44
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MAY 28, 1995
Commission File Number 0-12611
AULT INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0842932
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7300 BOONE AVENUE NORTH, MINNEAPOLIS, MINNESOTA 55428-1028
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 493-1900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation 8-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $4,948,200 based upon the ending price of
the Company's common stock on the national over-the-counter market NASDAQ
Small-Cap Issues on July 30, 1995, multiplied by the number of outstanding
shares of the Company held by persons other than officers, directors and
10% or more shareholders referred to in the "Security Ownership of
Principal Shareholders and Management" table referred to under Item 12
herein.
On August 10, 1995, there were outstanding 2,083,776 shares of the
Registrant's common stock.
Documents Incorporated by Reference: The Company's Proxy Statement for its
Annual Meeting of Shareholders to be held on September 26, 1995 is
incorporated by reference into Part III of this Form 10-K.
The Form 10-K consists of 44 pages. The Exhibit Index is located on page
37.
<PAGE>
AULT INCORPORATED
FORM 10-K
FOR THE FISCAL YEAR ENDED MAY 28, 1995
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Ault Incorporated (herein "Ault" or "Company") was incorporated under the
laws of the State of Minnesota in 1961. The Company designs, manufactures,
and markets a line of external power conversion products and is a leading
domestic supplier of such products to original equipment manufacturers
(OEMs) of data communications equipment, telecommunications equipment,
portable medical equipment, and microcomputers and related peripherals.
(b) Financial Information About Industry Segments
The Company operates in only one industry segment - the manufacture and
sale of power conversion devices. Financial information regarding this
segment is presented in the financial statements under Item 8 herein.
(c) Narrative Description of the Business
Ault's power conversion products are used to adapt AC wall current to
provide a source of power at various levels up to 100 watts for a wide
variety of electronic equipment. Ault's products are located outside the
equipment they power as wall plug-in or as in-line components and are
generally referred to as external power conversion products. External
power conversion products, in contrast to more widely used internal power
conversion devices, enable designers of electronic equipment to remove heat
and hazardous voltages from the end product thereby allowing the end
product to function more safely and effectively. Also, by removing the
power conversion feature from inside the end product, the OEM is afforded
greater flexibility in designing and styling. These advantages have
particular application in the Company's target markets where advances in
semiconductor technology have reduced power requirements of many items of
equipment to levels supplied by the Company's products, where rapid growth
and strong competition have resulted in competitive pressure to bring new
products to market quickly, and where there is increasing emphasis on
smaller and portable products that perform increasingly sophisticated
functions. Ault's business strategy is to offer OEMs in these markets an
expanding line of high quality power conversion products and related design
engineering and flexible customer services.
(1) Products
The Company's product line includes transformers, power supplies, and
battery chargers. In fiscal 1993, 1994 and 1995 sales of transformers
represented, respectively, 33%, 42%, and 41% of net sales and sales of
power supplies represented, respectively, 54%, 50% and 51% of net sales.
In fiscal 1993, 1994 and 1995 battery chargers represented,
respectively, 13%, 8% and 8% of net sales.
Ault's standard line of external transformers are primarily of the wall
plug-in type. These transformers are utilized primarily in applications
where the OEM wishes to remove hazardous voltages and heat from the end
product. The products reduce AC voltage from approximately 120 volts
(230 volts in some countries) down to lower voltages that range from 5
to 40 volts AC.
<PAGE>
The Company's power supplies provide the entire power conversion system
for electronic equipment of OEMs. These products contain a transformer,
which reduces the voltage level; and other components, which convert
alternating electrical current supplied by electric utilities to direct
current and, in the case of regulated power supplies, maintain the
voltage output so that it remains within specified voltage tolerances
despite fluctuations in the input AC voltage.
The Company's line of power supplies consists of both linear and
switching power supplies. Linear power supplies are larger but
generally less expensive than switching power supplies because their
design is based on a simpler technology. Switching power supplies
utilize a more sophisticated technology and, through the use of
switching transistors, convert power at higher frequencies than linear
power supplies. A switching power supply is more energy efficient, as
well as considerably smaller and lighter in weight than a linear unit
with a comparable power rating, but also is substantially more expensive
to manufacture. Linear power supplies tend to be used when the wattage
output required is relatively low. As the power requirement increases,
the switching power supply becomes more advantageous.
Ault manufactures linear power supplies that provide up to 10 watts of
regulated power and 70 watts of unregulated power. In addition, the
Company manufactures a family of 18 watt hybrid power supplies which
combine linear and switching technology to produce an amount of
regulated power in a unit which is only somewhat larger than a switching
power supply of similar power output, but costs somewhat less. The
Company manufactures switching regulated power supplies that produce up
to 60 watts of power, but has developed products with significantly
higher wattage and will manufacture these higher wattage products where
the demand justifies it. Among the switching power supplies
manufactured by the Company is a family of universal input switching
regulated power supplies that are designed to generate up to 60 watts of
output power from any input power source ranging from 90 to 270 volts.
This family of power supplies is, therefore, adaptable to OEM needs in
virtually any country for powering high volume products such as local
area networks, high end printers and fiber optic links. Equally
adaptable is the Company's universal input switching regulated power
supply designed for medical markets and to perform within the standards
of UL544, CSA125, IEC601 and FCC Class B emission requirements, (See
Safety Standards below).
The Company's product line also includes three standard lines of battery
chargers, two of which are designed in three different sizes for use
with gel cell and sealed lead acid rechargeable batteries having up to a
40 amp hour capacity. The third standard line of battery chargers is
designed for use with Nicad batteries. This battery charger
automatically adjusts the power output to the battery capacity of up to
3 amp hours. It senses the charge requirement as indicated by the
temperature and voltage of the battery, and adjusts the amount of charge
to the needs of the battery. The company also manufactures a line of
battery chargers that accommodate nickel-metal hydride batteries which
do not pose the environmental hazards of nickel cadmium batteries. Ault
produces trickle voltage battery chargers for applications where the
customer's batteries are primarily used as a back-up or in a standby
mode, and self-monitoring battery chargers for applications where the
battery is being discharged often and full recharging is required. The
Company manufactures a family of wall plug-in battery chargers that
satisfy the more rigid UL standards for portable medical equipment
applications and multiple bay lead-acid chargers for camcorder
batteries.
The Company does not currently manufacture internal power conversion
devices, which comprise a substantially larger portion of the power
conversion market and to which the technology of the Company is
applicable. The internal power supply market, therefore, represents an
<PAGE>
enormous opportunity for the Company whose strategies are to eventually
establish its position as an efficient, low-cost producer of
technologically advanced internal power conversion products, in addition
to current external power conversion products.
(2) Markets and Marketing
The Company directs its marketing efforts primarily to four segments of
the electronics industry: data communications, telecommunications,
portable medical equipment and microcomputers and related peripherals.
In fiscal 1995 sales to OEMs of data communications equipment
represented approximately 30% of net sales. At the present time Ault's
products are principally being used in this market to power a number of
low to medium speed modems and multiplexers (equipment which enables the
simultaneous transmission of multiple channels of information over the
same telephone line).
In fiscal 1995 approximately 25% of the Company's net sales were to OEMs
of microcomputers, related peripherals (such as digitizers, printers,
plotters, portable terminals, point-of-sale scanners and optical
character readers), networking hardware and other data processing
equipment.
Sales in fiscal 1995 to OEMs of telecommunications equipment were
approximately 30% of net sales. At the present time the Company's
products are principally used in this market for charging batteries of
cellular telephones, to power network termination equipment (devices
which interface between the telephone network and the customer's PBX or
other telephone system), line conditioning equipment (devices which
prepare telephone lines for the transmission of computer generated
data), and various items of equipment ancillary to business telephones,
including speaker phones, automatic dialers and alpha-numeric displays.
Approximately 10% of net sales in fiscal 1995 were to OEMs of portable
medical equipment such as infusion pumps, patient monitoring systems,
sudden infant death syndrome monitors, and portable terminals for
patient history input.
The remaining 5% of the Company's sales in fiscal 1995 were divided
among OEMs serving a number of markets, including security systems,
industrial equipment, radio and television transmitting devices and
consumer/hobby items.
The Company markets its products through a nationwide network of 20
manufacturer representative and distributor organizations, employing an
aggregate of approximately 115 salespersons. These sales persons are
assisted by the Company's application engineers and other sales
administration staff. The major marketing activity of the Company is
concentrated in the U.S. and Canada on OEMs including some who sell
their products in Europe and some who have expanded their manufacturing
offshore. These factors have enabled the Company to further
internationalize its market.
The Company has continued to pursue its strategy to establish a direct,
viable presence in certain European markets through a network of
distributors with products and promotional methods tailored for these
markets. In these markets, power conversion products must operate under
lower power frequency and higher voltage conditions, and must meet other
agency certification requirements that are not customary in U.S.
markets. Ault's activities in Europe have resulted in sales of $1.6
million in fiscal 1995 principally in the telecommunications market.
The Company's marketing strategy also targets the Pacific Rim power
conversion market using its Ault Korea subsidiary as a source of sales
and sales promotion. Implementation, so far, has been limited to Korea.
<PAGE>
Agency approval to sell products in Japan has not yet resulted in any
significant sales.
Additionally, the Company's marketing effort includes new product
releases to trade journals, trade advertising, and participation in
trade shows.
(3) Product Development and Engineering
The Company's design engineering teams at its US and Korean facilities
are responsible for developing new power conversion products and
improving existing products based upon the needs of customers as
determined through joint collaboration between the customer and the
Company or as assessed by the Company. Product enhancement efforts are
directed to increasing the power output capabilities of the Company's
switching power supplies, without increasing product size, through
innovations such as use of hybrid circuits, and to developing improved
manufacturing methods such as surface mounting of circuit board
assemblies. Strong efforts are also being directed toward development
of products tailored to the needs of European markets and to designs of
low cost AC to AC transformers and AC to DC linear power supplies for
foreign manufacture. Total development activities resulted in
expenditures of approximately $1,158,000, $935,000 and $1,269,000 in
1993, 1994 and 1995, respectively. The Company expects to maintain its
design capability as part of its effort to increase penetration of the
markets it currently serves, and to pursue new opportunities in the
field of power conversion.
(4) Safety Standards
Because the power conversion system is potentially the most hazardous
element in most electronic equipment, virtually all of Ault's customers
require that the Company's products meet the safety standards of
Underwriters' Laboratories. Substantially all of the Company's standard
products are UL listed. In addition, the Company obtains safety
certification from the Canadian Standards Agency (CSA). "Verban
Deutscher Elektrotechniker" (VDE), International Electronique Committee
(IEC) and other certification entities where these certifications are
required by the Company's customers who sell their products in Canadian
and European markets. The Company also has Japanese MITI approval to
sell products in that country, and has met FCC Class B requirements for
products needing this certification. The Company is able to conduct
most of these testings at its plant in Minneapolis, which reduces the
time normally required to satisfy the safety standards of these agencies
and to serve the Company's customers. The Company also has ISO 9001
certification (a system that harmonizes many national and international
quality standards, in addition to those mentioned) that certifies the
Company meets the quality standards required to do business in several
countries.
(5) Competition
Electronic equipment manufacturers predominantly use internal power
supplies, and, as a result, the Company experiences strong competition
from numerous companies providing such internal equipment, including
both the OEM itself and independent suppliers. In relation to this
competition, the Company stresses the several advantages of external
power conversion products, discussed above, which generally can be
obtained with only a relatively small increase in unit cost.
The Company also competes with the various manufacturers of external
power conversion products. The external power conversion products
industry is highly fragmented with manufacturers generally focusing
their marketing on specific segments of the electronics industry. The
Company has experienced strong competition from foreign manufacturers
<PAGE>
who are able to produce their external products at lower cost. Many of
these competitors have a smaller presence in the external power
conversion market than the Company, although several are engaged in more
than one business and have greater overall resources. The Company has
concentrated its marketing on OEMs stressing flexible reliable
partnerships and its high quality products for commercial and
professional applications. The presence of Ault Korea, a wholly-owned
subsidiary, and expanding subcontract arrangements with manufacturers in
Southeast Asia have enabled the Company to successfully reduce foreign
price competition. Equipped to manufacture substantially all of the
Company's products, Ault Korea Corporation is also responsible for
marketing the Company's products in the Asian basin. The subcontract
arrangements in Southeast Asia are established to manufacture low cost
AC transformers and DC linear power supplies and switching power
supplies that the Company sells under the brand name AULTRA to
distinguish these products from other products of the Company that are
sold under the AULT brand name. Engineering is accomplished through
joint collaboration between the Company and the subcontractors.
The Company competes on the basis of quality and performance of its
products, breadth of product line, customer service, dependability in
meeting delivery schedules, design engineering and price. Management
believes it is currently one of a small number of companies that design,
manufacture and obtain certifying agency listing for the full range of
external power conversion devices which OEMs consider in designing their
electronic products.
(6) Significant Customers; Backlog
The Company sells its products to over 200 customers and it is the
Company's objective to maintain a diversified customer base and to
avoid, where practicable, dependence upon a single customer or a few
customers. In 1995, no customer accounted for 10% or more of the
Company's net sales.
The Company manufactures its products on the basis of firm purchase
orders, and ships most products within 4 to 10 weeks after receipt of an
order. Order backlog at August 10, 1995 was $10,359,000 as compared to
$9,540,000 on August 10, 1994.
(7) Manufacturing and Sources of Supply
Manufacturing operations consist principally of the assembly of products
by installing and wiring electronic components and materials on printed
circuit boards to design specifications. Electronic components and raw
materials used in the Company's products are generally available from a
large number of suppliers. The Company manufactures certain of its
products in Korea under subcontract with its subsidiary, Ault Korea
Corporation, which is equipped to manufacture all of the Company's
products. The Company also has established subcontract arrangements in
Southeast Asia for the manufacture of low cost products.
(8) Warranties
The Company provides a two-year parts and labor warranty against
defects in materials or workmanship on all its products except its
AULTRA line which carries a one year warranty. Warranty expenses have
not been significant.
(9) Patents
The Company holds three patents, but does not generally consider patent
protection to be important to its business.
<PAGE>
(10) Employees
As of August 4, 1995, Ault employed full-time approximately 280
persons. Of this number, approximately 216 were engaged in
manufacturing (125 in Korea and 91 in Minneapolis), 23 in engineering,
and 41 in marketing, general, and administrative positions of which 29
were in Minneapolis, Minnesota and 12 were at the Korean subsidiary.
None of the Company's employees are represented by a labor organization
and the Company has never experienced a work stoppage or interruption
due to a labor dispute. Management believes that its relations with
its employees are good.
(11) Executive Officers of the Registrant
Certain information with respect to the executive officers of the
Company is set forth:
<TABLE>
<CAPTION>
Position; Officer
Name Age Former Employment Since
<S> <C> <C> <C>
Frederick M. Green 52 President and Chief 1980
Executive Officer and
Director
Carlos S. Montague 58 Vice President, 1981
Treasurer, Chief
Financial Officer and
Assistant Secretary
Richard A. Primuth 49 Secretary 1995
Hokung C. Choi 55 Vice President - Far 1989
East Operations
Gregory L. Harris 42 Vice President - 1988
Marketing
</TABLE>
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Export sales by the U.S. operations in fiscal year 1995 ending May 28
represented 16.7% of the Company's gross sales. All other revenues
were derived from domestic sales principally in the U.S. For other
financial information about foreign and domestic operations and export
sales including the amount of export sales for the last 3 years, refer
to Note 9, Foreign Operations, under NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
Management does not believe there are substantial risks involved in the
Company's foreign operations at this time.
ITEM 2. PROPERTIES
The Company's headquarters and US manufacturing facility is located in
Brooklyn Park, a suburb of Minneapolis, Minnesota. Approximately 50,000
square feet in size, this facility houses all of the Company's U.S.
operations. The lease on this property expires in August 1999.
<PAGE>
The Company's subsidiary, Ault Korea Corporation, operates in a 36,000
square foot facility in Suwon City in the province of Kyungki-Do, Korea.
The subsidiary bought this property in May 1995 (see ITEM 7 MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES) thus terminating its previous five year
lease which would have expired in 1996.
Management considers all of the Company's properties to be well maintained
and current manufacturing arrangements adequate for manufacturing
requirements.
ITEM 3. LEGAL PROCEEDINGS
No material litigation or other claims are presently pending against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Market Information
Ault common shares are traded in the national over-the-counter market
under the symbol AULT. The following table presents the range of
closing bid prices for the Company's common stock as reported by
NASDAQ Small Cap Issues for fiscal 1995 and 1994. The bid quotations
representing prices in the over-the-counter market between dealers in
securities do not include retail mark-ups, markdowns or commissions
and do not necessarily represent actual transactions.
<TABLE>
<CPTION>
FISCAL 1995 FISCAL 1994
Quarter High Low High Low
<S> <C> <C> <C> <C>
1st 1-1/2 1-1/18 1-7/8 1-3/16
2nd 2-1/8 1-1/8 1-15/16 1-1/4
3rd 2-5/16 1-5/8 1-7/16 1-1/4
4th 3-1/8 1-3/4 1-9/16 1-1/4
</TABLE>
(b) Holders
As of August 4, 1995 there were 287 stockholders of record for the
Company's common stock. This number of record stockholders does not
include beneficial owners of common stock whose shares are held of
record by Depository Trust under the name CEDE & Co.
(c) Dividends
Ault has not paid cash dividends on its common shares, and, under
present policy of its Board of Directors to retain any earnings for
use in the business, does not anticipate paying cash dividends on its
common shares in the near future. In addition, the Company's bank
line of credit agreement precludes the payment of dividends.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
May 28, May 29, May 30, May 31, June 2,
Year Ended 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $27,054 $17,975 $21,198 $23,311 $19,531
Cost of Goods Sold 20,727 14,238 15,947 17,267 14,696
Gross Profit 6,327 $3,737 $5,251 $6,044 $4,835
Operating Expenses:
Marketing $2,346 $1,878 $2,164 $2,154 $2,069
Design Engineering 1,269 934 1,158 1,050 1,063
General &
Administrative 1,955 1,956 1,946 1,961 1,922
$5,570 $4,768 $5,268 $5,165 $5,054
Operating Income
(Loss) $757 ($1,031) ($17) $879 ($219)
Gain (Loss) on Disposal
of Equipment (25) (6)
Interest Income
(Expense) 22 (288) (214) (204) (69)
Other Income (Expense) (446) (1) (4) (1)
Income (Loss) Before
Income Taxes 333 (1,320) (231) 646 (295)
Income Taxes (Note
4)* -- -- -- -- --
Net Income (Loss) $333 ($1,320) ($231) $646 ($295)
Net Income (Loss) Per
Share $0.16 ($0.64) ($0.11) $0.31 ($0.15)
Total Assets $15,429 $10,667 $10,109 $11,074 $9,076
Property Plant &
Equipment, Net $3,002 $1,725 $2,082 $2,071 $2,023
Working Capital $2,942 $2,913 $3,831 $3,896 $3,187
Long Term Notes Payable $1,221 $233 $354 $166 $96
Stockholders' Equity $4,484 $,069 $5,439 $5,686 $5,043
<FN>
*Refers to notes appearing in Notes to Consolidated Financial Statements
under Item 8.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for fiscal 1995 were $27,054,000, up 50.5% from sales of
$17,975,000 in fiscal 1994, and 27.6% from $21,198,000 in fiscal 1993. The
improvement is due principally to three factors: First, the
telecommunications/data-communications market which had begun to show signs
of rebound in the third quarter of fiscal 1994 continued its improvement in
fiscal 1995. This provided enhanced opportunities for sale of the
Company's products to OEMs manufacturing items such as cellular phones,
<PAGE>
modems and point of sale equipment. Second, by emphasis on design
engineering, the Company developed a significant number of new standard and
custom products, thereby meeting the needs of OEMs for new product
applications. The Company's strategy for fiscal 1996 requires continued
emphasis on this support to its OEM customers. Lastly, continued emphasis
on subcontracting in South East Asian countries has enabled the Company to
better compete for price sensitive orders and to fulfill the broader needs
of its OEM customers. Decreased sales in fiscal 1994 from fiscal 1993 were
due to the Company's inability to compete where pricing was a predominant
issue, as well as to soft market conditions, mainly in the
telecommunications/data communications market.
The Company's order backlog at May 28, 1995 was $10.4 million, up from $9.6
million at May 29, 1994, and $7.4 million at May 30, 1993.
Gross profit for fiscal 1995 amounted to $6,327,000, or 23.4% of net sales,
compared to $3,737,000, which was 20.8% of net sales for fiscal 1994, and
$5,250,000 equaling 24.8% of net sales in fiscal 1993. Gross profit
improved in fiscal 1995 from fiscal 1994 principally because of
significantly increased sales and their relation to fixed costs, such as
capacity cost, which tend to remain the same within certain ranges of
sales. Management believes that gross profit will continue to improve in
fiscal 1996 due to this factor, as well as from its overall cost management
program. Additionally, the Company's strategy is to improve the proportion
of revenue that is derived from U.S. manufacturing. U.S. manufactured
products traditionally have had larger margins, compared to foreign
manufactured products which are subjected to greater pricing pressures.
The Company incurred certain additional costs, principally in three areas,
that modestly reduced gross profit in fiscal 1995: First, the strong
economy drove up the cost of some materials which was only partially
recovered from increased prices. Second, late deliveries of certain
components due to sourcing problems resulted in added freight cost to meet
on time delivery of products from the Korean subsidiary. Lastly, in the
fourth quarter, the Company paid approximately one week incentive salary to
each of its employees. Applicable only to fiscal 1995, the payment
fulfilled a promise by the Company that this would be done if operational
targets for fiscal 1995 were met. Price increases related to material
cost met only minimal customer resistance and the component sourcing
problem is being resolved.
The Company had increased its reserves for inventory adjustments in fiscal
1994, and a significant portion of sales had come from foreign manufactured
products. These factors unfavorably affected gross margin for the year.
Although products that were manufactured by the Korean subsidiary
contributed a very significant portion of total sales, conversion of the
Won to US dollars has had no significant impact on gross profit because the
conversion rates have been relatively stable.
Operating expenses were $5,571,000, or 20.6% of net sales for fiscal 1995,
compared to $4,768,000, or 26.5% of net sales for fiscal 1994, and
$5,268,000, equaling 24.9% of net sales for fiscal 1993. Compared to
fiscal 1994, the increased expenditures in marketing for fiscal 1995 were
due to commissions paid to sales representatives on the larger sales
volume. Increased payments to safety agencies commensurate with new
product introductions and additional design engineering resources at the
Korean subsidiary principally accounted for increased design engineering
cost in fiscal 1995. Agency certification expenses are expected to continue
in fiscal 1996, but design engineering resources in Korea are substantially
in place. Anticipating declining sales for all of fiscal 1994, the Company
had reduced its indirect workforce and had restructured the remaining
workforce to reduce costs in fiscal 1994 from fiscal 1993 levels.
The Company reported operating income of $757,000 for fiscal 1995, compared
to operating losses of $1,031,000 and $17,000 in fiscal 1994 and fiscal
1993, respectively.
<PAGE>
The Company incurred interest expense of $446,000, $288,000 and $231,000 in
fiscal 1995, 1994 and 1993, respectively. The increased payment for fiscal
1995 was due to both higher average borrowings to support business growth
and a higher rate on the Company's credit facility. Other non-operating
income earned in fiscal 1995 and fiscal 1993 came mainly from currency
exchange rate gains related to importation of raw material by the Korean
subsidiary.
The Company had net income of $333,000, or $0.16 per share for fiscal 1995,
compared to a net loss of $1,320,000, amounting to $.64 loss per share for
fiscal 1994. In fiscal 1993, the Company had net loss of $231,000,
equaling $0.11 loss per share. It is anticipated that revenue and net
profit for the first quarter of fiscal 1996 will compare favorably to
results for first quarter of fiscal 1995 because of the strong order
backlog noted above. Revenue and net profit for the year, compared to
fiscal 1995, are also anticipated to improve if the strategies by the
Company for continued new product introductions and offshore manufacturing
of higher-volume/lower-margin products continue to succeed, and if current
favorable market conditions persist.
Liquidity and Capital Resources
In fiscal 1994, the Company incurred a net loss of $1,320,000 and consumed
most of its available credit facility. Fiscal 1994 ended with sales
beginning to rebound and with an improved order backlog, a situation that
required the generation of cash flows from operations and careful
management of capital resources to exploit a resurgent power conversion
market, and to implement strategies for growth. Cash amounted to $133,000
at May 29, 1994. The Company responded to this situation by focusing on
cash flow management to support 50.5% revenue growth and ended fiscal 1995
with cash amounting to $319,000. Operating activities used $935,000 of
cash principally due to growth in trade receivables and inventories net of
amounts provided by net profits and related adjustments, and increased
trade liabilities. Cash used from the increase in trade receivables
amounted to $1,653,000. The increase occurred because of higher shipments
of products towards the end of the fourth quarter. Growth in inventories
used $1,124,000 of cash mainly at the Korean subsidiary which had
significant growth in manufacturing and shares a large portion of the order
backlog. Anticipated changes in trade receivables and inventories are not
expected to materially affect cash flows in fiscal 1996. Net profit and
related adjustments provided $586,000 of cash, of which adjustments, which
were principally depreciation expenses provided $253,000. Increase in
trade liabilities provided $1,412,000 of cash. The slightly longer payment
time associated with the increase has met only minimal vendor resistance.
In fiscal 1994, operating activities used $721,000 of cash principally due
to growth in inventories and receivables that occurred late in the fourth
quarter.
Investing activities used $1,680,000 principally from the purchase of
manufacturing equipment and tooling, acquisition of the facility occupied
by Ault Korea, and increase in other assets. Purchase of manufacturing
equipment and tooling used $151,000 of cash. Projected expenditures on
manufacturing equipment for fiscal 1996 are expected to be only slightly
higher. During the fourth quarter, the Company bought the facility
occupied by its subsidiary in Korea after it was placed for sale at public
auction. Although ownership of this facility was not a strong strategic
preference, the Company took this action because it was faced with either a
substantial increase in its lease expense or the traumatic business
interruption and customer inconvenience that would result from relocation
and retraining if the Company had to vacate the premises. Acquired at a
cost of $1,570,000 at 9% interest payable over five years, the Company owed
a balance of $1,287,000 on this property at the end of the year. See Note
3, Financing Arrangements and Long-Term Debt under NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. A small portion of the facility is being rented.
Decrease in other assets provided $41,000. Investing activities
principally for the acquisition of manufacturing equipment used $91,000 of
cash in 1994.
<PAGE>
Cash flows from financing activities provided $2,754,000 of cash which came
from: 1) borrowings under the Company's revolving credit facility, 2) long
term borrowings, and 3) issuance of common stock under its stock option
plan. Borrowings against the revolving credit facility increased by
$1,590,000 during the year principally to support growth in sales and its
resulting growth in trade receivables and inventories. Long-term
borrowings amounted to $1,517,000 which principally related to indebtedness
incurred to purchase the Korean facility. Repayments of long-term debt
amounted to $387,000 of which approximately $150,000 went to leasing
contracts and the balance of $237,000 to payment on the Korean property.
Payments in fiscal 1996 are expected to be approximately $334,000. In
fiscal 1994 financing activities, which included borrowing of $1,049,000
under the revolving credit facility and $131,000 repayment of long-term
debt on leasing contract provided net cash of $918,000. Exercise of Common
Stock options by officers of the company provided $35,000 of cash in fiscal
1995 and $6,000 in fiscal 1993.
The effect of foreign currency exchange rate changes on the translation of
the Korean financial statement from Korean won to US dollars resulted in
net asset value increase of $46,000 in fiscal 1995 and $50,000 decrease in
fiscal 1994. All of the Company's sales contracts are in US dollars, and,
therefore, the Company assumes no currency translation risks on these
contracts. Ault Korea, in addition to shipments to the US, sells only in
the Korea local market at this time; consequently, the Company assumes no
currency exchange risks. Neither Ault Korea nor Ault US currently has any
significant amounts of foreign raw material purchases that would expose the
Company to any significant amounts of currency exchange risk. However,
management plans to monitor the situation and to take action on minimizing
currency exchange risks on contracts as appropriate.
The Company's working capital increased during the year from $2,913,000 to
$2,942,000 at May 28, 1995, in spite of current maturities on the new
mortgage. Long-term debt, including current maturities increased from
$350,000 to $1,555,000 over the same period principally due to the
acquisition of the Korean property.
At the end of fiscal 1994, the Company had a $2,000,000 revolving credit
facility with its lending bank. Anticipating growth in revenues and the
need for additional funds to support it, the Company moved its banking
relations to a bank that provided more flexible support for the Company's
strategies. The current agreement reached during the fourth quarter
increased the credit facility to $4,500,000. Although automatically
renewable on its anniversary, the agreement may be terminated by the bank
upon at least 30 days prior written notice. At May 28, 1995, $400,000 of
the credit facility was being utilized to provide a standby letter of
credit to Korea Exchange Bank in Korea. This letter of credit guarantees
payment of domestic letters of credit that are issued by Korea Exchange
Bank to the subsidiary's material vendors and provides security for
overdrafts allowed by the bank on the subsidiaries bank accounts. No
claims have been presented against it. The balance of the $4,100,000
provides working capital to the US operation at a rate of interest that is
4% over the bank's base rate. At May 28, 1995, utilization amounted to
$3,570,000, up from $1,980,000 when the year began.
The Company's fiscal 1996 strategies are designed principally to support
expected growth in revenues. Management believes that the indebtedness
related to purchase of the Korea manufacturing facility can be supported
with only minimal amounts of additional cash after giving effect to the
elimination of lease payments for use of this facility by the subsidiary
and rental income from leasing portions of the facility not used by the
Company. The Company believes that cash flows from anticipated profits and
careful management of other operating activities together with the current
revolving credit facility will be sufficient to support the Company's
strategies through fiscal 1996. Additional sources of funds would be
needed, however, to pursue any business opportunity in fiscal 1996 outside
of the ordinary course of business.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements
Page
<S> <C> <C>
* Independent Auditor's Report 14
* Consolidated Balance Sheets, May 28, 1995 15
and May 29, 1994
* Consolidated Statements of Operations for 17
the Years Ended May 28, 1995, May 29, 1994 and
May 30, 1993
* Consolidated Statements of Stockholders' 18
Equity for the Years Ended May 28, 1995,
May 29, 1994 and May 30, 1993
* Consolidated Statements of Cash Flows 20
for the Years Ended May 28, 1995, May 29, 1994,
and May 30, 1993
* Notes to Consolidated Financial Statements 22
(b) Supplementary Financial Information
* Quarterly Financial Data 30
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ault Incorporated and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Ault
Incorporated and Subsidiary as of May 28, 1994, and May 29, 1994, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended May 28,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the financial position of Ault
Incorporated and Subsidiary as of May 28, 1995, and May 29, 1994, and the
results of their operations and their cash flows for each of the three
fiscal years in the period ended May 28, 1995, in conformity with generally
accepted accounting principles.
McGLADREY & PULLEN, L.L.P.
Minneapolis, Minnesota
July 17, 1995
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 28, 1995 and May 29, 1994
<TABLE>
<CAPTION>
ASSETS (Note 3) May 28, 1995 May 29, 1994
<S> <C> <C>
Current Assets
Cash $319, 243 $133,404
Trade Receivables, less allowance
for doubtful accounts 1995 $38,000;
1994 $131,000 5,380,642 3,917,681
Inventories (Note 2) 6,001,464 4,495,234
Prepaid and other expenses 485,200 312,620
Total Current Assets 12,186,549 8,858,939
Other Assets
Other receivable, less allowance of
$65,000 (Note 10) 196,677
Other 43,877 82,321
240,554 82,321
Property, Equipment and Leasehold
Improvements, at cost (Note 8)
Land 825,809
Building 731,956
Machinery and equipment 4,843,319 4,641,879
Office furniture and equipment 554,130 525,209
Data processing equipment 960,780 909,089
Leasehold improvements 686,619 682,894
8,602,613 6,759,071
Less accumulated depreciation 5,600,436 5,033,641
3,002,177 1,725,430
$15,429,280 $10,666,960
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY May 28, 1995 May 29, 1994
<S> <C> <C>
Current Liabilities
Note payable to bank (Note 3) $3,569,613 $1,979,944
Current maturities on long-term debt 333,731 142,051
Accounts payable 4,578,468 3,149,052
Accrued expenses:
Compensations 373,312 338,192
Other 389,496 336,329
Total current liabilities 9,244,620 5,945,568
Long-term Debt, less current maturities
(Note 3) 1,221,196 232,747
Deferred Rent Expense (Note 8) 192,877 208,382
Deferred Compensation/Severance 287,039 210,617
Commitments and Contingencies (Notes
5,6, and 8)
Stockholders' Equity (Notes 6 and 7)
Preferred stock, no par value;
authorized 1,000,00 shares; none
issued
Common stock, no par value;
authorized 5,000,000 shares;
issued and outstanding 1995
2,083,776; 1994 2,062,526 shares 6,897,332 6,862,801
Deduct notes receivable arising from
the sale common stock (107,813) (107,813)
Foreign currency translation
adjustment (111,686) (158,060)
Accumulated deficit (2,194,285) (2,527,552)
4,483,548 4,069,376
$15,429,280 $10,666,690
</TABLE>
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended May 28, 1995, May 29, 1994, and May 30, 1993
<TABLE>
<CAPTION>
May 28,1995 May 29,1994 May 30,1993
<S> <C> <C> <C>
Net sales $27,054,421 $17,974,661 $21,198,023
Cost of goods sold 20,727,224 14,237,723 15,947,751
Gross profit 6,327,197 3,736,938 5,250,272
Operating expenses:
Marketing 2,346,459 1,877,777 2,164,005
Design engineering 1,268,874 934,624 1,157,589
General and
administrative 1,955,311 1,955,965 1,946,159
5,570,644 4,768,366 5,267,753
Operating
income (loss) 756,553 (1,031,428) (17,481)
Non-operating income
(expense):
Other 22,325 (851) 18,033
Interest expense (445,611) (287,563) (231,375)
Income (loss)
before 333,267 (1,319,842) (230,823)
income taxes
Income taxes (Note 4) 0 0 0
Net income $333,267 $(1,319,842) $(230,823)
(loss)
Net income (loss) per
share $0.16 $(0.64) $(0.11)
Weighted average
number of
shares and common
equivalent shares 2,105,556 2,062,526 2,060,424
outstanding
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended May 28, 1995, May 29, 1994, and May 30, 1993
<TABLE>
<CAPTION>
Notes
Receivable
From Sale of
Common Stock Common
Shares Amount Stock
<S> <C> <C> <C>
Balance, May 31, 1992 2,058,776 $6,856,707 $(107,813)
Net loss 0 0 0
Net change in foreign
currency translation
adjustment 0 0 0
Issuance of 3,750
shares of common stock in
accordance with the
stock Issuance of 3,750
shares of common stock in
accordance with the stock
option plan (Note 6) 3,750 6,094 0
Balance, May 30, 1993 2,062,526 6,862,801 (107,813)
Net loss 0 0 0
Net change in foreign
currency translation
adjustment 0 0 0
Balance, May 29, 1994 2,062,526 6,862,801 (107,813)
Net income 0 0 0
Net change in foreign
currency translation
adjustment 0 0 0
Issuance of 21,250 shares of
common stock in accordance
with the stock option plan
(Note 6) 21,250 34,531 0
Balance, May 28, 1995 2,083,776 $6,897,332 $(107,813)
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Years Ended May 28, 1995, May 29, 1994, and May 30, 1993
<TABLE>
<CAPTION>
Foreign
Currency
Accumulated Translation
Deficit Adjustment Total
<S> <C> <C> <C>
Balance, May 31, 1992 $(976,887) $(85,521) $5,686,486
Net loss (230,823) 0 (230,823)
Net change in foreign
currency translation
adjustment 0 (22,285) (22,285)
Issuance of 3,750
shares of common stock in
accordance with the stock
Issuance of 3,750 shares
of common stock in
accordance with the stock
option plan (Note 6) 0 0 6,094
Balance, May 30, 1993 (1,207,710) (107,806) 5,439,472
Net loss (1,319,842) 0 (1,319,842)
Net change in foreign
currency translation
adjustment 0 (50,254) (50,254)
Balance, May 29, 1994 (2,527,552) (158,060) 4,069,376
Net income 333,267 0 333,267
Net change in foreign
currency translation
adjustment 0 46,374 46,374
Issuance of 21,250 shares of
common stock in accordance
with the stock option plan
(Note 6) 0 0 34,531
Balance, May 28, 1995 $(2,194,285) $(111,686) $4,483,548
</TABLE>
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 28, 1995, May 29, 1994, and May 30, 1993
<TABLE>
<CAPTION>
May 28,1995 May 29, 1994 May 30, 1993
<S> <C> <C> <C>
Cash Flows From Operating
Activities
Net income (loss) $333,267 $(1,319,842) $(230,823)
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Depreciation 528,109 481,570 510,467
Amortization 2,451 1,078 1,060
Provision for doubtful
accounts 10,000 61,000 110,000
Provision for inventory
allowance (272,000) 307,000 106,000
Loss on disposal of
equipment 0 191 0
Deferred rent expense (15,505) (3,005) 12,621
Changes in assets and
liabilities:
(Increase) decrease
in:
Trade receivables (1,652,739) (1,017,574) 1,126,723
Inventories (1,123,580) (375,417) (610,176)
Prepaid and other
expenses (156,607) 157,142 20,133
Increase (decrease)
in:
Accounts payable 1,264,569 897,723 (327,761)
Accrued expenses 147,251 89,082 (357,051)
Net cash pro-
vided by(used
in)operating
activities (934,784) (721,052) 361,193
Cash Flows From Investing
Activities
Proceeds from sale of
equipment 0 1,114 5,090
Purchase of property and
equipment (1,720,930) (100,530) (186,725)
(Increase) decrease in
other assets 40,992 8,122 (8,085)
Net cash used in
investing (1,679,938) (91,294) (189,720)
activities
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended May 28, 1995, May 29, 1994, and May 30, 1993
<TABLE>
<CAPTION>
May 28,1995 May 29, 1994 May 30, 1993
<S> <C> <C> <C>
Cash Flows From Financing
Activities
Net borrowings (payments)
on revolving credit
agreement 1,589,669 1,048,552 (287,302)
Proceeds from long-term
borrowings 1,517,290 0 0
Net proceeds from issuance
of common stock 34,531 0 6,094
Principal payments on long-
term
borrowings, including (387,303) (130,550) (98,888)
capital
lease obligations
Net cash provided
by (used in)
financing
activities 2,754,187 918,002 (380,096)
Effect of Foreign Currency
Exchange Rate Changes on
Cash 46,374 (50,254) (22,285)
Increase (decrease) in
cash 185,839 55,402 (230,908)
Cash
Beginning 133,404 78,002 308,910
Ending $319,243 $133,404 $78,002
Supplemental Disclosures of
Cash Flow Information
Cash payments for:
Interest $414,979 $284,736 $210,015
Supplemental Schedule of Non-
cash Financing Activities
Capital lease obligations
for equipment $50,142 $25,672 $342,246
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company and its subsidiary operate in one business
segment which includes the design, manufacturing and marketing of power
conversion products, principally to original equipment manufacturers of
data communications equipment, micro-computers and related peripherals,
tele-communications equipment, and portable medical equipment. Sales are
to customers worldwide, and credit is granted based upon the credit
policies of the Company.
A summary of the Company's significant accounting policies follows:
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of Ault Incorporated and its wholly-owned
subsidiary, Ault Korea Corporation. All significant intercompany
transactions have been eliminated. The foreign currency translation
adjustment represents the translation into United States dollars of the
Company's investment in the net assets of its foreign subsidiary in
accordance with the provisions of FASB Statement No. 52.
Cash: The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Prepaid and other expenses: Prepaid and other expenses at May 28, 1995,
and May 29, 1994, include refundable value added tax and refundable custom
duties relating to the Korean operations of approximately $335,000 and
$176,000, respectively.
Depreciation: It is the Company's policy to include depreciation expense
on assets acquired under capital leases with depreciation expense on owned
assets. Depreciation is based on the estimated useful lives of the
individual assets. The methods and estimated useful lives are as follows:
<TABLE>
<CAPTION>
Method Years
<S> <C> <C>
Building Straight-line 36
Machinery and equipment Straight-line 3-10
Office furniture and Straight-line 5-10
equipment
Data processing equipment Double declining balance 5
and straight-line
Leasehold improvements Straight-line 5-10
</TABLE>
Deferred compensation/severance: Deferred compensation/severance
represents the accrual of compensation expense for the Korean operations
employees that is payable upon termination of employment.
Design engineering: Design engineering costs are those incurred for
research, design and development of new products and redesign of existing
products. These costs are expensed currently.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences,
and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
<PAGE>
Investment tax credits, research and development credits, and job credits
are accounted for by the flow-through method whereby they reduce income
taxes currently payable and the provision for income taxes in the period
the assets giving rise to such credits are placed in service. To the
extent such credits are not currently utilized on the Company's tax return,
deferred tax assets, subject to considerations about the need for a
valuation allowance, are recognized for the carryforward amount.
Earnings (loss) per share: Earnings (loss) per share have been computed
using the weighted average number of common shares and, for the fiscal year
ended May 28, 1995, certain dilutive common equivalent shares outstanding.
None of the common equivalent shares have been included in the computation
for the years ended May 29, 1994, and May 30, 1993, since their inclusion
would have an antidilutive effect.
Fiscal year: The Company operates on a 52 to 53 week fiscal year. The
fiscal years for the financial statements presented ended May 28, 1995, May
29, 1994, and May 30, 1993.
Reclassification: Certain 1994 amounts have been reclassified to be in
conformity with the 1995 presentation.
Note 2. Inventories
The components of inventory at May 28, 1995, and May 29, 1994, are as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw $4,158,430 $3,012,172
Work in process 530,150 613,669
Finished goods 1,312,884 869,393
$6,001,464 $4,495,234
</TABLE>
The inventory amounts at May 28, 1995, and May 29, 1994, are presented net
of a $130,000 and $402,000 inventory valuation allowance, respectively.
Note 3. Financing Arrangements and Long-Term Debt
Financing arrangement: At May 28, 1995, the Company had a $4,500,000
revolving line of credit agreement and had approximately $930,000 of unused
availability under the line. As part of this agreement, $400,000 is
available as a standby letter of credit. This $400,000 letter of credit
was issued but not drawn upon on May 28, 1995. Interest on advances is
payable at 4 percent over the bank's base rate, currently 13 percent at May
28, 1995. All advances are due on demand and are secured by all of the
Company's assets. In addition, the agreement contains certain reporting
and operating covenants, one of which is restriction on payment of
dividends.
<PAGE>
Long-term debt:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
9% mortgage payable, due in various
installments ranging from $39,476 to
$159,761, including interest to March
2000, secured by land and building $1,236,776 $ ---
9% note payable, due in two
installments of $26,318, including,
interest to November 1995, unsecured 50,367 ---
Capitalized lease obligations, due in
various monthly installments with
interest ranging from 8.9% to 16.3%,
to Mach 1998, secured by equipment 267,784 374,798
Total $1,554,927 374,798
Less current maturities 333,731 142,051
$1,221,196 $232,747
</TABLE>
Approximate maturities of long-term debt for years subsequent to May 28,
1995, are as follows:
<TABLE>
<C> <C>
1996 $334,000
1997 338,000
1998 311,000
1999 273,000
2000 299,000
</TABLE>
Note 4. Income Taxes
Pretax income (loss) for domestic and foreign operations was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Domestic $252,514 $ 929,178) $ (89,169)
Foreign 80,753 ( 390,664) (141,654)
Total $333,267 (1,319,842) $(230,823)
</TABLE>
<PAGE>
Income tax expense (credits) for the years ended May 28, 1995, May 29,
1994, and May 30, 1993, differs from the expected rate for the following
reasons:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Computed expected tax provision
(benefit):
Domestic $101,000 $(315,000) $(30,000)
Foreign 7,000 (82,000) (30,000)
State 6,000 (40,000) (4,000)
Generation (utilization) of net
operating loss carryforwards
Domestic (107,000) 355,000 34,000
Foreign (7,000)
Effect of Korean tax holiday 82,000 30,000
status
$ -- $ -- $ --
</TABLE>
Net deferred taxes consist of the following components as of May 28, 1995,
and May 29, 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $660,000 $556,000
Loss carryforwards 407,000 534,000
Allowance for doubtful accounts 41,000 62,000
Inventory allowances 43,000 60,000
Accrued vacation 27,000 44,000
Accrued warranty 27,000 27,000
Equipment and leasehold
improvements 117,000
1,322,000 1,282,000
Less valuation allowance 1,322,000 1,282,000
Deferred tax liabilities:
Equipment and leasehold
improvements 1,000
$ $
</TABLE>
During the years ended May 28, 1995, and May 29, 1994, the Company recorded
a valuation allowance of $1,322,000 and $1,282,000, respectively, on the
deferred tax assets to reduce the total to an amount that management
believes will ultimately be realized. Realization of deferred tax assets
is dependent upon sufficient future taxable income during the period that
temporary differences and carryforwards are expected to be available to
reduce taxable income.
<PAGE>
At May 28, 1995, the Company had net operating loss carryforwards to reduce
future taxable income in the United States of approximately $1,019,000.
The Company also has tax credit carryforwards of approximately $660,000
available to offset against future income taxes in the United States for
income tax purposes. The net operating loss and tax credit carryforwards
expire in varying amounts as follows for income tax reporting purposes:
<TABLE>
<CAPTION>
Net Operating Loss Tax Credits
<C> <C> <C>
1996 $ $ 10,000
1997 26,000
1998 82,000
1999 234,000
2000 52,000
2001 22,000
2002
2003
2004 14,000
2005 42,000
2006 63,000 40,000
2007 35,000
2008 31,000
2009 956,000 13,000
2010 59,000
$1,019,000 $660,000
</TABLE>
Effective for the year ending 1990, the Company's subsidiary, Ault Korea
Corporation, elected a five-year tax holiday available under Korean tax
laws. Under this election, the subsidiary will not be subject to Korean
income taxes until fiscal year 1995. Any losses incurred during this
period may not be carried back or carried forward to offset earnings
outside the holiday period.
Note 5. Profit Sharing Plan
The Company has a profit sharing plan covering substantially all employees.
The Company is required to match 25 percent of the employees' first 6
percent of contributions and may make additional contributions to the plan
to the extent authorized by the Board of Directors. The contribution
amount charged to operating expenses in the years ended May 28, 1995, May
29, 1994, and May 30, 1993, approximated $33,000, $32,000 and $35,000,
respectively.
<PAGE>
Note 6. Stock Option Plan
The Company has a Stock Option Plan which provides up to 500,000 shares to
be designated as either non-qualified or incentive options at the
discretion of the Board of Directors. The plan provides for annual grants
of options to officers, other key employees and non-employee directors.
The following is a summary of the options granted, expired, and
outstanding:
<TABLE>
<CAPTION>
Option Price
Number of
Shares Per Share Total
<S> <C> <C> <C>
Outstanding at May 31, 1992 203,400 $1.375-4.00 $488,518
Granted 110,500 2.560-3.50 215,200
Exercised (3,750) 1.625 (6,094)
Expired (41,500) 1.625-4.00 (104,968)
Outstanding at May 30, 1993 268,650 1.375-3.50 592,656
Expired (59,400) 1.375-3.50 (137,106)
Outstanding at May 29, 1994 209,250 1.625-3.50 455,550
Granted 81,000 1.188 96,188
Exercised (21,250) 1.625 (34,531)
Expired (5,750) 1.188-3.50 (12,500)
Outstanding at May 28, 1995 263,250 1.188-3.50 $504,707
</TABLE>
All of the options above are non-qualified. At May 28, 1995, options to
purchase 176,750 shares of common stock were exercisable under the plan.
The Company has available 236,750 shares for future option grants.
Note 7. Stockholders' Equity
The Board of Directors is empowered to establish and to designate classes
and series of preferred shares and to set the terms of such shares,
including terms with respect to redemption, dividends, liquidation,
conversion, and voting rights. The Restated Articles provide that the
preferred shares are senior to the common shares with respect to dividends
and liquidation. No preferred shares have been issued.
Note 8. Commitments and Contingencies
Capital leases: The Company is leasing certain equipment under capital
leases. The cost and accumulated depreciation of assets acquired under
capital leases at May 28, 1995, and May 29, 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cost $684,114 $651,822
Accumulated depreciation 338,618 209,369
$345,496 $442,453
</TABLE>
<PAGE>
The future minimum lease payments under capital leases and the aggregate
present value of the net minimum lease payments at May 28, 1995, are as
follows:
<TABLE>
<S> <C>
1996 $139,445
1997 97,715
1998 63,729
1999 535
Total minimum lease payments 301,424
Less amount representing interest 33,640
$267,784
</TABLE>
The capital lease obligations are included under long-term debt.
Operating leases: The Company leases its United States plant under an
operating lease with a term of 120 months through August 1999. In
addition, certain equipment and motor vehicles are leased under operating
leases with terms of approximately 36 months.
The lease on the United States plant and office facilities includes
scheduled base rent increases over the term of the lease. The total amount
of the base rent payments is being charged to expense on the straight-line
method over the term of the lease. In addition to the base rent payment,
the Company pays a monthly allocation of the building's operating expenses.
The Company has recorded a deferred credit to reflect the excess of rent
expense over cash payments since inception of the lease.
Approximate minimum annual rental commitments at May 28, 1995, are as
follows:
<TABLE>
<CAPTION>
Amount
<S> <C>
1996 $ 412,000
1997 248,000
1998 247,000
1999 250,000
2000 62,000
$1,219,000
</TABLE>
Total rental expense for the years ended May 28, 1995, May 29, 1994, and
May 30, 1993, was approximately $428,000, $372,000 and $384,000,
respectively.
Incentive compensation plan: The Company has an incentive compensation
plan for key employees. Participants in the plan receive payments
contingent upon the Company exceeding certain pretax earnings levels which
are determined by the Board of Directors. No provision was required for
the years ended May 28, 1995, May 29, 1994, and May 30, 1993.
<PAGE>
Note 9. Foreign Operations
All foreign manufacturing is done by the Korean subsidiary. All United
States manufacturing is done by Ault Incorporated. A summary of the
Company's manufacturing operations by geographic area is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
United States:
Customer sales $26,785,479 $17,699,823 $20,953,110
Sales to subsidiary
Total $26,785,479 $17,699,823 $20,953,110
Operating profit (loss) $ 710,964 $(700,168) $(2,801)
Total assets 11,823,983 8,917,705 8,998,312
Capital expenditures 144,894 94,583 470,047
Depreciation and amortization 359,280 330,450 345,122
Korea:
Customer sales $ 268,942 $274,838 $244,913
Sales to parent 8,751,528 5,237,870 6,902,352
Total $ 9,020,470 $ 5,512,708 $ 7,147,265
Operating profit (loss) $ 90,209 $(361,329) (72,262)
Total assets 6,198,105 3,118,965 2,609,237
Capital expenditures 1,626,273 36,079 56,474
Depreciation and amortization 171,280 152,158 166,405
Adjustments and eliminations:
Intercompany sales 8,751,528 5,237,870 6,902,352
Operating profit (loss) 44,620 30,069 57,582
Total assets (2,592,808) (1,369,980) (1,498,236)
Consolidated:
Sales 27,054,421 17,974,661 21,198,023
Operating profit (loss) 756,553 (1,031,428) (17,481)
Total assets 15,429,280 10,666,690 10,109,313
Capital expenditures 1,771,167 130,662 526,521
Depreciation and amortization 530,560 482,608 511,527
</TABLE>
Sales from the subsidiary to the parent company are based upon profit
margins which represent competitive pricing of similar products.
Export sales: The Company also had foreign export sales amounting to 16.7,
14.7 and 12.6 percent of total sales for the years ended May 28, 1995, May
29, 1994, and May 30, 1993, respectively.
The sales were made principally to the following locations:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Canada 6.5% 9.6% 8.9%
Elsewhere 10.2% 5.1% 3.7%
16.7% 14.7% 12.6%
</TABLE>
<PAGE>
Other foreign production: In addition to the manufacturing done by the
Korean subsidiary, the Company also purchased finished assemblies from
certain manufacturers in China in an amount approximating $5,314,000 and
$1,335,000 for the years ended May 28, 1995, and May 29, 1994,
respectively. For the year ended May 30, 1993, there were no significant
purchases of inventory from other foreign manufacturers.
Note 10. Other Receivable
At May 28, 1995, the Company has a receivable in the amount of $196,677,
net of a $65,000 allowance, due from a customer for whom payment is
delinquent. The Company has filed suit, and in the opinion of management
and the Company's legal counsel, the risk of an unfavorable outcome is
minimal. The receivable has been classified as a long-term asset since the
Company is uncertain as to when the receivable will be collected.
ITEM 8(b). SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Fiscal Quarters
1995 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Net Sales $5,711 $5,899 $7,217 $8,227
Gross Profit $1,423 $1,404 $1,610 $1,890
Income (Loss) Before Income $44 $80 $83 $126
Taxes
Net Income (Loss) $44 $80 $83 $126
Earnings (Loss) Per Share $0.02 $0.04 $0.04 $0.06
1994
Net Sales $3,472 $4,420 $4,471 $5,612
Gross Profit $636 $1,132 $1,096 $873
Income (Loss) Before Income ($596) ($218) ($71) ($435)
Taxes
Net Income (Loss) ($596) ($218) ($71) ($435)
Earnings (Loss) Per Share ($0.29) ($0.11) ($0.03) ($0.21)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 405 under Regulation 5-K with respect to the
Company's executive officers is contained under Item 1(c), Narrative
Description of The Business-Executive Officers of the Registrant. The
information required by this item with respect to directors will be
presented under the caption "Election of Directors" in the Company's
definitive proxy statement for its Annual Meeting to be held on September
26, 1995, and is expressly incorporated herein by reference. Such proxy
statement will be filed with the Securities and Exchange Commission not
later than 120 days from the end of the Company's 1995 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 402 under Regulation S-K, to the extent
applicable, will be set forth under the caption "Executive Compensation and
Other Information" and under "General" in the Company's definitive proxy
materials for its September 26, 1995 Annual Meeting to be filed within 120
days from the end of the Company's fiscal year 1995 which information is
expressly incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by Item 403 under Regulation S-K, to the extent
applicable, will be set forth under the caption "Security Ownership of
Principal Shareholders and Management" in the Company's definitive proxy
statement for its September 26, 1995 Annual Meeting to be filed within 120
days from the end of the Company's fiscal year 1995, which information is
expressly incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report 14
Consolidated Financial Statements:
- Balance Sheets, May 28, 1995 and May 29, 1994 15
- Consolidated Statements of Operations for the 17
Years Ended May 28, 1995, May 29, 1994,
and May 30, 1993
- Consolidated Statements of Stockholders' Equity 18
for the Years Ended May 28, 1995, May 29, 1994,
and May 30, 1993
- Consolidated Statements of Cash Flows for the 20
Years Ended May 28, 1995, May 29, 1994,
and May 30, 1993
- Notes to Consolidated Financial Statements 22
(2) The following financial statement schedule for the years
ended May 28, 1995, May 29, 1994, and May 30, 1993
is submitted herewithfollowing the signature page of
this report:
- Independent Auditor's Report on the Schedules 35
- Schedule II - Valuation and Qualifying Accounts 36
All other Schedules are omitted because they are not
applicable orthe required information is shown in
the financial statements ornotes thereto.
(3) Exhibits 37
The Exhibits required to be filed with this report or
incorporatedby reference are listed in the Exhibit Index
which follows theFinancial Statement Schedules.
(b) Reports on Form 8-K During 3 Months Ended May 28,
1995
None.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Ault Incorporated has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AULT INCORPORATED
<TABLE>
<S> <C>
/s/Frederick M. Green August 22, 1995
Frederick M. Green
President, Chief Executive Officer and Director
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/S/ Frederick M. Green President and Chief August 22, 1995
Frederick M. Green Executive Officer and
Director
/s/ Carlos S. Montague Vice President, August 22, 1995
Carlos S. Montague Treasurer, Chief
Financial Officer,
Assistant Secretary and
Controller*
/s/Matthew A. Sutton Director August 22, 1995
Matthew A. Sutton
/s/ Eric G. Mitchell, Jr. Director August 22, 1995
Eric G. Mitchell, Jr.
/s/ Delbert W. Johnson Director August 22, 1995
Delbert W. Johnson
/s/ John G. Kassakian Director August 22, 1995
John G. Kassakian
/s/Edward C. Lund Director August 22, 1995
Edward C. Lund
/s/ James M. Duddleston Director August 22, 1995
James M. Duddleston
<FN>
* Principal Financial Officer and Principal Accounting Officer
</TABLE>
<PAGE>
*******************************************************************
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
AULT INCORPORATED
FOR
YEAR ENDED MAY 28, 1995
*******************************************************************
FINANCIAL STATEMENT SCHEDULES
*******************************************************************
<PAGE>
INDEPENDENT AUDITOR'S REPORT
ON THE SCHEDULE
To the Board of Directors
Ault Incorporated and Subsidiary
Minneapolis, Minnesota
Our audits of the consolidated financial statements of Ault Incorporated
and Subsidiary included Schedule II, contained herein, for the years May
28, 1995, May 29, 1994, and May 30, 1993.
In our opinion, such a schedule presents fairly the information required to
be set forth therein in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN, L.L.P.
Minneapolis, Minnesota
July 17, 1994
<PAGE>
SCHEDULE II
AULT INCORPORATED AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Years Ended May 29, 1995, May 29, 1994, and May 30, 1993
<TABLE>
<CAPTION>
Balance Charged
at to Costs Balance
Beginning and at End of
of Period Expenses Deductions Period
<S> <C> <C> <C> <C>
Year Ended May 28, 1995
Allowance for
doubtful accounts $131,000 $6,000 (a)$34,000 $103,000
Reserve for
warranties 69,000 49,000 52,000 66,000
Allowance for
inventory valuation
in excess of net
realizable value 402,000 (272,000) 0 130,000
Year Ended May 29, 1994
Allowance for
doubtful accounts $160,000 $61,000 (a) $90,000 $131,000
Reserve for
warranties 68,000 37,000 36,000 69,000
Allowance for
inventory valuation
in excess of net
realizable value 106,000 307,000 11,000 402,000
Year Ended May 30, 1993
Allowance for
doubtful accounts $67,000 $110,000 (a) $17,000 $160,000
Reserve for
warranties 100,000 116,000 148,000 68,000
Allowance for
inventory valuation
in excess of net
realizable value 22,000 106,000 22,000 106,000
<FN>
(a)These deductions represent charge-off of accounts receivable, net of
recoveries.
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
AULT INCORPORATED
FOR
YEAR ENDED MAY 28, 1995
*******************************************************************
EXHIBITS
*******************************************************************
<PAGE>
AULT INCORPORATED
EXHIBIT INDEX TO
FORM 10-K FOR THE YEAR ENDED MAY 28, 1995
Required Regulation S-K
Exhibit Items
<TABLE>
<CAPTION>
SK
Reference Title of Document Location
<S> <C> <C>
3(a) Restated Articles Filed as Exhibit 3(a) to Form 10-K
of Incorporation, for fiscal 1988 and incorporated
as amended. herein by reference.
3(b) Bylaws, as amended. Filed as Exhibit 3(b) to
Registration Statement No. 2-85224
and incorporated herein by reference.
10.1 Management Filed as Exhibit 10(b) to
Incentive Registration Statement No. 2-85224
Compensation and incorporated herein by reference.
Plan
10.2 1986 Employee Filed as Exhibit 10(c) to Form 10-K
Stock Option for fiscal 1987 and incorporated
Plan herein by reference.
10.3 Ten Year Building Filed as Exhibit 10(e) to Form 10-K
Lease Contract for fiscal 1989 and incorporated
herein by reference.
10.4 Financing Agreement Filed herewith as Exhibit 10(f)
on Credit Facility
21 Subsidiary of Filed as Exhibit 22 to Form 10-K
Registrant for fiscal 1987 and incorporated
herein by reference.
23 Consent of Filed herewith at Page 44.
Independent
Auditors
27 Financial Data Filed electronically at Page 45.
Schedule
</TABLE>
Pursuant to provisions of Item 601(b) (A) (iii) (a) of Regulation S-K,
copies of instruments defining the rights of holders of long-term debt of
the Company are not being filed and in lieu thereof, Company agrees to
furnish copies thereof to the Securities and Exchange Commission upon
request.
<PAGE>
EXHIBIT 10.4
FINANCING AGREEMENT
DATE: April 28, 1995
REPUBLIC ACCEPTANCE CORPORATION
2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
We propose the following arrangement with you for borrowing from you
based upon the loan value of our "accounts," "inventory" and "equipment"
(as those terms are defined in the Uniform Commercial Code), secured, inter
aila, by a security interest in accounts, inventory, equipment and other
collateral, as granted to you by the Security Agreement between us of even
date herewith.
SECTION 1. (LOAN AGREEMENT)
At our request, you in your sole discretion may lend to us (i) up to
eighty percent (80%) of the net amount of accounts which are listed in
current schedules provided by us and which are deemed eligible for advances
by you, or any greater or lesser percentage at your absolute and sole
discretion ("Eligible Accounts"); and (ii) up to twenty-five percent (25%)
of the net amount of inventory which is listed in monthly inventory
certificates provided by us and which is deemed eligible for advances by
you, or any greater or lesser percentage at your absolute and sole
discretion, not to exceed a maximum aggregate amount of $700,000 from time
to time outstanding ("Eligible Inventory"); and (iii) up to $400,000.00
against our equipment, which amount shall be reduced as set forth below
(the "Initial Overline Amount"); provided however, that the maximum
aggregate amount of all such advances from time to time outstanding shall
not exceed $4,500,000. Loans for additional sums requested by us may be
made at your sole discretion based upon your valuation of other collateral
or other factors. All borrowings pursuant hereto shall be due on demand.
In addition, at our request, and subject to your authorization in your
sole discretion, First Bank National Association (the "Bank") may from time
to time issue letters of credit for our account (the "Letters of Credit").
Upon the occurrence of any draw under a Letter of Credit that you have in
writing guaranteed, you will pay to the Bank 100% of such draw and treat
such payment as and advance against Eligible Accounts by you to us
hereunder and a reimbursement by us in full of such draw, whether or not
you have determined for all other purposes to cease making loans to us
hereunder. The amount of any unreimbursed draw and the amount available to
be drawn under any Letter of Credit shall both be treated as an outstanding
advance against Eligible Accounts hereunder for the purpose of determining
the amount which may be advanced under this Section I against Eligible
Accounts. We also agree that at any time that the Bank issues a Letter of
Credit payable in currency other than U.S. Dollars, the amount of the
exposure related to the borrowings under this Agreement connected with such
Letter of Credit shall be increased by a percentage to be set by you in
your sole discretion unless and until we purchase an appropriate foreign
exchange forward contract or otherwise mitigate the foreign exchange risk
to your satisfaction.
Commencing on December 1, 1995, and continuing on the first (1st) day
of each month thereafter, the Equipment Amount shall be reduced in equal
monthly principal installments based upon a forty-eight(48) month
amortization of the original Equipment Amount.
Commencing on December 1, 1995, and continuing on the first (1st) day
of each month thereafter, the Initial Overline Amount shall be reduced in
equal monthly principal installments based upon a thirty-six (36) month
amortization of the original Initial Overline Amount.
<PAGE>
You may from time to time furnish to us a statement of our account.
Any such statement shall be conclusive on us unless and except as written
objections thereto calling your attention to errors are received by you
within 30 days after it is mailed or delivered to us.
SECTION II. (CHARGES)
(A) We agree to pay interest on the net balance owed to you at the
close of each day at a rate per annum (computed on the basis of actual
number of days elapsed and a year of 360 days) which is equal to a rate per
annum which is four percent (4%) in excess of the publicly announced
reference rate (or other publicly announced prime rate) of interest charged
by the Bank. Such interest will be due and payable to you at the close of
each month.
(B) If a third party participates in the advances to us, however, the
charge with respect to the portion of the borrowings represented by a third
party participant's advances will be the amount of the third party
participant's charges.
(C) There will be a minimum charge net to you of $10,000.00 per
month. We further agree that if this agreement is terminated under Section
VIII hereof at any time prior to the first anniversary of the date of this
Agreement, we will pay to you at the time of such termination a prepayment
charge in the amount equal to $10,000.00 per month for each month remaining
until the first anniversary date of this Agreement, provided, however, that
if this Agreement is terminated solely as a result of the refinancing of
our obligations hereunder with a First Bank System affiliate, and the
payment in full of our obligations hereunder, we will incur no prepayment
charge.
(D) We further agree to pay you a fee in an amount of $2,000 per
examination for not more than three examinations of our assets in each
twelve month period, plus your out-of-pocket costs and expenses incurred in
connection with such examinations. Such fee, costs and expenses will be
due and payable to you upon our receipt of your invoice therefor.
(E) We further agree to pay you a wire transfer charge of $12.50 per
wire transfer with respect to our account.
(F) In addition to the amounts payable to you under paragraphs (A),
(B), (C), (D) and (E) of this Section II, we agree to pay (i) all fees and
other charges of the Bank in connection with the issuance, amendment,
administration, or payment of each Letter of Credit and (ii) a fee to you
for each Letter of Credit (or amendment to any Letter of Credit) calculated
by applying a rate equal to 3% per annum (computed on the basis on actual
number of days to elapse and a year of 360 days) to the face amount of the
Letter of Credit for the period from the date of issuance of such Letter of
Credit or amendment to its expiration date.
SECTION III. (LISTING ACCOUNTS, INVENTORY AND EQUIPMENT)
(A) Prior to or concurrently with our initial borrowing hereunder,
and monthly thereafter, we shall furnish you a list and aging of all
accounts owned by us, a certificate listing all inventory owned by us, and
a certificate listing all equipment owned by us, all in form acceptable to
you; and weekly, or at other intervals mutually agreed upon, we will
deliver to you a list of all accounts created or acquired by us since our
last previous list and aging of accounts.
(B) We warrant that, except as may be disclosed in the lists of
accounts furnished to you: each billing correctly states the subject
matter and terms of sale; the merchandise conforms thereto and is in all
respects acceptable to the customer; the date of billing is not prior to
shipment; the account is not subject to any dispute, defense, offset or
counterclaim; the account debtor is not a subsidiary or affiliated company;
<PAGE>
and that we have no reason to believe the account will not be paid in the
regular course of business. We further warrant that, except as may be
disclosed in the inventory certificates furnished to you: all of the
inventory is located at or in transit to one of our locations previously
disclosed to you; all of the inventory is of good and merchantable quality
free from any defects that would affect the market value thereof, can be
sold in the ordinary course of our business, and is not a product that has
been discontinued by the manufacturer or vendor (if any) from which we
purchased it; and has not been sold or identified for sale to a particular
customer if the customer's obligation to pay for such inventory is an
account listed on the most recent list of accounts furnished to you.
SECTION IV. (CUSTODY AND INSPECTION OF RECORDS; HANDLING OF COLLECTIONS)
(A) All ledger sheets or cards, invoices, shipping records,
correspondence and other writings relating to accounts and inventory shall,
until delivered to you or removed by you from our premises, be kept on our
premises without cost to you in appropriate containers in safe places.
(B) Until our authority to do so is terminated by written notice from
you (which notice you may give at any time), we will at our expense and on
your behalf collect as your property and in trust for you all amounts
unpaid on accounts, and shall not mingle such collections with our own
funds. We shall remit all collections to you in kind, duly endorsed, on
the same day if practical, otherwise on the following business day; and you
shall credit the same to our account (subject to final collection thereof)
after allowing three days for collection of checks. This provision is
subject to your rights under paragraphs 4 and 5 of the Security Agreement
of even date herewith.
(C) If you take over the handling of collections, you may remove from
our premises all books and records, correspondence, documents and files
relating to accounts; and you may without cost or expense to you use such
of our personnel, supplies, space and equipment at our place of business as
you may desire for the handling of collections. We will pay any and all
internal, office and out of pocket expenses and cost of collection
(including reasonable attorney fees) incurred by you in your handling of or
effort to enforce collections.
SECTION V. (REPORTS)
We will furnish you: (a) weekly, in such detail as you may request,
written reports, certified as correct by one of our officers, showing all
purchases and sales of merchandise, returns and allowances, collections,
and all miscellaneous charges and credits affecting the collateral,
together with an accounts aging and reconciliation; (b) monthly, similarly
certified financial and operating statements; (c) upon the occurrence
thereof, a report of all equipment purchased and/or sold by us, including
the sale and/or purchase price thereof; (d) annually, at our expense, a
complete certified audit report of our operations and condition made by an
independent certified public accountant satisfactory to you; (e) upon
issuance, copies of all public accountants' reports rendered to us while we
are indebted to you; and (f) within five days after the due date, proof of
payment or deposit, when due, of all withholding and F.I.C.A. taxes owing
by us from time to time.
SECTION VI. (WARRANTIES, REPRESENTATIONS AND COVENANTS)
We warrant, represent to and covenant with you that we shall not: (a)
permit any levy, attachment or restraint to be made affecting any of our
assets; (b) permit any receiver, trustee or assignee for the benefit of
creditors to be appointed to take possession of any or all of our assets.
Except with your prior written consent, we shall not: (c) other than in
the ordinary course of our business, sell, lease, or otherwise dispose of
or transfer any of our assets; (d) merge or consolidate with any other
corporation; (e) acquire any other corporation; (f) enter into any
transaction not in the usual course of our business; (g) make any
investment in the securities of any person, association, firm, entity or
<PAGE>
corporation other than securities of the United States of America; (h)
guarantee or otherwise become in any way liable with respect to the
obligations of any person, association, firm, entity or corporation except
by endorsement of instruments or items of payment for deposit to our
general account or which are transmitted or turned over to you on account
of our obligations; (i) pay or declare any dividends upon our capital
stock; (j) redeem, retire, purchase or otherwise acquire directly or
indirectly any of our capital stock; (k) make any change in our capital
structure or in any of our business objectives, purposes and operations
which might in any way adversely affect our ability to repay our
obligation: (l) make any distribution of our property or assets; (m) incur
any debts outside of the ordinary course of our business except renewals or
extensions of existing debts and interest thereon; (n) make any loan,
advance, contribution or payment of money or goods to any subsidiary,
affiliated or parent corporation, or to any officer, director or
stockholder thereof (except compensation for personal services rendered);
(o) encumber, pledge, assign or permit to be created a lien or security
interest in collateral subject to your security interest. All covenants,
representations and warranties set forth in this agreement and in any other
agreements executed by us in connection herewith and all terms, conditions,
provisions and agreements to be performed by us pursuant to this agreement
and such other agreements shall be true and satisfied at the time of our
execution and shall survive the closing thereof and the execution and
delivery of such agreements.
SECTION VII. (MISCELLANEOUS)
(A) We agree that you may from time to time, for your convenience,
segregate or apportion the collateral for purposes of determining the
amounts of maximum amounts of loans and advances which may be made
hereunder. Nevertheless, your security interest in all such collateral,
and any other collateral rights, interests and properties which may now or
hereafter be available to you, shall secure and may be applied to the
payment of any and all loans, advances and other indebtedness secured by
your security interest, in any order or manner of application and without
regard to the method by which you determine to make loans hereunder.
(B) We hereby irrevocably make, constitute and appoint you, or any
person whom you may designate, our true and lawful attorney with power to
receive, open and dispose of all mail addressed to us; to endorse the name
of our company upon any notes, acceptances, checks, drafts money orders or
other means of payment that may come into your possession as payment of or
upon accounts or other collateral; to endorse the name of our company on
any invoice, freight or express bill or bill of lading relating to any
collateral; to sign our name to drafts against debtors, to assignments and
verification of accounts and notices thereof to debtors; and to do all
other things necessary or proper to carry out the intent of this agreement.
(C) At your request, we will deliver customers' monthly statements to
you for examination and for mailing in our stamped addressed envelope.
From time to time, you may verify directly with customers the amounts
owing, or at your request, we or our independent accountants will do so and
deliver the results to you in any manner satisfactory to you.
(D) We agree that any bank participating with you in loans to us
hereunder may exercise any and all rights of banker's lien or set-off with
respect to such participation as fully as if such participant had lent
directly to us the amount of such participation.
(E) We agree to reimburse you for all attorney fees, filing fees, and
other out-of-pocket expenses (including but not limited to travel expenses)
you may incur in connection with the negotiation and administration of this
agreement or any related agreements, preparation of documents relating
thereto, perfecting any security interest or lien granted thereby, or
enforcing any of our obligations to you arising under this or any other
agreement between us. If you elect, you may treat the amount of any such
expense as a loan to us and add the amount to our loan account with you.
<PAGE>
(F) This agreement shall bind and inure to the benefit of you and us
and your and our respective successors and assigns. This agreement, and
all assignments of collateral shall be construed pursuant to the laws of
the State of Minnesota.
SECTION VIII. (TERMINATION)
If you do not terminate this agreement because we are in default, this
agreement shall continue in effect until terminated upon at least 30 days'
prior written notice delivered by certified mail by either party to the
other. During the term of the agreement, you may, upon written notice to
us, discontinue making additional or new loans if we should be in default
under any obligation or indebtedness to others, or if in your opinion there
should be a materially unfavorable change in our financial condition or
operations, or any unreasonable increase in customer claims or disputes.
Termination shall not impair or affect our rights and obligations then
existing.
SECTION IX. (OTHER AGREEMENT; EVENTS OF DEFAULT)
We have entered into a certain Security Agreement of even date
herewith with you (the "Security Agreement"). Any default under or
misrepresentation contained in the Security Agreement shall be an event of
default hereunder, and in addition to your rights to terminate this
Agreement upon an event of default, you shall have the right to exercise
any and all rights and remedies as provided in the Security Agreement;
provided however, that nothing herein or in the Security Agreement shall be
deemed to affect your right to make loans in your sole discretion or to
demand payment of such loans, in whole or in part, at any time at your sole
discretion.
REPUBLIC ACCEPTANCE CORPORATION
By: Thomas Kapocek
Title: Vice President
AULT INCORPORATED
By: Frederick M. Green
Title: President and CEO
By: Carlos S. Montague
Title: Vice President and CFO
Address: 7300 Boone Avenue North
Minneapolis, MN 55428
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Ault Incorporated and Subsidiary
We hereby consent to the incorporation by reference in the Company's
Registration Statement on Form S-8 (Commission File number 33-53988),
Registration Statement on Form S-8 (Commission File number 2-87376) and
Registration Statement on Form S-8 (Commission file number 33-19662 of our
report dated July 17, 1995, which appears on page 14 of the annual report
on Form 10--K for the year ended May 28, 1995.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
August 22, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY'S
FORM 10-K FOR THE YEAR ENDED MAY28,1995, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERRENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-28-1995
<PERIOD-START> MAY-30-1994
<PERIOD-END> MAY-28-1995
<CASH> 319,243
<SECURITIES> 0
<RECEIVABLES> 5,380,642
<ALLOWANCES> 0
<INVENTORY> 6,001,464
<CURRENT-ASSETS> 12,186,549
<PP&E> 8,602,613
<DEPRECIATION> 5,600,436
<TOTAL-ASSETS> 15,429,280
<CURRENT-LIABILITIES> 9,244,620
<BONDS> 0
<COMMON> 6,897,332
0
0
<OTHER-SE> (2,413,784)
<TOTAL-LIABILITY-AND-EQUITY> 15,429,280
<SALES> 27,054,421
<TOTAL-REVENUES> 27,054,421
<CGS> 20,727,224
<TOTAL-COSTS> 20,727,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 445,611
<INCOME-PRETAX> 333,267
<INCOME-TAX> 0
<INCOME-CONTINUING> 333,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333,267
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
