FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 26, 1995
Commission file number 0-12611
AULT INCORPORATED
MINNESOTA____________ 41-0842932
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification No.)
7300 Boone Avenue North
Minneapolis, Minnesota 55428-1028
(Address of principal executive offices)
Registrant's telephone number: (612) 493-1900
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days.
YES __X___ NO _______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Outstanding at
Class of Common Stock November 26, 1995
No par value 2,090,276 shares
Total pages - - - - 22
Exhibits Index on Page - - - - 12
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATES & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Amounts Per Share)
<TABLE>
<CAPTION>
(UNAUDITED)
SECOND QUARTER SIX MONTHS ENDED
ENDED
NOV. 26 NOV. 27 NOV. 26 NOV. 27
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales $7,711 $5,899 $14,592 $11,610
Cost of Goods Sold 5,872 4,495 11,023 8,783
Gross Profits 1,839 1,404 3,569 2,827
Operating Expenses
Marketing 649 519 1,275 1,053
Design Engineering 334 274 672 562
General & 525 436 1,048 901
Administrative
1,508 1,229 2,995 2,516
Operating Income 331 175 574 311
Non-Operating Income
(Expense)
Interest & Other Income 55 2 85 12
Interest & Other Expense (186) (97) (397) (199)
Income Before Income Taxes 200 80 262 124
Income Taxes (Note 2)
Net Income $200 $80 $262 $124
Net Income Per Share $0.09 $0.04 $0.12 $0.06
Weighted Number of Shares
& Common Equivalent
Shares Outstanding 2,193,281 2,079,966 2,176,589 2,079,966
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nov. 26, May 28,
1995 1995
<S> <C> <C>
Assets
Current Assets
Cash & Cash Equivalents (Note 3) $44 $319
Trade Receivables Less Allowance for
Doubtful Accounts of $35,000 at
November 5,546 5,381
26, 1995, and $38,000 at May 28,
1995
Inventories:
Finished Goods 1,375 1,313
Work In Process 417 530
Raw Material 4,540 4,158
Total Inventories 6,332 6,001
Other Current Assets (Note 4) 546 485
Total Current Assets 12,468 12,186
Other Assets 215 241
Equipment and Leasehold Improvements,
at Cost:
Land 816 826
Building 696 732
Machinery and Equipment 4,935 4,843
Office Furniture 567 554
E.D.P. Equipment 961 961
Leasehold Improvements 686 687
8,661 8,603
Less Accumulated Depreciation 5,845 5,601
Net Equipment and Leasehold
Improvements 2,816 3,002
Total Assets $15,499 $15,429
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nov. 26, May 28,
1995 1995
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Note Payable to Bank $4,515 $3,570
Current Maturities of Long-Term
Debt (Note 5) 314 334
Accounts Payable 3,599 4,578
Accrued Expenses:
Compensation (Note 6) 657 660
Other 160 102
Total Current Liabilities 9,245 9,244
Long-Term Debt, Less Current Maturities
Included Above (Note 5) 1,041 1,221
Deferred Rent Expense (Note 7) 180 193
Deferred Compensation (Note 8) 283 287
Stockholders' Equity:
Preferred Shares, No Par Value;
Authorized,
1,000,000 Shares; None Issued.
Common Shares, No Par Value,
Authorized: 5,000,000; Shares
Outstanding:November 26, 1995,
2,90,226; May 28, 1995;
2,083,776 Shares 6,906 6,897
Deduct Notes Receivable Arising
From Sale of Common Stock (108) (108)
Foreign Currency Translation
Adjustment (Note 9) (116) (111)
Retained Earnings (Deficit) (1,932) (2,194)
Total 4,750 4,484
Total Liabilities and Stockholders'
Equity $15,499 $15,429
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
Nov. 26, Nov. 27,
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities:
Net Profit $262 $124
Adjustments to Reconcile Net Income to
Net Cash Provided By(Used In)
Operating Activities:
Depreciation 256 278
Provision for Doubtful Accounts (3)
Provision for Inventory Allowance 32
Deferred Rent (13) (7)
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables (162) (283)
Inventories (363) (427)
Other Current Assets (61) (98)
Increase (Decrease) In:
Accounts Payable (979) 838
Accrued Expenses 51 (30)
Net Cash Provided By (Used In)
Operating Activities (980) 395
Cash Flows From Investing Activities:
Purchase of Equipment (91) (131)
Decrease in Other Assets 47 77
Net Cash Used In Investing Activities (44) (54)
Cash Flows From Financing Activities:
Net Borrowings (Payment) on Revolving
Credit Agreement 945 (203)
Proceeds From Issuance of Common Stock 9 35
Principal Payments on Long-Term
Borrowings, Including Capital Lease
Obligations (200) (71)
Net Cash Provided By (Used In)
Financing Activities 754 (239)
Effect of Foreign Currency Exchange Rate
Changes on Cash (5) (19)
Increase (Decrease)in Cash (275) 83
Cash: Beginning 319 134
End $44 $217
</TABLE>
AULT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SECOND QUARTER ENDING NOVEMBER 26, 1995
NOTE 1
In the opinion of management, the accompanying
unaudited financial statements contain all adjustments
(which only include normal recurring adjustments)
necessary to present fairly Ault Incorporated's
consolidated financial position as of November 26,1995,
and November 27, 1994, and changes in financial
position for the six months then ended. The
consolidated financial statements include the
operations of the parent company, Ault Incorporated (US
operation), and its wholly owned subsidiary, Ault Korea
Corporation.
NOTE 2
No income taxes were accrued for the period. Taxes
that were calculated on profits of the US operation
were offset by the utilization of tax credit
carryforwards. Ault Korea Corporation reported a loss
for the period and therefore had no accrued income
taxes.
NOTE 3
For the purpose of reporting cash and cash flows, the
Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be
cash equivalents.
NOTE 4
Other current assets for both periods are principally
customs duty and value-added taxes, and amounts
receivable for customized tooling charges. The customs
duty and value-added taxes are paid by Ault Korea
Corporation to the Korean authority on products that
are manufactured for exportation. The taxes are
refundable when the subsidiary submits to the Korean
Government the appropriate claim and proof of
exportation.
NOTE 5
Long-term debt, including current maturities, consists
of capitalized lease obligations and a mortgage on the
Korean facility. Capitalized leases amounting to
$205,000 are due in various monthly installments
maturing through fiscal 1998. The mortgage amounts to
$1,149,000 at 8.6% rate of interest of which
approximately $160,000 of principal and interest is
payable every six months through the year 2000.
NOTE 6
Compensation consists principally of amounts accrued
for sales representatives' commissions, and provision
for employee future paid time off. Sales commissions
are accrued for at the time that sales are invoiced,
and future paid time off accrued for in accordance with
the Company's personnel policy.
NOTE 7
The lease on the Company's Minneapolis plant and office
facilities includes scheduled base rent increases over
the term of the lease, which runs for ten years. The
total amount of the base rent payment is being charged
to expenses on the straight-line method over the term
of the lease. The difference between the payments and
the expense is recorded as deferred rent.
NOTE 8
Deferred compensation is a provision by Ault Korea
Corporation, in accordance with requirement by the
Korean Authority, for the compensation of each current
employee when his employment with the subsidiary
terminates.
NOTE 9
The Korean Won is considered the functional currency of
the Korean subsidiary. Accordingly, the effect of
translating the subsidiary's statements into US dollars
is recorded as a separate component of shareholders'
equity.
ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net Sales were $7,711,000 for the second quarter of
fiscal 1996, up 31% from $5,899,000 for the second
quarter of fiscal 1995. For the six months of fiscal
1996, net sales totaled $14,592,000, an increase of 26%
from $11,610,000 for the six months of fiscal 1995.
The improvement in net sales is due principally to
three factors. First, the telecommunications/data
communications market served by the Company has shown
continued strength following its rebound from weak
conditions that had prevailed up to late fiscal 1994.
Driven worldwide by leading technologies in
communication and transmission and processing of data,
it is anticipated that this strong market condition
will endure for at least well into fiscal 1997. This
enhanced market situation is providing greater
opportunities for the Company to sell its products to
OEMs manufacturing items such as point of sales
equipment, telephones, modems, local area network
systems, and cable communications services. Second,
several new products that were developed in past
quarters, through emphasis on design engineering, are
now generating significant bookings and revenues for
the Company. The Company's strategies require
continued emphasis on the development of products for
custom and standard applications that represent
significant opportunities. To this end, seven new
products were introduced during the first six months of
fiscal 1996, of which five were customized for specific
applications. The remaining two products were designed
for various general applications including applications
in the medical market. Lastly, continued empahsis on
subcontracting in South East Asian countries, and
greater utilization of its Korean facility have enabled
the Company to better compete for price sensitive
orders and to fulfill the broader needs of its OEM
customers. The lower sales for the first six months of
fiscal 1995 were due principally to softer but
generally improving market conditions prevailing at
that time, and the absence of products that would
enable the Company to better compete for orders then
existing.
The Company's order backog at November 26, 1995, was
$14,257,000, up 42% from $10,041,000 at November 27,
1994. The Company is presently anticipating stronger
sales during the third quarter, compared to its quarter
just ended, because of the larger order backlog,
favorable market condition, and its engineering and
manufacturing strategies. Excluding anything unforseen
that would impair these supporting conditions, it is
also anticipated that sales for the first quarter of
fiscal 1996 will improve compared to sales attained in
the first quarter of fiscal 1995.
Gross profits for the second quarter of fiscal 1996
were $1,839,000 or 23.8% of net sales compared to
$1,404,000, which was also 23.8% of net sales for the
second quarter of fiscal 1995. For the six months of
fiscal 1996, gross profits were $3,569,000, or 24.5% of
net sales, compared to $2,827,000 or 24.4% of net sales
for the six months of fiscal 1995. Lower sales of U.S.
manufactured products and greater material cost at the
Korean facility are principal factors that prevented
further margin improvement. U.S. manufactured products
sold in small quantities normally have greater margins.
The Company is reviewing strategies to improve U.S.
manufacturing, and it is anticipated that the Korean
material cost problem will be remedied by minor changes
in material configuration.
Although products that were manufactured by the Korean
subsidiary contributed a very significant portion of
total sales, conversion of the Won to U.S. dollars has
had no material impact on gross profits because the
conversion rates have been relatively stable, and
customer orders are subcontracted to the subsidiary in
U.S. dollars.
Operating expenses for the second quarter of fiscal
1996 amounted to $1,508,000, or 20% of net sales,
compared to $1,229,000 which equaled 21% of net sales
for the second quarter of fiscal 1995. For the six
months, operating expenses were $2,995,000, or 21% of
net sales for fiscal 1996, and $2,516,000, or 22% of
net sales for fiscal 1995. The higher expenditures for
fiscal 1996 were principally due to greater but
proportionate commissions paid on the increased sales,
and larger administrative costs associated with foreign
business activities.
The company had operating profits of $331,000 and
$574,000 for the second quarter and six months
respectively, of fiscal 1996, compared to operating
profits of $175,000 for the second quarter, and
$311,000 for the six months of fiscal 1995.
Non-operating income of $85,000 in fiscal 1996 and
$12,000 in fiscal 1995 are principally interest earned
on short-term investments and currency exchange rate
gains on importation of raw material by the Korean
subsidiary. Non-operating expenses of $397,000 in
fiscal 1996 and $199,000 in fiscal 1995 are principally
interest expense of the Company. Fiscal 1995 payments
are interest on bank indebtedness and capital leases.
Fiscal 1996 payments contain approximatly $60,000 of
mortgage interest payments on the Korean facility that
was purchased late in fiscal 1995. The balance of
$337,000 was also principally interest payments on bank
indebtedness and capital leases which, compared to
fiscal 1995, are higher due to greater borrowings to
support revenue growth.
The Company had no accrued income taxes for the
periods. Taxes that were caluclated on profits of the
US oepration were offset by the application of tax
credit carryforwards. Ault Korea Corporation incurred
a loss for the period and therefore had no accrued
income taxes.
The Company reported net income of $200,000 amounting
to per share earnings of $0.09 for the second quarter
and $262,000 amounting to per share earnings of $0.12
for the six months of fiscal 1996. In fiscal 1995, the
Company had net income of $80,000 or per share earnings
of $0.04 for the second quarter, and $124,000 or per
share earnings of $0.06 for the six months.
Liquidity and Capital Resources
The Company's strategies for fiscal 1996 require
utilization only of its current resources to exploit
prevailing market conditions for growth in revenues and
to realize other objectives targeted for attainment in
fiscal 1996. Principal components of these resources
are the Company's credit facilities and its cash flows
from operations. Expenditures for investing activities
that are commensurate with these strategies are also a
compelling factor. At the end of the six months, the
Company had cash of $4,000, down from $319,000 at May
28, 1995. The reduction came principally from cash
flow activities in operations, investing and financing,
and reflected the Company's strategy to maintain bank
indebtedness at lowest affordable levels for the
resulting savings in interest cost.
In spite of cash provided from profits and related
adjustments, operating activities used $980,000 of cash
during the six months, principally because of cash used
by increased trade receivables and inventories and
decreases in trade payables. Net profits, after
adjustments for non-cash items, provided $534,000 of
cash. Greater provision of cash from profits and
adjustments is anticipated for the remaining six
months. Growth in trade receivables resulting
principally from increased sales during the second
quarter used $162,000 of cash. Further increase in
sales anticipated during the second half of fiscal 1996
is expected to influence further growth in trade
receivables. As a result, no contribution to cash is
expected from this source for the balance of fiscal
1996. Growth in inventories, mainly during the second
quarter, used $363,000 of cash. Although the Company
anticipates greater material needs during the second
half, no further growth in inventories that will use
any significant cash is anticipated, because the
Company does not normally purchase material to stock
nor stock finished products. Reduction in trade
payables principally at the Company's subsidiary, Ault
Korea, used $979,000 of cash during the six months. A
faster turn in payments was seen as a necessary
strategy to induce maximum vendor support for the
subsidiary's growing manufacturing and material
requirements. No further change in vendor payment
velocity is seen necessary during the remaining six
months. Overall, management anticipates that the net
effect on cash flow by these activities in operations
for the second half of fiscal 1996 will be positive.
Investing activities, of which the principal source was
the purchase of equipment and tooling, used net cash of
$44,000 during the six months. Purchase of equipment
and tooling used $91,000 of cash. Greater expenditures
on these capital assets is anticipated for the
remaining six months to support growth in
manufacturing. Decrease in other assets provided
$47,000 of cash.
Principal financing activities during the six months
were in connection with the credit facilities, exercise
of common stock options, and payment of long-term
obligations. Payment on long-term borrowings used
$200,000 of cash during the period, of which $63,000
was towards payments on capital leases. A modest
increase in lease payments is anticipated for the
remaining quarters commensurate with expected new
contracts. The balance of $137,000 was for mortgage
payments on the Korean facility. See NOTE 5 UNDER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Exercise
of 6,500 shares of common stock options provided $9,000
of cash. Borrowings against the Company's credit
facilities amounted to $945,000 during the six months,
of which $806,000 was incurred by the Korean subsidiary
at its local bank to support the accelerated payments
in trade payables, as discussed above. The remaining
$139,000 was incurred by the US operations.
At the end of fiscal 1995, the Company's revolving
credit facility with its bank amounted to $4,500,000.
During the second quarter of fiscal 1996, the Company
negotiated a new agreement that increased the credit
facility to $6,000,000 effective October 1, 1995. At
the end of the second quarter, $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
material vendors on the subsidiary's behalf, and
provides security for overdrafts allowed by that bank
on the subsidiary's bank accounts. No claims have been
presented against this document. The balance of
$5,600,000 provides working capital to the US operation
at a rate of interest that is 2.0% above the bank's
base rate, down from 4.0% on the old credit facility.
At the end of the second quarter, utilization amounted
to $3,709,000, up from $3,570,000 when the fiscal year
began. During the second quarter, also, Ault Korea
Corporation completed an agreement with Korea Exchange
Bank wherein that bank allows the subsidiary up to
$800,000 of credit to support its working capital.
This credit facility is collateralized by the $400,000
standby letter of credit, mentioned above, and certain
types of inventories. At the end of the period, all of
the credit facility had been utilized principally for
payment to material vendors, as discussed above.
The effect of foreign currency exchange rate changes on
the translation of the Korean financial statements from
Korean won to US dollars resulted in net asset value
decrease of $5,000 during the six months. All of the
Company's sales contracts are in US dollars, and
therefore, the Company assumes no currency exchange
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 raw
material importation that would expose the Company to
any significant currency exchange risk. However,
management plans to monitor the situation and to take
action minimizing currency exchange risks on contracts
as appropriate.
The Company's working capital increased during the
quarter from $2,942,000 at May 29, 1995, to $3,223,000
at November 26, 1995. Long-term debt, including
current maturities decreased from $1,555,000 to
$1,355,000 over the same period.
The Company believes that cash flows from anticipated
profits and other operating activities together with
its two credit facilities will be sufficient to support
strategies through fiscal 1996. Additional sources of
funds would be needed, however, to pursue any
significant business opportunity that represents a
change in current strategies.
AULT INCORPORATED
PART II. OTHER INFORMATION
ITEM 1-3 Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The Company held its annual meeting of shareholders on
September 26, 1995. The Shareholders voted to elect the
directors named below to hold office until the next
Annual Meeting of Shareholders or until their
successors are elected and qualified. The shareholders
present in person or by proxy voted their shares in
connection with the election of directors as follows:
<TABLE>
<CAPTION>
Votes
Votes For Withheld
<S> <C> <C>
James M. Duddleston 1,718,343 850
Frederick M. Green 1,719,143 50
Delbert W. Johnson 1,718,193 1,000
John G. Kassakian 1,719,193 0
Edward C. Lund 1,718,393 800
Eric G. Mitchell 1,718,193 1,000
Matthew A. Sutton 1,718,189 1,004
</TABLE>
ITEM 5 OTHER INFORMATION: Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Reference Title of Document Location
<S> <C> <C>
10.5 First Amendment to Filed herewith at Page
Agreement on Credit 14
Facility
Part 1 Exhibits
11 Computation of Per Filed herewith at Page
Share Earnings 21
27 Financial Data Filed electronically
Schedule at Page
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter
ended November 26, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AULT INCORPORATED
(REGISTRANT)
<TABLE>
<S> <C> <C>
DATED: 1/10/96 /s/ Frederick M. Green
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: 1/10/96 /s/ Carlos S. Montague
Carlos S. Montague, Vice
President
Chief Financial Officer and
Controller
</TABLE>
Exhibit 10.5
First Amendment to Financing Agreement
This First Amendment to Financing Agreement, dated as
of September 30, 1995 ("Amendment"), is made by and
between AULT INCORPORATED, a Minnesota Corporation,
(the "Borrower") and REPUBLIC ACCEPTANCE CORPORATION, a
Minnesota corporation ("Republic").
WHEREAS, the Borrower and Republic have entered into a
Financing Agreement dated as of April 28, 1995 (the
"Agreement"); and
WHEREAS, the obligations and indebtedness of the
Borrower to Republic under the Agreement are secured,
inter alia, by a Security Agreement dated as of April
28, 1995 between the Borrower and Republic (the
"Security Agreement") and a Pledge Agreement dated as
of April 28, 1995 between the Borrower and Republic
(the "Pledge Agreement"); and
WHEREAS, Republic and the Borrower desire to amend the
Agreement, the Security Agreement and the Pledge
Agreement in order to amend certain of the provisions
therein, upon the terms and conditions set forth
herein,
NOW THEREFORE, in consideration of the premises and for
good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree to be bound as
follows:
Section 1. Capitalized Terms. All capitalized terms
used herein and not otherwise defined herein shall have
the meanings assigned to them in the Agreement.
Section 2. Amendments.
2.01 Section II(A) of the Agreement is hereby amended
to read as follows:
(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) from the
date of this Agreement through September 30, 1995, 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, and b) from and after September 30, 1995, a
rate per annum which is three percent (3%) 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.
2.02 Section II(C) of the Agreement is hereby amended
to read as follows:
We agree that there will be a minimum charge net to you
of $10,000 per month until such time that this
Agreement is terminated pursuant to Section VIII of
this Agreement. In addition, in the event that we give
the requisite 30-day written notice of termination of
this Agreement pursuant to Section VIII of this
Agreement, we will pay to you (I) if the effective date
of such termination occurs prior to May 31, 1996, a pre-
payment charge in the amount of $180,000; (ii) if the
effective date of such termination occurs on or after
May 31, 1996 but prior to May 31, 1997, a prepayment
charge in the amount of $120,000; and (iii) if the
effective date of such termination occurs on or after
May 31, 1997 but prior to May 31, 1998, a prepayment
charge in the amount of $60,000; 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.
2.03 Section II(E) of the Agreement is hereby amended
to read as follows:
(E) We further agree to pay you a wire transfer charge
of $15.00 per wire transfer with respect to our
account.
2.04 Section IV(B) of the Agreement is hereby amended
to read as follows:
(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 you 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
one day for collection of checks. This provision is
subject to your rights under paragraphs 4 and 5 of the
Security Agreement of even date herewith.
2.05 Section 7 of the Security Agreement is hereby
amended to read as follows:
7. EVENTS OF DEFAULT. Each of the following
occurrences shall constitute an event of default under
this Agreement (herein called "Event of Default"): (I)
Debtor shall fail to pay any or all of the Obligations
when due, on demand or otherwise, or shall fail to
observe or perform an covenant or agreement in this
Agreement or in any other agreement with the Secured
Party or made to Secured Party in any financial
statement or reports submitted to Secured Party by or
on behalf of Debtor shall prove materially false or
misleading; (iii) Debtor or any guarantor of any
Obligation shall (A) fail to conduct its business
substantially, as now conducted; (B) or be or become
insolvent (however defined); or (C) file or have filed
against it, voluntarily or involuntarily, a petition in
bankruptcy or for reorganization under the United
States Bankruptcy Code; or (D) initiate or have
initiated against it voluntarily or involuntarily, any
act, process or proceeding under any bankruptcy or
insolvency or receivership law or other statute or law
providing for the modification or adjustment of the
rights of creditors; (E) if a corporation, partnership
or organization, be dissolved or liquidated or, if a
partnership, suffer the death of a partner or, if an
individual, die; or (iv) Secured Party shall in good
faith believe that the prospects of due and punctual
payment of any or all of the Obligations is impaired.
THE FOREGOING EVENTS OF DEFAULT AND THE REMEDIES UPON
EVENT OF DEFAULT SET FORTH BELOW IN SECTION 8 ARE IN
ADDITION TO AND SUPPLEMENT THE RIGHTS OF THE SECURED
PARTY UNDER THAT CERTAIN FINANCING AGREEMENT OF EVEN
DATE HEREWITH BETWEEN THE DEBTOR AND THE SECURED PARTY
(THE "FINANCING AGREEMENT"), INCLUDING WITHOUT
LIMITATION THE RIGHT OF THE SECURED PARTY TO DEMAND
PAYMENT OF THE OBLIGATIONS UNDER THE FINANCING
AGREEMENT IN FULL AT ANY TIME IN ITS ABSOLUTE
DISCRETION. NOTHING SET FORTH IN THIS AGREEMENT
(INCLUDING THE PROVISIONS OF THIS SECTION 7 OF THE
REMEDIES WITH RESPECT THERETO AS SET FORTH IN SECTION
8) SHALL IN ANY WAY LIMIT THE SECURED PARTY'S
DISCRETION TO MAKE OR NOT MAKE LOANS TO THE DEBTOR OR
THE SECURED PARTY'S RIGHT TO DEMAND PAYMENT OF THE
OBLIGATIONS.
2.06 Section 11 of the Pledge Agreement is hereby
amended to read as follows:
Section 11. Default. Each of the following
occurrences shall constitute an Event of Default under
this Agreement: (a) the Pledgor shall fail to observe
or perform any covenant or agreement applicable to the
Pledgor under this Agreement; or (b) any representation
or warranty made by the Pledgor in this Agreement or in
any financial statements, reports or certificates
heretofore or at any time hereafter submitted by or on
behalf of the Pledgor to Republic shall prove to have
been false or materially misleading when made; or (c)
any Event of Default shall occur and be continuing
under (and as more particularly described in) that
Security Agreement of even date herewith between the
Pledgor and Republic. THE FOREGOING EVENTS OF DEFAULT
AND THE REMEDIES UPON EVENT OF DEFAULT SET FORTH BELOW
IN SECTION 12 ARE IN ADDITION TO AND SUPPLEMENT THE
RIGHTS OF THE REPUBLIC UNDER THAT CERTAIN FINANCING
AGREEMENT OF EVEN DATE HEREWITH BETWEEN THE PLEDGOR AND
THE REPUBLIC (THE "FINANCING AGREEMENT"), INCLUDING
WITHOUT LIMITATION THE RIGHT OF THE REPUBLIC TO DEMAND
PAYMENT OF THE OBLIGATIONS UNDER THE FINANCING
AGREEMENT IN FULL AT ANY TIME IN ITS ABSOLUTE
DISCRETION. NOTHING SET FORTH IN THIS AGREEMENT
(INCLUDING THE PROVISION OF THIS SECTION 11 OR THE
REMEDIES WITH RESPECT THERETO AS SET FORTH IN SECTION
12) SHALL IN ANY WAY LIMIT REPUBLIC'S DISCRETION TO
MAKE OR NOT MAKE LOANS TO THE PLEDGOR OR REPUBLIC'S
RIGHT TO DEMAND PAYMENT OF THE OBLIGATIONS.
Section 3. Conditions to Effectiveness of
Amendment. This Amendment shall not become effective
until, and shall become effective as the date first
written above when, each of the following provisions
all have been fulfilled.
3.01 Republic shall have received this Amendment, duly
executed by he Borrower;
3.02 Republic shall have received a copy of the
resolutions of the Board of Directors of the Borrower
ratifying and authorizing the execution, delivery and
performance of this Amendment, certified as true and
accurate by the Borrower's Secretary or Assistant
Secretary; and
3.03 Republic shall have received such other documents
as Republic may reasonably request.
Section 4. Acknowledgments. The Borrower
acknowledges and agrees that its obligations to
Republic under the Agreement and exist and are owing
without offset, defense or counterclaim assertable by
the Borrower against Republic. The Borrower further
acknowledges and agrees that its obligations to
Republic under the Agreement, as amended, constitute
"Obligations" within the meaning of the Security
Agreement and the Pledge Agreement and are secured by
the Security Agreement and the Pledge Agreement, each
as amended.
Section 5. Effect of Amendments; Representations
and Warranties; No Waiver. Republic and the Borrower
agree that after this Amendment becomes effective, the
Agreement, as hereby amended, shall remain in full
force and effect. The Borrower warrants and represents
that on and as of the date hereof and after giving
effect to this Amendment, (I) all of the
representations and warranties contained in the
Agreement are correct and complete, as of the date
hereof, and (ii) there will exist no Event of Default
under the Security Agreement or the Pledge Agreement on
such date. The Borrower represents and warrants that
the Borrower has all power and legal right to authority
to enter into this Amendment.
Section 6. Incorporation of Agreement and Other Loan
Documents by Reference; Ratification of Loan Documents.
Except as expressly modified under this Amendment, all
of the terms, conditions, provisions, agreements,
requirements, promises, obligations, duties, covenants
and representations of the Borrower under the
Agreement, the Security Agreement, the Pledge Agreement
and any and all other documents and agreements entered
into with respect to the obligations under the
Agreement (collectively, the "Loan Documents") are
incorporated herein by reference and are hereby
ratified and affirmed in all respects by the Borrower.
All references in the Agreement to "this Agreement,"
herein," "hereof," and similar references, and all
references in the other Loan Documents to the
"Agreement," shall be deemed to refer to the Agreement,
as amended by the Amendment.
Section 7. Merger and Integration, Superseding Effect.
This Amendment, from and after the date hereof,
embodies the entire agreement and understanding between
the parties hereto.
Section 8. Governing Law. This Amendment is governed
by the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to Financing Agreement to be executed
as of the date and year first above written.
AULT INCORPORATED
/s/ C. S. Montague
Its Treasurer
REPUBLIC ACCEPTANCE CORPORATION
/s/ Richard Ogle
Account Executive
PARTICIPATION AGREEMENT
THIS AGREEMENT, made this 30th day of September, 1995
between First Bank National Association (hereafter
referred to as "Participant") and Republic Acceptance
Corporation (hereafter called "Republic");
WITNESSETH:
WHEREAS, Republic has made and will continue to make
loans and advances to Ault Incorporated (hereafter
referred to as "Client") pursuant to a Financing
Agreement dated as of April 28, 1995 by and between the
Client and Republic, as amended (the "Financing
Agreement") which Financing Agreement is secured by
security interests in and pledges of property of the
client pursuant to a security agreement and a pledge
agreement each dated April 28, 1995 and subject to
other rights created or evidenced by written
instruments, all as listed in Exhibit A hereto (copies
of all thereof being attached hereto); and
WHEREAS, Republic desires that Participant participates
in its present and future investment represented by
loans and advances to Client secured as aforesaid, and
Participant desires thus to participate.
NOW THEREFORE IT IS MUTUALLY AGREED AS FOLLOWS:
1. Terms used in this agreement are defined as
follows:
Total Investment: Aggregate loans and advances by
Republic to Client less principal payments received,
not to exceed Six Million and No/100 Dollars
($6,000,000) from time to time outstanding.
Ownership Ratio: The ratio of each party's investment
to the Total Investment.
Participant's Investment: Total amount disbursed by
Participant to Republic hereunder less principal
payments received.
Republic's Investment: Total Investment minus
Participant's Investment.
Participation Formula: Participant's Investment
specified in paragraph 2 of this Agreement except that
in the event of liquidation the term shall mean the
Ownership Ratio at the commencement of the liquidation.
2. Participant's Investment shall be determined as
follows: Republic's Investment will be the first Three
Million and No/100 Dollars ($3,000,000) of loans and
advances, together with all loans and advances in
excess of Four Million Five Hundred Thousand and No/100
Dollars ($4,500,000). Participants Investment will be
all amounts of the Total Investment in excess of the
first Three Million and No/100 Dollars ($3,000,000) up
to a maximum amount of Four Million Five Hundred
Thousand and No/100 Dollars ($4,500,000).
3. Upon execution and this agreement, Participant
shall pay to Republic the sum equal to Participant's
Investment.
4. Subsequently, on a weekly basis, Participant will
pay to or receive from Republic the sum required to
bring Participant's Investment to the amount required
by the Participation Formula; provided, that Republic
shall not be obligated to pay Participant except by
distribution, in accordance with the Ownership Ratio,
of principal payments received from or on account of
Client. Unless the Client is in the process of
liquidation, payments to or by Participant shall not be
required in amounts less than $10,000.
5. Republic and Participant shall each own an
undivided interest in all outstanding loans made to
Client and in all principal payments received on such
loans, in the amount of the Ownership Ratio.
6. When Republic and Participant agree that legal
action against Client is necessary, Republic shall have
the right to employ attorneys and incur liquidation
costs consisting of attorney's fees, legal expenses,
and such other expenses which in Republic's or take
judgment are justified to assure maximum ultimate
realization. Participant's share of all losses,
including liquidation costs, shall be the percentage
represented by its ownership ratio.
7. Republic shall continue to perform the operational
functions including the making of loans, credit
investigation of the purchasers, handling of
collections and maintenance of the required records
relating to the loans.
8. All rights, privileges and powers to Republic in
the Client's agreements, or in any papers or documents
relating thereto, and all rights of recourse to
collateral security, shall be for the joint and several
benefit of Republic and Participant, to be exercised by
Participant, for the benefit of Republic and
Participant, until such time as conditions exist which
require Republic to join in action with Participant or
take action on its own.
9. Either party to this participation agreement may
cancel it on thirty days notice. In such event
Participant's Investment will be liquidated in
accordance with the method outlined in Paragraph 4 or
Republic may pay Participant its Participant's
Investment and accrued charges and end Participant's
participation, whichever Republic elects.
10. Participant shall receive or be credited, monthly,
from interest collected by Republic on the advances to
Client the sum equivalent to simple interest at the
rate of one percent (1.00%) in excess of the reference
rate of First Bank National Association based on the
average daily amount of the Participant's investment.
The balance of such interest shall belong to Republic.
In addition, Republic shall receive all other fees and
charges payable by the Client to Republic. In
addition, Republic shall receive all other fees and
charges payable by the Client to Republic under the
Financing Agreement.
11. For the purpose of fixing the Participation
Formula in case of liquidation, unless otherwise agreed
in writing, liquidation shall be deemed to commence at
the time Republic gives or receives notice of
cancellation of the participation agreement, whichever
is earlier.
12. In the event it is determined to liquidate the
Total Investment, because of a default by Client or
otherwise, all monies thereafter collected on account
of the advances shall be applied in the following
order:
(a) to out-of-pocket costs and expenses, including
attorney's fees, court costs and other liquidation
expenses incurred;
(b) to repayment of the Total Investment; and
(c) to interest due the respective parties, ratably.
13. Authorized representatives of either Republic or
Participant shall have complete access to the other's
business records concerning the Client and this
participation.
IN WITNESS WHEREOF, the parties hereto have executed
this Participation Agreement the day and year first
above written.
FIRST BANK NATIONAL ASSOCIATION
/s/ Melody Holland-Rehder
Its Vice President
REPUBLIC ACCEPTANCE CORPORATION
/s/ Richard Ogle
Its Account Executive
AULT INCORPORATED & SUBSIDIARY
CALCULATIONS OF CONSOLIDATED EARNINGS PER SHARE
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
Nov. 26, Nov. 27,
1995 1994
<S> <C> <C>
Primary Earnings Per Common
Share:
Net Income $262 $124
Average Shares of Common Stock
And Equivalent Outstanding:
Common Shares Beginning
of Period 2,083,776 2,062,526
Common Stock From Exercise
of Options, Weighted
Additional Outstanding
Common Stoc From Fully
Dilutive Options, Weighted* 2,749 14,247
Used to Compute Primary
Earnings Per Share 2,176,589 2,079,966
Primary Earnings Per Share $0.12 $0.06
<FN>
*Common stock equivalent for exercisable options amounting
to 34,498 shares in fiscal 1996, and 122,302 shares in
fiscal 1995 have an antidilutive effect on the earnings per
share, because of their higher prices compared to their
market values. These shares were, therefore, excluded from
the per share earnings calculations.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 2 THRU 4 OF THE COMPANY'S FORM 10-Q FOR SECOND QUARTER ENDED 11-26-95 AND
IS QUALIFIED IN ITS NTIRETY BY REFERRENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-02-1996
<PERIOD-START> AUG-27-1995
<PERIOD-END> NOV-26-1995
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 5,546
<ALLOWANCES> 0
<INVENTORY> 6,332
<CURRENT-ASSETS> 12,468
<PP&E> 8,661
<DEPRECIATION> 5,845
<TOTAL-ASSETS> 15,499
<CURRENT-LIABILITIES> 9,245
<BONDS> 0
<COMMON> 6,906
0
0
<OTHER-SE> (2,156)
<TOTAL-LIABILITY-AND-EQUITY> 15,499
<SALES> 14,592
<TOTAL-REVENUES> 14,592
<CGS> 11,023
<TOTAL-COSTS> 11,023
<OTHER-EXPENSES> 2,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 397
<INCOME-PRETAX> 262
<INCOME-TAX> 0
<INCOME-CONTINUING> 262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
