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 August 31, 1997
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 August 31, 1997
No par value 4,150,933 shares
Total pages - - - -18
Exhibits Index on Page - - - -17
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in Thousands, Except Amounts Per Share)
<TABLE>
<CAPTION>
(UNAUDITED)
FIRST QUARTER
ENDED
Aug. 31, Sept. 1,
1997 1996
<S> <C> <C>
Net Sales $9,423 $8,678
Cost of Goods Sold 7,214 6,546
Gross Profits 2,209 2,132
Operating Expenses
Marketing 887 706
Design Engineering 403 369
General &
Administrative 797 587
2,087 1,662
Operating Income 122 470
Non-Operating Income
(Expense):
Other 66 17
Interest Expense (42) (186)
Income Before Income
Taxes 146 301
Income Taxes (Note 2) 59 74
Net Income $87 $227
Net Income Per Share
(Note 3) $0.02 $0.10
Weighted Number of Shares
& Common Equivalent Shares
Outstanding 4,308,931 2,383,774
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Aug. 31, June 1,
1997 1997
<S> <C> <C>
Assets:
Current Assets
Cash & Cash Equivalents (Note 4) $3,273 $3,677
Marketable Securities (Note 4) 848 849
Trade Receivables Less Allowance
for Doubtful Accounts of $55,000
at August 31, and June 1, 1997 8,326 8,896
Inventories:
Finished Goods 2992 2750
Work In Process 265 256
Raw Material 5,167 4,256
Total Inventories 8,424 7,262
Prepaid and Other Expenses
(Note 5) 919 660
Deferred Taxes (Note 2) 123 123
Total Current Assets 21,913 21,467
Other Assets
Other Receivables, Less Allowance
Of $65,000 (Note 6) 197 197
Patent Less Amortization of
$12,102 (Note 7) 169 178
Deferred Taxes (Note 2) 544 558
Other 120 126
1030 1059
Property, Equipment, and Leashold
Improvement, at Cost:
Land 875 875
Building 796 796
Machinery and Equipment 5,836 5,572
Office Furniture 549 519
E.D.P. Equipment 1015 1015
Leasehold Improvements 657 657
9,728 9,434
Less Accumulated Depreciation 6,000 5,866
Net Property Equipment and
Leasehold Improvements 3,728 3,568
Total Assets $26,671 $26,094
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
August June
31, 1,
1997 1997
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Note Payable to Bank $1,160 $756
Current Maturities of Long-Term
Debt (Note 8) 172 199
Accounts Payable 3,994 3,531
Accrued Expenses:
Compensation (Note 9) 419 503
Other (Note 10) 736 817
Income Taxes Payable (Note 2) 59 430
Total Current Liabilities 6,540 6,236
Long-Term Debt, Less Current
Maturities Included Above (Note 8) 393 441
Deferred Rent Expense (Note 11) 112 123
Deferred Compensation (Note 12) 384 358
Stockholders' Equity:
Preferred Shares, No Par Value;
Authorized:
1,000,000 Shares; None Issued.
Common Shares, No Par Value,
Authorized:
10,000,000 Shares; Shares
Outstanding: August 31, 1997;
4,150,933, June 1, 1997; 4,075,733 18,303 18,055
Note Receivable from Sale of Common
Stock (204) (204)
Foreign Currency Translation
Adjustment (Note 13) 2 31
Retained Earnings 1,141 1,054
Total 19,242 18,936
$26,671 $26,094
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
August Sept. 1,
31, 1996
1997
<S> <C> <C>
Cash Flows From Operating
Activities:
Net Profit $87 $227
Adjustments to Reconcile Net
Income to Net Cash provided by
Operating Activities:
Depreciation 134 113
Amortization 12
Provision for Doubtful
Accounts 0 19
Deferred Taxes 14 36
Deferred Rent Expenses (11) (8)
Decrease in Market Value of
Securities 1
Changes in Assets and
Liabilities:
(Increase) Decrease In:
Trade Receivables 570 491
Inventories (1,162) (416)
Prepaid and Other Expenses (259) (57)
(Increase) Decrease In:
Accounts Payable 463 (1,424)
Accrued Expenses (139) 19
Income Tax Payable (371) 49
Net Cash Used in Operating
Activities (661) (951)
Cash Flows From Investing
Activities:
Purchase of Equipment (294) (59)
(Increase) Decrease in Other
Assets 3 18
Net Cash Used In Investing
Activities (291) (41)
Cash Flows From Financing
Activities:
Net Borrowings on Revolving
Credit Agreement $404 $902
Proceeds From Issuance of
Common Stock 248 19
Principal Payments on Long-
Term Borrowings, Including
Capital Lease Obligations (75) (52)
Net Cash Provided By
Financing Activities 577 869
Activities
Effect of Foreign Currency
Exchange Rate Changes on Cash (29) 47
Decrease in Cash and Cash
Equivalents (404) (76)
Cash and Cash Equivalents
Beginning 3677 412
Ending $3,273 $336
</TABLE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR FIRST QUARTER ENDING AUGUST 31, 1997
NOTE 1, Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Ault Incorporated, its wholly-owned
subsidiary, Ault Korea Corporation, and its wholly-owned
subsidiary, Ault Xianghe Co. Ltd., which commenced
operations in May 1997. 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.
NOTE 2, Income Taxes
The Company's tax provision is for US income taxes only and
is accrued at the rates of 38% . The foreign subsidiary,
Ault Korea Corporation incurred a loss for the quarter and
therefore had no accrued income taxes. See MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATION.
NOTE 3, Net Income Per Share
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No, 123,
Accounting for Stock-Based Compensation. Accordingly, no
compensation cost has been recognized for the Company's
stock option plan. Had compensation cost been determined
for the first quarter fiscal 1997 and fiscal 1998 based on
the fair value of options at the grant dates consistent
with the provisions of SFAS No. 123, the Company's net
income and net income per share would have changed to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net income, as reported $87,000 $227,000
Net income (loss), pro forma (18,011) 171,183
Net income, per share as reported 0.02 0.10
Net income (loss), per share, pro
forma $0.00 $0.07
</TABLE>
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model
with the following weigh-average assumptions used for
grants included in fiscal 1998 and fiscal 1997
calculations.
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR FIRST QUARTER ENDING AUGUST 31, 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Expected dividend yield - -
Expected stock price volatility 67.68% 67.68%
Risk free interest rate 5.85-6.61% 5.85-6.61%
Expected life of options 5 5
</TABLE>
NOTE 4, Cash and Cash Equivalents
For the purpose of reporting cash and cash flows, the
Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash
equivalents. Marketable securities are comprised of
preferred stocks of various companies.
NOTE 5, Deferred and Refundable Expenses
Prepaid and other expenses for both periods are principally
customs duty and value-added taxes, and certain deferred
expenses that are related to, and are absorbed against
revenue during the respective fiscal year, as well as
receivables for cash advances made to foreign
subcontractors of the Company. The customs duty and value
added taxes are paid by Ault Korea Corporation to the
Korean authority on products that are manufactured for
exportation. These payments are refundable when the
subsidiary submits to the Korean Government the appropriate
claim and proof of exportation.
NOTE 6, Other Receivables
Other receivables of $197,000 for fiscal 1998 and for
fiscal 1997, after allowance of $65,000, represents amounts
due the Company relating to trade receivable invoices from
fiscal 1991. The customer had terminated its contract with
the Company for reasons that were external and unrelated to
the Company and refused to compensate the Company for costs
that were incurred. The company brought suit against the
customer for cost recovery and loss of profits. Although
recently determined in its favor, the Company is appealing
the amount of $318,000 jury verdict, because it did not
appear to have given any weight to loss of profits that was
sought by the Company. A hearing on the appeal is
scheduled to be held in October 1997.
NOTE 7, Patent
Patent cost, net of amortized amounts represents the
contract price of US Patent #5,303,137,1 which was acquired
from a source external to and independent of the Company.
The Company believes that products using the power
conversion technology it represents will generate
significant revenues into fiscal 2002. For amortization
purposes, the patent had been assigned a life of four
years.
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR FIRST QUARTER ENDING AUGUST 31, 1997
NOTE 8, Long-term Debt
Long-term debt, including current maturities contain the
following:
<TABLE>
<CAPTION>
August Sept, 1
31, 1997
1997
(000)
<S> <C> <C>
- - 8.1% term loan due in monthly
installments of $7,340, including
interest to February 2001
secured by equipment $266 288
- - 6.5% note payable, due in
quarterrly installments of
$28,019 plus interest through
April 2000, secured by equioment 224 224
- - Capitalized lease obligations due in
in various monthly installments
through June 1999 75 128
Total $565 $640
</TABLE>
NOTE 9, Compensation
Compensation consists principally of amounts accrued for
payment of employees' salaries, vacation and sick pay.
NOTE 10, Accrued Expenses, Other
Accrued expenses, other, are mainly undue amounts for sales
representatives commissions, fees to product certifying
agencies and provisions for future payment of current
warranty commitments.
NOTE 11, Deferred Rent
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 payments is being charged to
expenses on the straight-line method over the term of the
lease. The difference between the payments expense is
recorded as deferred rent.
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR FIRST QUARTER ENDING AUGUST 31, 1997
NOTE 12, Deferred Compensation
Deferred compensation is a provision by Ault Korea
Corporation, in accordance with requirement by the Korea
Government, for the compensation of each current employee
when his/her employment with the subsidiary terminates.
The National Pension Scheme of Korea, does not require the
Company to fund this obligation, but requires the transfer
of certain portions of the retirement liability to the
Korean National Pension Fund. The liabilities recorded by
the Company are net of these transfers.
NOTE 13, Foreign Currency Translation Adjustments
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 CONDITIONS AND RESULTS OF OPERATIONS
From time to time, in reports filed with the Securities and
Exchange Commission, in press releases, and in other
communications to shareholders or the investing public, the
Company may provide forward-looking statements concerning
possible or anticipated future results of operations or
business developments which are typically preceded by the
words "believes", "expects", "anticipates", "intends" or
similar expression. For such forward-looking statements,
the Company claims the protection of the safe harbor for
forward looking statements contained in the Private
Securities Litigation Reform Act of 1995. Shareholders and
the investing public should understand that such forward-
looking statements are subject to risks and uncertainties
which could cause results or developments to differ
significantly from those indicated in the forward-looking
statements. Such risks and uncertainties include, but are
not limited to, the overall level of sales by OEMs in the
telecommunications, data communications, computer
peripherals and the medical markets; buying patterns of the
Company's existing and prospective customers; the impact of
new products introduced by competitors; higher than
expected expense related to sales and new marketing
initiatives; availability of adequate supplies of raw
materials and components; and other risks involving the
Company's target markets generally
RESULTS OF OPERATIONS
Net Sales: Net sales increased 8.6% in the first quarter of
fiscal 1998 to $9,423,000 from $8,678,000 in the first
quarter of fiscal 1997. Net sales increased only modestly
during the quarter because several major customers who,
although are continuing to forecast increased order levels
with the Company, delayed placing high volume orders that
the Company had expected to ship during the first quarter.
The orders were delayed by these customers because of two
principal reasons:
Their strategy to continue promotion of and revenue
generation from their existing product designs.
Delays in establishing the infrastructure, such as
transmission stations and wired systems that are
required to trigger faster growth of the market for
cable modems that is supported by the Company.
The mix of products that were shipped during the quarter
contained a high proportion of transformers because most of
the orders that were delayed were for shipments of
switching power supplies and battery chargers. Order inputs
for the second quarter are already strengthening, and
because of this, it is anticipated that net sales for the
second quarter will improve when compared to the first
quarter just ended and the second quarter of fiscal 1997.
It is also anticipated that the mix of products required by
these orders will have a higher content of battery chargers
and switching power supplies.
The Company believes that it is well positioned to support
the anticipated improved requirements of customers. To
this end, six new products were introduced during the first
quarter and it is anticipated that 20 new products will be
introduced in fiscal 1998, up from 18 in fiscal 1997.
Among the products soon to be introduced is a line of 80 to
100-watt high density switching power supplies that
utilize design technologies that provide greater
competitive features when compared to conventional
technologies. These high output products will enable the
Company to compete in markets such as printers and high-
power portable computers that traditionally have used
internal power devices, because external products with the
required power ratings have not been available. A new 80-
watt family of switching power supplies that was introduced
in fiscal 1997 is receiving excellent start-up orders, and
a 45-watt switching power supply based on the Company's
high density power technology is also being well received.
Efforts for greater entry into Japanese markets through
distributorship arrangements and for sale of battery
chargers through an alliance with Moli Energy of Japan are
continuing towards the desired results.
Order Backlog: The Company's order backlog at August 31,
1997, totaled $14,906,000, compared to $14,720,000 at June
2, 1997, and $15,600,000 at September 1, 1996. The order
backlog represents shipment of approximately four months
of customer orders and reflects the current posture of many
OEMs to limit their contractual exposure to the best lead-
time of their suppliers.
Gross Profit: Gross profit increased only modestly to
$2,209,000 from $2,132,000 for the first quarter of fiscal
1997. As a percentage of net sales, gross profit declined
to 23.4% from 24.6% in the first quarter of fiscal 1997
because of the high content of transformers in the mix of
products, as stated above. Transformers traditionally have
had lower gross margins compared to the gross margins of
switching power supplies and battery chargers. Improvement
in overall gross margin is anticipated during the remaining
quarters of fiscal 1998 when orders for higher margin
products are expected to be greater. If the expected
improvement in net sales is achieved, gross margin would
additionally benefit from greater manufacturing
efficiencies and better utilization of fixed costs.
Operating Expenses: Operating expenses were $2,087,000 or
22.1% of net sales for the first quarter of fiscal 1998,
compared to $1,662,000 or 19.2% of net sales for the first
quarter of fiscal 1997. The increased expenditure of
$425,000 relates principally to the implementation of
strategic initiatives which were taken during the second
half of fiscal 1997 for the purpose of strengthening the
Company's competitive sales and marketing position and its
Asian manufacturing supervision. It is expected that these
expenditures will be beneficial to future growths in sales
and profits.
Operating Income: Operating income for the first quarter of
fiscal 1998 decreased by 74% to $122,000 from $470,000 for
the first quarter of fiscal 1997.
Non-Operating Income: Non-operating income of $66,000 and
$17,000 for the fiscal 1998 and fiscal 1997 quarters,
respectively, are principally interest income from short-
term investments. Interest expense amounting to $42,000
for the first quarter of fiscal 1998 and $186,000 in
fiscal 1997 were incurred on leasing commitments and on
short-term bank borrowings. The expenditures for fiscal
1998 were lower because of reduced amounts of bank
borrowings, all of which were made by the South Korean
subsidiary.
Income Tax: The Company had pre-tax income of $146,000 and
$301,000 for the fiscal 1998 and fiscal 1997 quarters,
respectively. For the fiscal 1998 quarter, income taxes of
$59,000 were accrued at a rate of 38.0% on profits of the
US operation , although the availability of business
credits and net operating loss carryforwards are expected
to reduce actual tax payments for the year to a rate of
approximately 29.0%. The foreign subsidiary incurred a
loss for the quarter, and therefore had no accrued tax
liabilities. The Company accrued Alternative Minimum Income
Tax of $25,000 on its US profits for the first quarter of
fiscal 1997 which was also after the application of tax
credits and net operating loss carryforwards. The foreign
subsidiary incurred a loss for that quarter as well, and
therefore had no accrued tax liabilities.
Net Income: Net income decreased to $87,000 for the quarter
from $117,000 for the first quarter of fiscal 1997. Per
share earnings were $0.02 for the first quarter of fiscal
1998, based on weighted shares of 4,308,931; and $0.10 for
the first quarter of fiscal 1997, based on weighted shares
of 2,383,774.
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's working capital
resources at August 31, 1997 and September 1, 1996:
<TABLE>
<CAPTION>
August 31, Sept. 1,
1997 1996
(000)
<S> <C> <C>
- - Working Capital $15,231 $4,100
Cash 3,273 412
Marketable Securities at
Market 848
4,121 412
- - Bank credit facilities 3,500 7,500
- - Cash Flows:
Cash used by operations 519 951
Cash used in investing
activities 433 41
Cash flows from financing
activities 577 869
</TABLE>
Working Capital:
The Company's principal sources of working capital on which
it relies to support normal growth in revenues and for
attainment of profit goals have been its credit facilities
and its cash flows from operations. For strategic matters
that require greater capital resources. The Company has
sought additional equity financing to enable it to achieve
the desired objectives. To this end , the Company
completed a public sale of its common shares during the
third quarter of fiscal 1997, from which, after
underwriters' discount and other offering expenses, it
raised $10,621,000. The precedes were used to repay
certain bank revolving credit obligations and mortgage
debts and to establish a wholly owned facility in China to
serve as a low cost manufacturing resource. Working
capital provided from the public offering enabled the
Company to begin the current fiscal 1998 year with cash and
liquid investments totaling $4,526,000. At August 31,
1997, these amounts totaled $4,121,000, down by $405,000
from the balance at June 1, 1997.
The Company's current assets at August 31, 1997, were
$15,373,000 in excess of its current liabilities,
representing a current ratio of 3.4 to 1.
Credit Facilities:
The Company maintains two credit facilities; its primary
credit facility with US Bancorp in the US and a smaller
facility with Korea Exchange Bank that supports the South
Korean subsidiary. The US Bancorp credit facility is
comprised of the following features:
(a) A revolving credit facility of $2.0 million at prime
rate of interest and secured by trade receivables. There
were no borrowings against it at the end of the quarter.
(b) An equipment term loan in an amount of $300,000 that
is repayable at 8.1% per annum through February 2001. All
proceeds from this loan facility had been utilized when the
quarter began.
The US Bancorp credit facility expired on October 1, 1997,
and was successfully re-negotiated to continue for another
year with a second term loan that bears features that are
similar to the first loan. The Company believes that this
credit facility is adequate for the support of current
strategies and that a greater credit facility could be
successfully negotiated, if an opportunity arose that
necessitates it.
The South Korean credit facility amounts to $1.5 million
and was established for the purpose of covering bank
overdrafts , short-term financing and export financing.
Advances outstanding at August 31, 1997, totaled
$1,160,000, and amounts available for borrowing totaled
$340,000.
Cash Flows:
Operations: Operations used $661,000 of net cash for the
three months which came from activities that provided
$1,131,000 of cash and activities that used $1,792,000 of
cash. The activities that provided $1,131,000 of cash
were:
(a) Net profit: Provided $87,000 of cash for the quarter.
Improvement in profitability is anticipated for the
remaining quarters from expected increase in net sales.
(b) Adjustments to net profit: Provided $150,000 of
cash; depreciation charges to capital assets, the major
item provided $134,000.
(c) Trade receivables: Reduction in trade receivables
provided $570,000 of cash. The reduction was supported
mainly by business seasonality which traditionally has
resulted in lower net sales and trade receivable balances
in the first quarter, compared to the preceding fourth
quarter. A net contribution to cash is not anticipated for
the total year because trade receivables are expected to
increase along with expected increase in net sales.
(d) Trade payables: Net increase in trade liabilities and
accrued expenses provided $324,000 of cash.. The net
increase is mainly associated with procurement of raw
materials and sub-contract arrangements and are expected to
provide additional cash in fiscal 1998 due to anticipated
growth in net sales
The activities that used $1,792,000 of cash were:
(a) Inventories: Increases in inventories used $1,162,000
of cash mainly due to raw material procurements to support
customer orders for the second quarter, and to increase in
requirements of customers for emergency stocking of
finished products. Changes in inventories for the
remaining quarters of fiscal 1998 are not anticipated to
result in any significant increase in use of cash.
(b) Prepaid and other expenses: Used $259,000 of cash
mainly due to increase in refundable payments of customs
duty by the Korean subsidiary and deferred expensing of
certain payments that are applicable to future fiscal 1998
net sales.
(c) Income tax payments: Payment of fiscal 1997 actual US
income tax and of the first installment for fiscal 1998
used $371,000 of cash. Additional installment payments in
fiscal 1998 will use approximately $225,000 of cash.
It is anticipated that any net contribution of cash from
operations for all of fiscal 1998 will not be of
significant amounts because of expected growth in trade
receivable and payment of income taxes.
Investing activities: Investing activities used $291,000
of cash for the period mainly for the purchase of
manufacturing and tooling equipment and equipment to
enhance the quality of management information services.
Greater expenditures are anticipated for the remaining
quarters of fiscal 1998 for these purposes, as well as to
provide design engineering equipment for the Company and
to expand the manufacturing capabilities of the Ault China
plant.
Financing activities: Financing activities provided
$577,000 of cash for the quarter which was comprised of the
following:
(a) Net borrowing on revolving credit agreement: Net
borrowing by the South Korean subsidiary provided $404,000
of cash for the quarter. See Credit Facilities above.
(b) Exercise of common stock options by employees:
Provided $248,000 of cash.
(c) Principal payments on long-term borrowings and capital
leases: Used $75,000 of cash. See Note 8, Long-term Debt,
under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Effect of foreign Currency Exchange Rate: Although the
Korean Won is still relatively stable, the effect of the
translation of the Korean financial statements, prepared in
Won, to US dollars resulted in a net asset value decrease
of $29,000. Of this decrease, $17,000 was related to the
Ault China subsidiary and $12,000 related to Ault Korea.
Summary:
The Company's cash and working capital position is adequate
for the support of normal growth in revenue and profit
beyond the current fiscal year. Without added use of short-
term bank credits, however further reduction in currently
available cash would be expected to occur in the current
fiscal year, because it is anticipated that any cash flows
from operations would be inadequate to support expenditures
for capital assets that are planned for the remaining
three quarters.
Impact of Recent Accounting Standard Changes:
SFAS No. 123: In October, 1995, the FASB issued SFAS No.
123, Accounting for Stock-Based Compensation, which
establishes a fair-value-based method for financial
accounting and reporting for stock-based employee
compensation plans. However, the new standard allows
compensation to continue to be measured using the intrinsic
value-based method of accounting prescribed by Accounting
Principles Board Statement No. 25, Accounting for Stock
Issued to Employees, providing that there were expanded
disclosures. The Company has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation
costs have been recognized for the stock option . The
effect on net income and per share earnings if compensation
costs were recognized is shown in Note 3, Net Income Per
Share, under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement No. 128: The FASB has issued Statement No. 128,
Earnings Per Share, which supersedes APB Opinion No. 15.
Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential
common stock, such as options, warrants, and convertible
securities outstanding that trade in a public market.
Those entities that have only common stock outstanding are
required to present basic earnings per-share amounts. All
other entities are required to present basic and diluted
per-share amounts. Diluted per-share amounts assume the
conversion ,exercise, or issuance of all potential common
stock instruments unless the effect is to reduce a loss or
increase the income per common share from continuing
operations. The Company is required to adopt Statement No
128 for annual and interim periods ending after December
15, 1997. The Company has outstanding stock purchase
warrants and stock options to employees and directors and
will therefore be required to present basic as well as
diluted per share earnings.
Impact of Foreign Operations and Currency changes:
Although products that were manufactured by Ault Korea
Corporation contributed a very significant portion of total
sales, conversion of the Won to US dollars had no
significant impact on profits because conversion rates
were relatively stable. Manufacturing by Ault China, so
far, is not of significant amount and conversion rate of
the YUAN is also relatively stable. Additionally, the
Company is not exposed to any significant currency exchange
risk related to its foreign manufacturing arrangements
since most transactions are conducted in US dollars.
Contracts that are in foreign currencies are not
significant in amounts at this time and therefore exposure
to currency exchange risk is minimal.
Microchip Based Date-referenced Systems and Year 2000
Compliance:
All of the Company's microchip-based date referenced
systems, including computer software and hardware are
already year 2000 compliant. There are no internal
matters, therefore, that will affect the Company's ability
to process systems date-referenced information when year
2000 arrives. The Company does not yet know of the extent
to which the current preparedness of its external business
associates may show to adversely affect its business
transactions if tests of their systems were conducted
today. The Company is communicating with these external
sources and its objective is to obtain their commitment
that they will be Year 2000 compliant by December 31, 1998.
AULT INCORPORATED AND SUBSIDIARY
PART II. OTHER INFORMATION
ITEM 1-5 Not Applicable
ITEM 5 OTHER INFORMATION: Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Reference Title of Document Location
Part 1 Exhibits
<S> <C> <C>
11 Computation of Per Filed herewith at Page
Share Earnings
27 Financial Data Filed Electronically
Scheduling
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter
ended August 31, 1997.
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)
DATED: 10/14/97 /s/ Frederick M. Green
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: 10/14/97 /s/ Carlos S. Montague
Carlos S. Montague, Vice President
Chief Financial Officer and
Controller
AULT INCORPORATED AND SUBSIDIARY
COMPUTATION OF EARNINGS PER
COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
August 31, Sept.1,
1997 1996
<S> <C> <C>
Computation of Primary Earnings
Per Share:
Common Shares Outstanding at
the Beginning of the year 4,075,733 2,119,776
Weighted Average Number of
shares Issues during the
Quarter 7,235 5,666
Common and Equivalent Shares
Attributed to Stock Options
Granted 225,963 258,332
Weighted Number of Common and
Equivalent Share 4,308,931 2,383,774
Net Income $87 $227
Primary Earnings Per Common and
Equivalent Share $0.02 $0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF THE
COMPANY'S FORM 10-Q FOR THE FIRST QUARTER ENDED AUGUST 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-02-1997
<PERIOD-END> AUG-31-1997
<CASH> 3273
<SECURITIES> 848
<RECEIVABLES> 8326
<ALLOWANCES> 0
<INVENTORY> 8424
<CURRENT-ASSETS> 21771
<PP&E> 9728
<DEPRECIATION> 6000
<TOTAL-ASSETS> 26671
<CURRENT-LIABILITIES> 6540
<BONDS> 0
0
0
<COMMON> 18303
<OTHER-SE> 939
<TOTAL-LIABILITY-AND-EQUITY> 26671
<SALES> 9423
<TOTAL-REVENUES> 9423
<CGS> 7214
<TOTAL-COSTS> 7214
<OTHER-EXPENSES> (66)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 146
<INCOME-TAX> 59
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<EXTRAORDINARY> 0
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<NET-INCOME> 87
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
