materials purchased in
the second half of 1998 and the first half of 1999, and reduced channel price
protection and customer rebates. The favorable gross margin impact of the
favorable material purchases is realized when units are sold and is expected to
continue through 1999, with a reduced impact in the remaining two quarters. The
net result of this favorability on gross margin for the remainder of 1999 is
unclear.
Selling expenses in the second quarter of 1999 increased in dollar amount
to $3,718,456 or 24% of net sales from $2,835,152 or 23% of net sales in the
second quarter of 1998. Selling expenses in the first six months of 1999
increased in dollar amount to $6,217,854 or 23% of net sales from $5,679,177 or
18% of net sales in the second quarter of 1998. The dollar increase in the
second quarter of 1999 compared to the second quarter of 1998 was primarily the
result of the selling expenses in our new Hayes European operation and
increased advertising expenses, primarily in the form of cooperative
advertising programs with the resellers of Zoom modems. The dollar increase in
the first six months of 1999 compared to the first six months of 1998 was
primarily due to the selling expenses in our new Hayes European operation.
General and administrative expenses were $1,636,341 or 10% of net sales in
the second quarter of 1999 compared to $974,187 or 8% of net sales in the
second quarter of 1998. General and administrative expenses were $3,011,597 or
11% of net sales for the six months ending June 30, 1999 compared to $2,240,244
or 7% of net sales for the six months ending June 30, 1998. The added expense
was primarily due to the general and administrative expenses in our new Hayes
European operation, increased legal expenses, Hayes goodwill amortization, and
higher personnel costs.
Research and development expenses increased to $1,806,134 or 11% of net
sales in the second quarter of 1999 from $1,059,660 or 9% of net sales in the
second quarter of 1998. Research and development expenses increased to
$3,309,684 or 12% of net sales for the six months ending June 30, 1999 from
$2,027,156 or 7% of net sales for the six months ending June 30, 1998. The
increase in expenses was due to additional personnel and related expenses
consistent with the broadening of the Company's non-modem product lines.
The acquisition of the Hayes assets had a favorable impact on the
Company's sales for the second quarter. For the quarter, Hayes product sales
were approximately 10% of total net sales. Hayes had shut down its
manufacturing prior to the Zoom purchase of the Hayes assets. The production of
key products was restarted by Zoom in the second quarter of 1999 for European
delivery, and very late in the second quarter for sales in the U.S. The net
impact of the Hayes business on the Company's financial results in the second
half of 1999 is unclear at this time.
Liquidity and Capital Resources
Zoom ended the second quarter of 1999 with a strong balance sheet, with
stockholders' equity of $37,009,143 or $4.95 per share, with cash, cash
equivalents and investments of $9,936,072, and working capital of $30,097,537.
In addition, the Company has a $5 million secured line of credit. No amounts
were outstanding under this line of credit as of June 30, 1999.
Operating activities used $4,495,330 in cash during the first six months
of 1999. Cash was provided by the reduction of accounts receivable of
$1,423,477. Cash was used by the net loss of $1,408,993 less $731,611 for
non-cash depreciation and amortization expense, the increase in inventories of
$3,636,903, the increase of deferred and refundable income taxes of $806,989,
the reduction of accounts payable and accrued expenses of $479,952, and the
increase in prepaid expenses and other assets of $317,581. The increase in
inventory is primarily attributable to the purchases of advantageously
negotiated modem materials intended for use throughout 1999, and the build-up
of the production materials for the new Hayes products.
In March 1999 the Company acquired most of the modem assets of Hayes
Microcomputer Products, Inc. ("Hayes") for $5.0 million in cash. The
acquisition included $1.2 million of cash. The purchase included the Hayes,
Practical Peripherals, Accura, Optima, Ultra, Smartmodem, Century 2, and
Cardinal brands and product rights for the USA, Canada, South & Central
America, Europe, and the Middle East. In July 1999 Zoom finalized the purchase
of some of the remaining Hayes assets, including Hayes Asia Pacific for an
additional purchase price of approximately $1.1 million. With the purchase of
Hayes Asia Pacific, Zoom now owns the worldwide rights to the Hayes name and
the brands listed above.
During the first six months of 1999 the Company sold $8,324,468 of its
investment securities in order to finance the purchase of most of the modem
assets of Hayes Microcomputers Products, Inc., and to help finance the cash
used in operating activities.
Zoom's capital expenditures of $490,690 during the first six months of
1999 included purchases of computer hardware and software, manufacturing and
engineering equipment, and continuing expenditures for the renovation of the
Zoom headquarters. The Company does not have any significant capital
commitments and it anticipates that it will continue during the remainder of
1999 with modest investments in computer, manufacturing, and engineering
equipment, and in improvements to its facilities.
The Company believes that its existing cash, together with funds generated
from operations and available sources of financing, will be sufficient to meet
normal working capital requirements for the next twelve months. Additional
financing may be needed in the event sales increase substantially or if
significant losses are incurred.
Year 2000 Readiness Statement
The year 2000 issue is the potential for system and processing failure of
date-related data and the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Systems that do not properly recognize
date-sensitive information when the year changes to 2000 could generate system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar ordinary business activities.
The Company is evaluating the year 2000 issue with respect to its
financial and management information systems, its products and its suppliers.
At this point in its assessment, the Company is not currently aware of any year
2000 problems that are reasonably likely to have a material effect on the
Company's business, mission critical systems, results of operations or
financial condition, without taking into account the Company's efforts to avoid
such problems.
The Company is completing its review of its management and information
systems for year 2000 compliance and has identified application software and
hardware, which must be upgraded to become year 2000 compliant. The Company
intends to generally upgrade its management and information systems in
conjunction with its upgrade to become year 2000 compliant by September 1999.
The Company believes that the cost of this upgrade will be approximately
$100,000 to $300,000, the majority of which will be capitalized. There is a
risk that, notwithstanding its internal review, if the Company has not properly
identified all year 2000 compliance issues with respect to its management and
information systems, the Company may not be able to implement all necessary
changes to these systems on a timely basis and within budget. Such a failure
could result in a material disruption to the Company's business, including the
inability to track and timely fill orders, which could have a material adverse
effect on its business, results of operations and financial condition.
The Company has evaluated its current products and believes that they are
year 2000 compliant. The Company has also undertaken a general review of modems
previously sold by it that may continue to be under warranty to determine
whether those products are year 2000 compliant. Based upon its preliminary
assessment, the Company believes that the proper operation of its modems are
not date dependent and therefore should continue to function properly on and
after the year 2000. In order to assure that this is the case, the Company is
seeking information from its major suppliers, particularly of its modem
chipsets, to confirm that they have been year 2000 compliant. The Company has
sent a year 2000 Readiness Letter/Questionnaire to its major suppliers and
initial responses from the Company's chipset manufacturers have confirmed the
Company's understanding that the chipsets used by the Company are not date
sensitive and are therefore year 2000 compliant. However, the Company cannot
assure that its chipset manufacturers will provide the Company with accurate
information regarding their year 2000 compliance. Should any critical
components incorporated in the Company's products fail to be year 2000
compliant, such failure could result in warranty claims and have a material
adverse effect on its business, results of operations and financial condition.
The Company's products and software are often sold to be integrated into
or interface with third party equipment or software. In addition, the Company
often packages its modems for retail sale with software provided by other
vendors. The Company does not alter this software in any date sensitive way.
The Company is in the process of seeking information from its software vendors
to assure that the software packaged with its products will be year 2000
compliant, and has sent a year 2000 Readiness Letter/Questionnaire to its major
software suppliers. While it is possible that some of this software may be
adversely affected by the year 2000, the Company is not aware of any packaged
software having this problem. Failure of third-party equipment or software to
operate properly with regard to the year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could
have a material adverse effect on the Company's business, results of
operations, and financial condition.
The Company is also exposed to the risk that it could experience material
shipment delays from its major component suppliers or contract assemblers or
material sales delays from its major customers due to year 2000 issues relating
either to their management information or production systems. The Company has
inquired of these suppliers and contract assemblers in an attempt to ascertain
their year 2000 readiness. At this time, the Company is unable to estimate the
nature or extent of any potential adverse impact resulting from the failure of
third parties, such as its suppliers, and contract assemblers and customers, to
achieve year 2000 compliance. Moreover, such third parties, even if year 2000
compliant, could experience difficulties resulting from year 2000 issues that
may affect their suppliers, service providers and customers. As a result,
although the Company does not currently anticipate that it will experience any
material shipment delays from their major product suppliers or any material
sales delays from its major customers due to year 2000 issues, these third
parties could experience year 2000 problems that could have a material adverse
effect on the Company's business, results of operations and financial
condition.
Other than its activities described above, the Company does not have and
does not plan to develop a contingency plan to address year 2000 issues. Should
any unanticipated significant year 2000 issues arise, the Company's failure to
implement such a contingency plan could have a material adverse affect on its
business, financial condition and results of operation.
To the extent that the Company does not identify any material
non-compliant year 2000 issues affecting the Company or third parties, such as
the Company's suppliers, service providers and customers, the most reasonably
likely worst case year 2000 scenario is a systemic failure beyond the control
of the Company, such as a prolonged telecommunications or electrical failure,
or a general disruption in United States or global business activities that
could result in a significant economic downturn. The Company believes that the
primary business risks, in the event of such failure or other disruption, would
include but not be limited to, loss of customers or orders, increased operating
costs, inability to obtain inventory on a timely basis, disruptions in product
shipments, or other business interruptions of a material nature, as well as
claims of mismanagement, misrepresentation, or breach of contract, any of which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established a fixed conversion rate between their existing sovereign currencies
and the Euro. As of January 1, 2002, the transition to the Euro will be
complete. The Company has significant operations within the European Union and
is currently preparing for the Euro conversion. The Euro may impact general
economic conditions such as interest and foreign exchange rates within the
participating countries or in other areas where the Company operates. The
Company is in the process of analyzing the impact of the Euro with a view to
minimizing the effects on the Company's operations. The Company does not expect
the costs of upgrading its systems to be material.
A portion of the Company's revenues are subject to the risks associated
with international sales. Although most of the Company's product prices are
denominated in the United States currency, customers in foreign countries
generally evaluate purchases of products such as those sold by the Company on
the purchase price expressed in the customer's currency. As a result, the
impact of and economic conditions relating to the Euro (including fluctuations
in foreign currency exchange rates, particularly with respect to the U.S.
dollar) may have a material adverse affect on the demand for the Company's
products as well as on the Company's business, financial condition and results
of operations.
Recently Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and reporting standards
for derivative instruments embedded in other contracts (collectively referred
to as derivatives), and for hedging activities. This Statement is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The adoption
of this Statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
The AICPA Accounting Standards Executive Committee has issued Statement of
Position (`SOP") 98-1, Accounting for the Cost of Computer Software Developed
or Obtained for Internal Use. This SOP requires that certain costs related to
the development and purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software, and is effective for
fiscal years beginning after December 15, 1998. The SOP also requires that
costs related to the preliminary project stage and post
implementation/operations stage in an internal-use computer software
development project be expensed as incurred. The adoption of this SOP did not
have a material impact on the Company's consolidated financial position or
results of operations.
The AICPA Accounting Standards Executive Committee has issued SOP 98-5,
Reporting on the Costs of Start-up Activities. This SOP requires that costs
incurred during start-up activities, including organization costs, be expensed
as incurred, and is effective for the fiscal years beginning after December 15,
1998. The adoption of this SOP did not have a material impact on the Company's
consolidated financial position or results of operations.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company owns financial instruments that are sensitive to market risks
as part of its investment portfolio. The investment portfolio is used to
preserve the Company's capital until it is required to fund operations,
including the Company's research and development activities. None of these
market-risk sensitive instruments are held for trading purposes. The Company
does not own derivative financial instruments in its investment portfolio. The
investment portfolio contains instruments that are subject to the risk of a
decline in interest rates.
Investment Rate Risk - The Company's investment portfolio includes debt
instruments that are primarily United States government bonds and high grade
corporate bonds of less than three years in maturity. These bonds are subject
to interest risk, and could decline in value if interest rates fluctuate. The
Company's investment portfolio also consists of certain commercial paper, which
is also subject to interest rate risk. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995
This report contains forward-looking information relating to Zoom's plans,
expectations and intentions, including without limitation the financial and
other contributions expected in connection with Zoom's acquisition of the Hayes
modem assets referenced in this report, Zoom's expected favorable impact from
the sale of modems using materials purchased at advantageous prices, Zoom's
anticipation to continue to make modest investments in equipment and in
improvements to its facilities during fiscal year 1999, and the sufficiency of
Zoom's cash, together with funds generated from operations and available
sources of financing, to meet normal working capital requirements for next 12
months. Actual results may be materially different than those expectations as a
result of known and unknown risks, including those set forth below.
Acquisitions involve numerous risks, including difficulties in the assimilation
of operations and products of acquired businesses, the ability to manage
geographically remote units and the potential loss of key employees of the
acquired companies. Other risks relating to the forward-looking statements
contained in this report, include, without limitation: significant risks and
uncertainties generally applicable to modem and data communications products,
such as rapid technological change and intense competition, uncertainty of new
product development, early stage of development of certain data communications
markets, uncertainty of market growth, and overall product demand and market
prices for 56K modems; the ability to obtain additional financing, if required,
at favorable terms; Zoom's dependence upon a principal supplier for its modem
chipsets and on third-party assemblers; the concentration of Zoom's customers;
risks of product returns and price-protection, sales channel risks and risks
associated with international sales; and other risks set forth in Zoom's
filings with the Securities and Exchange Commission. Zoom cautions readers not
to place undue reliance upon any such forward-looking statements, which speak
only as of the date made. Zoom expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any such statements
to reflect any change in the Zoom's expectations or any change in events,
conditions or circumstance on which any such statement is based.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. - Legal Proceedings
No material developments in the quarter ended June 30, 1999.
ITEM 4. Submission of Matters to a Vote of Security Holders
Zoom Telephonics, Inc. held its Annual Meeting of Shareholders on June 25,
1999. At the meeting, the shareholders approved (a) the re-election of the
Board of Directors of Zoom Telephonics, Inc. and (b) the appointment of KPMG
Peat Marwick LLP as Zoom's independent auditors for the year ending December
31, 1999.
a) Election of Directors:
Nominee For Against Abstain
Frank B. Manning 5,694,562 0 100,709
Peter R. Kramer 5,699,129 0 96,142
Bernard Furman 5,691,779 0 103,492
J. Ronald Woods 5,672,478 0 129,793
L. Lamont Gordon 5,674,478 0 120,793
b) Approval of the appointment of KPMG Peat Marwick as Zoom's
independent auditors for the year ending December 31, 1999:
For Against Abstain
Approval 5,736,683 41,136 17,452
ITEM 6. - Exhibits and reports on Form 8-K
(a) Exhibit Description Page
27 Financial Data Schedule 30
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ending June 30, 1999.
<PAGE>
ZOOM TELEPHONICS, INC.
FINANCIAL INFORMATION NOT AUDITED
The preceding financial information, with the exception of the consolidated
balance sheet at December 31, 1998, has not been audited. However, in the
opinion of management, all material adjustments, consisting only of normal
recurring accruals necessary to present a fair statement of the results for
these periods, have been reflected. The results for these periods are not
necessarily indicative of the results for the full fiscal year.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZOOM TELEPHONICS, INC.
Date: August 12, 1999 By: /s/ Frank Manning
-----------------------------------------
Frank B. Manning, President
Date: August 12, 1999 By: /s/ Robert Crist
-----------------------------------------
Robert Crist, Vice President of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27. Financial Data Schedule
ZOOM TELEPHONICS, INC.
30-JUN-99
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,803,526
<SECURITIES> 5,132,546
<RECEIVABLES> 7,423,534
<ALLOWANCES> 4,754,091
<INVENTORY> 13,573,779
<CURRENT-ASSETS> 36,011,614
<PP&E> 4,053,301
<DEPRECIATION> (4,453,370)
<TOTAL-ASSETS> 43,642,929
<CURRENT-LIABILITIES> 5,914,077
<BONDS> 0
0
0
<COMMON> 25,190,579
<OTHER-SE> 11,818,564
<TOTAL-LIABILITY-AND-EQUITY> 43,642,929
<SALES> 33,621,407
<TOTAL-REVENUES> 27,224,966
<CGS> 17,295,518
<TOTAL-COSTS> 12,539,135
<OTHER-EXPENSES> 394,062
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,215,625)
<INCOME-TAX> (806,632)
<INCOME-CONTINUING> (1,409,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,409,993)
<EPS-BASIC> (.19)
<EPS-DILUTED> (.19)
</TABLE>
