Page 21
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 30, 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 November 30, 1997
No par value 4,150,933 shares
Total pages - - - -29
Exhibits Index on Page - - - -18
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)
SECOND QUARTER SIX MONTHS ENDED
ENDED
Nov.
30, Dec. 1, Nov. 30, Dec. 1,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $10,954 $9,248 $20,377 $17,926
Cost of Goods Sold
8,086 6,861 15,300 13,407
Gross Profits
2,868 2,387 5,077 4,519
Operating Expenses
Marketing 930 789 1,817 1,495
Design Engineering 428 390 831 759
General & 776 635 1,573 1,222
Administrative
2,134 1,814 4,221 3,476
Operating Income 734 573 856 1,043
Non-Operating Income
(Expense):
Other 69 3 135 20
Interest Expense (50) (191) (92) (377)
Income Before Income 753 385 899 686
Taxes
Income Taxes (Note 3) 244 95 303 169
Net Income $509 $290 $596 $517
Net Income Per Share $0.12 $0.12 $0.14 $0.22
Weighted Number of Shares
& Common Equivalent Shares
Outstanding 4,366,641 2,414,178 4,276,199 2,401,219
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nov. 30, June 1,
1997 1997
<S> <C> <C>
Assets:
Current Assets
Cash & Cash Equivalents (Note 4) $3,695 $3,677
Marketable Securities (Note 3) 848 849
Trade Receivables Less Allowance for
Doubtful Accounts of $34,000
at November 30,1997 and $55,000 June 8,168 8,896
1,1997
Inventories:
Finished Goods 3,287 2,750
Work In Process 312 256
Raw Material 4,336 4,256
Total Inventories 7,935 7,262
Prepaid and Other Expenses (Note 5) 1,049 660
Deferred Taxes (Note 2) 123 123
Total Current Assets 21,818 21,467
Other Assets
Other Receivables, Less Allowance
Of $65,000 (Note 6) 197 197
Patent (Note 7) 160 178
Deferred Taxes (Note 2) 486 558
Other 101 126
814 1,059
Equipment, and Leashold
Improvement, at Cost:
Land 876 875
Building 797 796
Machinery and Equipment 5,985 5,572
Office Furniture 576 519
E.D.P. Equipment 1,015 1,015
Leasehold Improvements 836 657
10,085 9,434
Less Accumulated Depreciation 6,129 5,866
Net Equipment and Leasehold 3,956 3,568
Improvements
Total Assets $26,718 $26,094
</TABLE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nov. June 1,
30, 1997
1997
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Note Payable to Bank $944 $756
Current Maturities of Long-Term Debt 233 199
(Note 8)
Accounts Payable 3,832 3,531
Accrued Expenses:
Compensation (Note 9) 456 503
Other (Note 10) 724 817
Income Taxes Payable (Note 2) 245 430
Total Current Liabilities 6,434 6,236
Long-Term Debt, Less Current Maturities
Included Above (Note 8) 548 441
Deferred Rent Expense (Note 11) 98 123
Deferred Compensation (Note 12) 321 358
Stockholders' Equity:
Preferred Shares, No Par Value;
Authorized,
1,000,000 Shares; None Issued.
Common Shares, No Par Value, Authorized
5,000,000 Shares; Shares Outstanding: 18,303 18,055
November 30,1997; 4,150,933, June 1, 1997;
4,075,733 Shares
Note Receivable from Sale of Common Stock (204) (204)
Foreign Currency Translation
Adjustment (Note 13) (432) 31
Retained Earnings (Deficit) 1,650 1,054
Total 19,317 18,936
Total Liabilities and Stockholder's Equity $26,718 $26,094
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
Nov. Dec. 1,
30, 1996
1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net Profit $596 $517
Adjustments to Reconcile Net Income
to Net Cash provided by (Used in)
Operating Activities:
Depreciation 263 226
Amortization 25
Provision for Doubtful Accounts (21) 30
Provision for Inventory Allowance
Deferred Taxes 72
Deferred Rent Expenses (25) (19)
Decrease in Market Value of
Securities
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables 749 96
Inventories (673) (317)
Other Current Assets (389) (293)
Increase (Decrease)In:
Accounts Payable 301 (1,105)
Accrued Expenses (177) 121
Income Tax Payable (185) 137
Net Cash Provided (Used in)
Operating 537 (549)
Activities
Cash Flows From Investing Activities:
Purchase of Equipment (651) (160)
Decrease in Other Assets 18 19
Net Cash Used In Investing (633) (141)
Activities
Cash Flows From Financing Activities:
Net Borrowings on Revolving
Credit Agreement 188 727
Proceeds From Issuance of Common 248 58
Stock
Proceeds From Equipment Term Loan 300
Note
Principal Payments on Long-Term
Borrowings,
Including Capital Lease (159) (138)
Obligations
Net Cash Provided By Financing
Activities 577 647
Effect of Foreign Currency Exchange Rate
Changes on Cash (463) 62
Increase in Cash 18 19
Beginning 3677 412
Ending $3,695 $431
</TABLE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SECOND QUARTER ENDING NOVEMBER 30, 1997
NOTE 1, Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Ault Incorporated, its wholly-owned
subsidiaries, Ault Korea Corporation, and , Ault Xianghe
Co. Ltd. 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 subsidiaries 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 subsidiaries
had no accrued income taxes for the period because of the
utilization of net operating loss carryforwards which
reduced taxable income for the period. 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 six months of 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 $596,000 $517,00
0
Net Income pro forma 384,467 405,366
Net Income, per share as reported 0.14 0.22
Net income per share, pro forma 0.09 0.17
</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 weighted-average assumptions used for
grants included in fiscal 1998 and fiscal 1997
calculations:
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SECOND QUARTER ENDING NOVEMBER 30, 1997.
<TABLE>
<CAPTION)
1998 1997
<S> <C> <C>
Expected dividend yield
- -
Expected stock price 67.68% 67.68%
volatility
Risk free interest rate 5.47-6.61% 5.85-
6.61%
Expected life of options 1-5 4-5
</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, Prepaid and Other Expenses
Prepaid and other expenses are principally customs duty and
value-added taxes, and certain deferred expenses that are
related to, and are absorbed against revenue during the
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. Advances to sub-
contractors are amortized against order deliveries.
NOTE 6, Other Receivables
Other receivables of $197,000 , after allowance of $65,000,
represent 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 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 pending.
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 SECOND QUARTER ENDING NOVEMBER 30, 1997
NOTE 8, Long-term Debt
Long-term debt, including current maturities contain the
following:
<TABLE>
<CAPTION>
NOV. JUNE
30, 1,
1997 1997
(000)
<S> <C> <C>
US Bancorp
8.1% term loan due in monthly
installments
of $7,340, including interest to
February
2001, secured by equipment $256 $288
6.5% note payable, due in quarterly
of $28,019 plus interest through April
2000, secured by equipment 178 224
Capitalized lease obligations due in 47 128
various monthly installments through
June 1999
US Bancorp
8.0% term loan due in monthly
installments
of $7,320, including interest to 300
November
2001, secured by equipment
Total $781 $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 SECOND QUARTER ENDING NOVEMBER 30, 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. The
adjustments that were recorded for the six months are
reconciled as follows:
<TABLE>
<CAPTION>
(000)
<S> <C>
Beginning Cumulative Gain at June 1, 1997 $31
Gain (Loss) for the period from:
a. Long-term Inter-company (476)
Receivables
b. Other
13
Ending Cumulative Loss ($432)
</TABLE>
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 18.4% in the second quarter
of fiscal 1998 to $10,954,000 from $9,248,000 in the second
quarter of fiscal 1997. For the six months of fiscal 1998,
net sales totaled $20,377,000, up 13.7% from $17,926,000
net sales for the six months of fiscal 1997. The increase
came principally from the order backlog at the end of the
previous quarter.
Order Backlog: Order backlog at November 30, 1997, totaled
$13.6 million compared to $14.9 million when the quarter
began and $15.0 million at December 1, 1997. Orders booked
during the first six months amounted to $19.1 million which
represents an increase of 20 1%, compared to $15.9 million
booked during the first six months of fiscal 1997. The
improved bookings for the six months of fiscal 1998 was
aided by the continuing strength of the telecommunications,
data communications, computer peripherals and medical
markets served by the Company. However, significant orders
that were expected from customers who are leading OEMs in
the cable modem market did not materialize because
infrastructure, such as transmission stations and wired
systems, prerequisites to greater installation of cable
modems, were not in place. The necessary infrastructure is
being built, and the Company believes that growth in demand
for cable modems manufactured by its OEM customers and
which use the Company's power conversion products may
result in significantly increased orders for its products
in fiscal 1999. Additionally, the Company's family of 80-
watt switching power supplies that were introduced in
fiscal 1997 has not achieved the expected level of market
acceptance because of price competition. These products
are being recosted to be sold at lower prices and it is
expected that this will result in greater market acceptance
and sales in the fourth quarter of the current fiscal year.
The Company also believes that it may continue to see
stronger Asian price competition for some time resulting
from the area's economic crisis, although the currency
devaluation in countries that the crisis affects is not
expected to provide to those countries any significant
advantage that should induce greater foreign sales. A
large portion of the Company's business is derived from
manufacturing in these areas, and like the Company's
manufacturing sources, the competition imports the greater
percentage of its raw material from countries that have
stronger currencies.
Because of these factors, the Company believes that its
rate of bookings will not be strong enough to result in
any significant improvement in revenues for the third
quarter of fiscal 1998, compared to the third quarter of
fiscal 1997.
The Company also believes that it is adopting the necessary
strategies to overcome the current competitive issues and
to realize greater revenue growth rates beginning in the
fourth quarter of fiscal 1998. To this end, eleven new
products were introduced during the second half and plans
are to introduce nine new products for the remaining two
quarters making a total of twenty introductions for fiscal
1998. The following products are among those that will be
introduced:
A 9 to 11-watt and a 12 to 15-watt family of switching
power supplies that are designed for applications such as
business and residential wireless telephones and net-
working devices. Shipments are expected to start during
the second calendar quarter of 1998.
A 60-80 watt family of switching power supplies
designed for applications such as routers, LANS and
servers. These products will be introduced in
February of 1998.
A technical issue encountered with the Company's 80 to 100-
watt high density switching power supplies has delayed the
project and the generation of revenue from it. The issue
is being resolved and it is anticipated that shipments will
commence in early fiscal 1999. Aside from having greater
competitive features when compared to conventional
products, 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.
The Company's strategy on foreign market penetration has
continued to show increasing successful results. Revenue
from Asian markets including Japan is anticipated to
exceed $2.0 million in the current fiscal year, up from
$0.9 million in fiscal 1997. Alliance with Shinko Shoji,
a major Japanese and international distributor, continues
to provide exposure to opportunities for sale in the
Japanese market. In various stages of negotiations,
product designs and sample approvals, these sale
opportunities are anticipated to provide a significant
increase in revenues from Asian markets in fiscal 1999.
Strategies towards greater European market penetration are
also realizing increasing success. Revenue from European
markets is anticipated to exceed $1.5 million in the
current fiscal year, up from $0.6 in fiscal 1997. The
Company is in various stages of discussion with major
European OEMs on potential contracts that are anticipated
to be beneficial to revenue growth in the current year as
well as in fiscal year 1999. In view of the opportunities
for greater European sales, the Company has strengthened
its European sales efforts by establishing contracts with
sales representatives for major accounts, in addition to
existing distributorship arrangements.
The Company expanded the capacity of its subsidiary in
China as a source of low cost manufacturing in response to
anticipated growth in customer requirements, and to further
counter foreign price competition.
Gross Profit: Gross profit increased 20.2% in the second
quarter of fiscal 1998 to $2.9 million as compared to $2.4
million for the second quarter of fiscal 1997. For the six
months, gross profit increased by 12.3% to $5.1 million in
fiscal 1998 from $4.5 million in fiscal 1997. As a
percentage of net sales, gross profit totaled 26.2% and
25.8% for the second quarter of fiscal 1998 and fiscal
1997, respectively. For the six months, gross profit
amounted to 24.9% for fiscal 1998 and 25.2% for fiscal
1997. The lower rate for fiscal 1998 reflects principally a
higher sales mix of lower margin transformers. The Company
believes that gross profit for its remaining third and
fourth quarters of fiscal 1998 will not improve due to
pricing pressures, as discussed above.
Operating Expenses: Operating expenses increased 17.6% in
the second quarter of fiscal 1998 to $2.1 million from $1.8
million in fiscal 1997, and increased by 20.7% to $4.2
million from $3.5 million for the second quarter of fiscal
1997. The increase is due principally to commissions paid
to sales representatives on the additional sales, and to
the implementation of strategic initiatives, which were
taken during the second half of fiscal 1997. Those
strategic initiatives were taken for the purpose of
strengthening the Company's competitive sales and
marketing position and its Asian manufacturing supervision.
Further expenditures will be necessary for the remaining
six months to support new product certification and sales
promotion. As a percentage of net sales, operating
expenses were 19.5% for the second quarter and 20.7% for
the six months of fiscal 1998, compared to 19.6 % and 19.4%
for the second quarter and six months, respectively, of
fiscal 1997.
Operating Income: Operating income increased by 28.1% to
$734,000 for the second quarter of fiscal 1998, from
$573,000 for the second quarter of fiscal 1997. For the
first six months of fiscal 1998, operating income was
$856,000, a 17.9% decrease from $1,043,000 in fiscal 1997
due mainly to implementation of the strategic initiatives.
Non-operating Income: Non-operating income of $135,000
and $20,000 for fiscal 1998 and fiscal 1997, respectively,
are principally interest income from short-term
investments. Interest expense of $92,000 for fiscal 1998
and $377,000 for fiscal 1997 were paid on leasing
commitments and on short-term bank borrowings. The
expenditures for fiscal 1998 are lower because bank
indebtedness was substantially reduced using proceeds from
a public offering which closed in December, 1996.
Income Tax: The Company had pre-tax income of $753,000
for the second quarter and $899,000 for the first six
months of fiscal 1998. On these amounts, US income taxes of
$244,000 and $303,000 were accrued, respectively, for each
period at a rate of 38.0% on profits of the US operation.
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 subsidiaries had no accrued tax liabilities
for these two periods due to net loss for fiscal 1997 and
utilization of net operating loss carryforwards for fiscal
1998. The Company had pre-tax income of $385,000 and
$686,000 for the second quarter and six months,
respectively, of fiscal 1997. On these amounts, US income
tax of $95,000 was accrued for the second quarter and
$169,000 for the six months due to anticipated tax
liabilities from application of the Alternative Minimum
Income Tax. The foreign subsidiary incurred losses for
these periods, and therefore had no accrued tax
liabilities.
Net Income: Net income totaled $509,000 for the second
quarter and $596,000 for the six months of fiscal 1998,
compared to $290,000 for the second quarter and $517,000
for the six months of fiscal 1997. Per share earnings in
fiscal 1998 were $0.12 for the second quarter, and $0.14
for the six months based on weighted shares of 4,366,641
and 4,276,199, respectively. Per share earnings in fiscal
1997 were $0.12 for the second quarter, and $0.22 for the
six months based on weighted shares of 2,414,178 and
2,401,219, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's working capital
resources at August 31,1997 and September 1,1996:
<TABLE>
<CAPTION>
Nov. Dec.
30, 1,
1997 1996
(000)
<S> <C> <C>
Working Capital $15,384 $4,305
Cash $3,695 $431
Marketable Securities at market 848
4,543
Bank credit facilities 3,500 7,500
Cash Flows
Cash provided (used) by operations 537
(549)
Cash provided (used) in investing 933
activities (141)
Cash provided by financing 577 647
activities
</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
where the objectives go beyond normal enhancements in
revenue and profit, the Company has sought external sources
of financing. 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 and repaid
certain bank revolving credit obligations and mortgage
debts and established 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 fiscal 1998 with cash and liquid
investments totaling $4,526,000. At November 30, 1997,
cash and liquid investments totaled $4,543,000, up modestly
from the balance at June 1, 1997.
The Company's current assets at November 30, 1997, were
$15,384,000 in excess of its current liabilities, which
were up by $153,000 from $15,231 at the beginning of the
fiscal year, and 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. Under a First Amendment to Letter Loan
Agreement expiring on October 1, 1998, the US Bancorp
credit facility was renewed on October 1, 1997, for an
additional term of one year, The amended 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) One or more term loans, each up to an amount of
$300,000. At November 30, 1997, borrowings amounting to
$556,000 were outstanding on two term loans. See Note
8,under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The Company believes that this credit facility is adequate
for the support of current strategies and that a greater
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 supporting bank
overdrafts , short-term financing and export financing.
Advances outstanding at November 30, 1997, totaled
$944,000, and amounts available for borrowing totaled
$556,000.
Cash Flows
Operations: Operations provided $537,000 of net cash for
the six months which resulted from activities that provided
$1,961,000 of cash and activities that used $1,424,000 of
cash. The activities that provided $1,961,000 were:
(a) Net profit: Net profit provided $596,000 of cash for
the quarter. Additional contribution of cash from profits
is anticipated for the remaining quarters.
(b) Adjustments to net profit: Adjustments to net
profits provided $315,000 of cash, of which, depreciation
charges provided $263,000. In addition, amortization
charges provided net cash of $51,000, of which deferred
taxes provided $72,000.
(c) Trade receivables: Reduction in trade receivables
provided $749,000 of cash. The reduction was afforded by
collections from the large receivable balance at June 1,
1997, reflecting strong sales in the fourth quarter,
compared to revenue for the second quarter of fiscal 1998.
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: Increase in trade liabilities
provided $301,000 of cash.. The increase is mainly
associated with procurement of raw materials and with
liabilities on sub-contract arrangements. Further
liabilities for these purposes are expected to provide
additional cash for the balance of fiscal 1998 due to
anticipated growth in net sales.
The activities that used $1,424,000 of cash were:
(a) Inventories: Increases in inventories used $673,000
of cash mainly due to increase in the 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
increases in use of cash.
(b) Other current assets: Increases in other current
assets, which are principally deferred expenses, used
$389,000. These deferred expenses are applicable to future
revenue and will be amortized during the balance of fiscal
1998
(c) Accrued expenses: Reduction in liabilities for
commissions payable to sales representatives and for
employee vacation time used $177,000 for the six months.
(d) Income tax payments: Payment of actual US income taxes
for fiscal 1997 and installments for fiscal 1998, net of
accrued taxes for the year used $185,000 of cash.
Additional installment payments are estimated for the
remaining quarters of fiscal 1998.
Additional net contribution to cash from operations is
anticipated for the remaining months of fiscal 1998.
Investing activities: Investing activities used net cash
of $633,000 for the period. These expenditures were
principally for the following purposes:
(a) Purchase of manufacturing, tooling, and engineering
equipment for productivity improvements and capacity
expansion, and equipment to enhance the quality of
management information services.
(b) Leasehold improvements at the Company's manufacturing
facility in China to provide greater manufacturing
capacity.
Additional expenditures for these purposes for the
remaining quarters of fiscal 1998 are anticipated to be
approximately $700,000.
Financing activities: Financing activities provided
$577,000 of cash for the quarter which was comprised of the
following activities:
(a) Net borrowing on revolving credit agreement: Net
borrowing by the South Korean subsidiary provided $188,000
of cash for the six months. See Credit Facilities above.
(b) Exercise of common stock options by employees:
Receipts from this activity provided $248,000 of cash for
the six months.
(c) Equipment term loan: Under a note with US Bancorp,
(see Credit Facility above) the Company borrowed $300,000
to support the cost of capital asset procurements, as
discussed above.
(d) Principal payments on long-term borrowings and capital
leases: Payments for these purposes during the six months
used $158,000 of cash. See Note 8, Long-term Debt, under
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Effect of foreign Currency Exchange Rate: The current
economic crisis in South Korea saw a dramatic devaluation
in the Won, the country's currency, late in the Company's
second quarter of fiscal 1998. The effect of the
translation of the Korean financial statements, which were
prepared in Won, to US dollars resulted in a net asset
value decrease of $463,000 of which $432,000 related to
long-term inter-company receivables. See Note 13, under
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
Summary:
The Company's cash and working capital positions are sound
and, together with its credit facilities, are adequate for
the support of normal growth in revenue and profit beyond
the current fiscal year. Without added use of short-term
bank debt, however, a reduction in current cash would occur
during the remaining six months of fiscal 1998, since cash
flows from operations are anticipated to be inadequate for
the support of expenditures for capital asset and growth
in revenues that are anticipated for the period.
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 are 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 revenues for the six months because
conversion rates were relatively stable for most of the
period. The Company's US operations do not now have and
are not anticipated to have any significant future exposure
to currency risks because most of its foreign contracts are
in US dollars. The greater portions of Ault Korea
Corporation's material requirements are purchased from
countries that have strong, relatively stable currencies.
Cost to the subsidiary for material contracts may therefore
be greater until the Won regains stable strength. The
subsidiary may also experience certain amounts of currency
exchange loss from material contracts. Conversely, it is
anticipated that the subsidiary may experience certain
amounts of currency exchange gains from its high percentage
of foreign sales. The net result is anticipated to be
reflected in lower cost on the Company's consolidated
statements of operations, although its impact is not
anticipated to be of any material effect on consolidated
costs and profits.
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 its external business associates are prepared to
conduct business transactions in year 2000. 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 1-3 Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on
September 29, 1997. 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 For Votes
Withheld
<S> <C> <C>
James M. 3,474,524 2150
Duddleston
Frederick M. Green 3,474,524 0
Delbert W. Johnson 3,474,524 0
John G. Kassakian 3,474,524 8
Edward C. Lund 3,474,524 2100
Eric G. Mitchell 3,474,524 0
Matthew A. Sutton 3,474,524 0
</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>
10.8 First Amendment to Filed herewith at page
20
Agreement on Credit
Facility
Part 1 Exhibits
10.9 1986 Employee Stock Filed Electronically
Option Plan - October 22, 1997
Amendment
10.10 1996 Employee Stock Filed Electronically
Purchase Savings Plan October 22, 1997
11 Computation of Per Filed herewith at page
Share Earnings 5
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 November 30, 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: 12/14/98 /s/ Frederick M. Green
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: 12/14/98 /s/ Carlos S. Montague
Carlos S. Montague, Vice President
Chief Financial Officer and
Controller
Page 11
Exhibit A to First Amendment to Letter Loan Agreement
NEW REVOLVING NOTE
$2,000,000 October 23,
1997
FOR VALUE RECEIVED, AULT INCORPORATED (the"Borrower") hereby
promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Lender") the principal sum of TWO MILLION
AND NO/100 DOLLARS ($2,000,000) or, if less, the unpaid
principal of all amounts advanced hereunder, together with
interest (calculated on the basis of actual days elapsed and
a year of 360 days) on the unpaid principal balance hereof at
the rate or rates set forth below. Payments will be made to
the Lender at its office at Sr. Paul. Minnesota or at such
other place as the Lender may from time to time hereafter
designate to the Borrower in writing in immediately
available, lawful money of the United States of America.
INTEREST RATE
The unpaid principal balance hereof from time to time
outstanding shall bear interest at a floating rate per
annum equal to the "Reference Rate" of the Lender. In the
event of any changes in the Reference Rate, the rate
applicable hereto shall change effective as of such change
in the Reference Rate. The Reference Rate is the rate
publicly announced by the Lender from time to time as its
Reference Rate; the Lender may lend to its customers at
rates that are at, above or below the Reference Rate.
Upon the happening of any Event of Default the unpaid
balance of this Note shall, at the option of the Lender,
thereafter bear interest until paid in full at a rate per
annum equal to the rate of interest applicable immediately
prior to such Event of Default plus 2.0%.
PROCEDURE FOR ADVANCES
Until the final maturity of this Note, the Borrower may
from time to time request an advance (an "Advance")
hereunder (in minimum amounts of $10,000 or integral
multiples thereof) and repay and, upon repayment, reborrow,
provided that the aggregate unpaid principal amount of all
Advances hereunder shall never Exceed 2,000,000 at any
time. In order to request an Advance hereunder the Borrower
shall give the Lender written notice of the requested
Advance which must be received by the Lender not later than
10:00 a.m. local time on the date of the requested Advance.
In giving such notice the Borrower shall specify the amount
and the date for the request Advance. The Lender shall trot
be obligated to make any Advance hereunder at any time when
any Event of Default, or any event which with the passage
of time or the giving of notice, or both, would become an
Event of Default, exists. The making of any Advance shall
also be subject to the terms, conditions and limitations of
the Loan Agreement (defined below), and in the case of any
conflict between the terms of this Note and the Loan
Agreement with respect to the making of any Advance, the
terms of the Loan Agreement shall prevail.
REPAYMENT
The principal hereof is payable in full on October 1, 1998.
Interest shall be payable monthly in arrears on the first
day of each month commencing November 1, 1997, and at final
maturity.
This Note may be prepaid by the Borrower at any time in
whole or from time to time in part (in minimum partial
payments of at least $10,000) without premium or penalty.
Any prepayment shall be applied first against accrued and
unpaid interest and the balance shall be applied to
principal.
PAYMENT DATES
The Lender is authorized to charge any account the Borrower
maintains with the Lender for payment of any amount owing
on this Note when due. Whenever any payment to be made an
this Note shall be stated to be due on a Saturday, Sunday
or legal holiday, such payment shall be made on the next
succeeding business day and such extension of time, in the
case of a payment of principal, shall be included in the
computation of any interest on such principal payment.
OTHER AGREEMENTS
This Note is issued pursuant to a Letter Loan Agreement
dated as of February 25, 1997, as amended (as the same may
hereafter be amended, modified or supplemented, or any
agreement entered into in substitution or replacement
thereof, the "Loan Agreement") between the Borrower and the
Lender and is secured pursuant to a Security Agreement
dated as of February 25, 1997, as well as other security
agreements (as the same may hereafter be amended, modified
or supplemented, or any agreement entered into in
substitution replacement
therefor, the "Security Agreement") given by the Borrower
to the Lender. This Note is given in extension and renewal
or, but not in payment of, a Revolving Note dated as of
February 25, 1997 in the original principal amount of
2,000,000.
EVENTS OF DEFAULT; REMEDIES OF LENDER
The occurrence of any one or more of the following events
shall constitute an Event of Default, and upon the
occurrence of any Event of Default the Lender may declare
this Note to be, and the same shall forthwith become,
immediately due and payable and the tender may exercise all
rights and remedies under the Loan Agreement and the
Security Agreement and as may otherwise be allowed by law:
(a) The Borrower shall fail to make any payment of
principal or interest hereon when due.
(b) The Borrower shall fail to comply with any other
term of this Note.
(c) Any default shall occur under the terms of the
Loan Agreement or the Security Agreement and shall
continue for more than the period of grace, if any,
applicable thereto.
If any Event of Default occurs the Borrower agrees to
pay all costs of collection,
including attorneys' fees, and the Lender shall have
the right to set off any
indebtedness of the Lender to the borrower against the
indebtedness on this Note.
OTHER TERMS
This Note cannot be amended or modified, or any provisions
hereof waived, except pursuant to a writing signed by the
Lender. The Lender does not, by failing to exercise of
delaying in exercising any right against the Borrower give
up that right. The Lender has no obligation to renew or
extend this Note. If part of this Note is unenforceable,
the rest of it will still be enforceable. The Lender may
assign this Note or grant participation's herein at any
time without the Borrower's consent and share information
about the Borrower in connection therewith.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES
THEREOF BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES
APPLICABLE TO NATIONAL BANKS.
AT THE OPTION OF THE LENDER THIS NOTE MAY BE ENFORCED IN
ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN
HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO
THE
JURISDICTION ANY VENUE OF ANY SUCH COURT ANY WAIVES ANY
ARGUMENT THAT THE VENUE IN SUCH FORUMS IS NOT CONVENIENT.
IF THE BORROWER COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS NOTE, THE LENDER AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE- DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO
HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
EACH OF THE BORROWER AND THE LENDER BY ITS ACCEPTANCE OF
THIS NOTE, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY
The Borrower hereby waives presentment for payment, notice
of dishonor, protest and notice of protest
AULT INCORPORATED
By: Carlos S. Montague
Title: Treasure
FIRST AMENDMENT TO LETTER LOAN AGREEMENT
This FIRST AMENDMENT TO LETTER LOAN AGREEMENT (this
"Amendment"), made and entered into as of October 23 1997,
is by and between Ault Incorporated, a corporation
organized under the laws of the State of Minnesota (the
"Borrower"), and First Bank National Association, a
national banking association (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Letter
Loan Agreement dated as of February 25, 1997 (the "Credit
Agreement"); and
2. The Borrower desires to amend certain provisions
of the Credit Agreement, and the Lender has agreed to make
such amendments, subject to the terms and conditions set
forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged
the Parties hereto hereby covenant and agree to be bound as
follows:
Section 1. Capitalized Terms. Capitalized terms used
herein and not otherwise defined herein shit have the
meanings assigned to them in the Credit Agreement, unless
the context shall otherwise require.
Section 2. Amendments, The Credit Agreement is
hereby amended as follows:
2.1 Introductory paragraph: The introductory
paragraph of the Credit Agreement is amended to read in its
entirety as follows:
First Bank National Association (the "Lender") agrees
to make (i) revolving advances ("Advances") to Ault
Incorporated (the "Borrower"), in an aggregate amount
outstanding from time to time of up to the lesser of
$2,000,000 or the Borrowing Base (defined below), from the
date of the First Amendment to this Agreement (the "First
Amendment") until October 1, 1998 under a promissory note
dated the date of the First Amendment (as the same may
hereafter be amended. restated, extended, renewed or
otherwise modified from time to time, the "Revolving
Note"), and (ii) one or more term loans of up to $300.000
in the aggregate (each a "Term Loan Each Term Loan shall be
evidenced by a term note dated the date of such Term Loan
(as the same may hereafter be amended. restated, or
otherwise modified
from time to time, each a "Term Note") (the Revolving Note,
each Term Note and all other notes from the borrower to the
Lender are collectively the "Notes "). Each Term Note will
be in the form then in current use by the Lender for such
fixed rate installment obligations. Advances and Term Loans
will be made upon the following terms and subject to the
following conditions:
2.2 Terms Loans and Advances. Paragraph 1.1 (a) of
the Credit Agreement is amended to read in its entirety as
follows:
(a) The Term Loans and Advances. The Lender does not have
to make any Advances or any Term Loans until the conditions
of paragraph 6 have been satisfied. The proceeds of the
Advances will be used by the Borrower for its general
business purposes. All amounts outstanding under the
Revolving Note will bear interest at the rate or rates
provided in the Revolving Note. In addition to the
requirements under paragraph 6, Term Loans are subject to
the submission by the Borrower of the information and
documents required under paragraph 7 below. Term Loans will
bear interest at a fixed rate determined on the date of the
Term Loan.
2.3 Revolving Due Date. Paragraph 4 of the Credit
Agreement is amended by deleting the date "October 1, 1997"
as it appears therein and inserting in lieu thereof the
date "October 1, 1998".
2.4 Conditions for Term Loans. Paragraph 7 of the
Credit Agreement is amended by deleting therefrom the last
two sentences thereof.
2.5 Borrowing Base Certificates. Paragraph 9. e),
subclause (i) is amended to read in its entirety as
follows:
(i) be dated as of the last day of each month during
which there are outstanding Advances and be delivered to
the Lender by the thirtieth day of the next month or if no
Advances are outstanding, be dated as of the last day of
the month preceding the date of the requested Advance and
be delivered to the Lender prior to an Advance, and
Section 3. Effectiveness of Amendments. The amendments
contained in this Amendment shall become effective upon
delivery by the Borrower of, and Compliance by the Borrower
with. the following:
3.1 This Amendment and the Revolving Note in the form
of Exhibit A hereto (the "New Revolving Note"), each duly
executed by the borrower.
3.2 A copy of the resolutions of the Board of
Directors of the Borrower authorizing the execution,
delivery and performance of this Amendment and the New
Revolving Note certified as true and accurate by its
Secretary or Assistant Secretary, along with a
certification by such Secretary or Assistant Secretary
(i) certifying that there has been no amendment to the
Articles of Incorporation or Bylaws of the Borrower
since true and accurate copies of the same were last
delivered to the Lender, and (ii) identifying each
officer of the Borrower authorized to execute this
Amendment, the New Revolving Note and any other
instrument or agreement executed by the Borrower in
connection with this Amendment (collectively, the
"Amendment Documents"), and certifying as to specimens
of such officer's signature and such officer's
incumbency in such offices as such officer holds.
3.3 Certified copies of all documents evidencing any
necessary corporate action, consent or governmental or
regulatory approval (if any) with respect to this Amendment
3.4 A good standing certificate for the Borrower from
the state of Minnesota issued not more than 30 days prior
to the date of this Amendment.
3.5 A UCC search for the Borrower from the State of
Minnesota issued not more than 15 days prior to the date of
this Amendment.
3.6 The Borrower shall have satisfied such other
conditions as specified by the Lender, including payment of
all unpaid legal fees and expenses incurred by the Lender
through the date of this Amendment in connection with the
Credit Agreement and the Amendment Documents.
Section 4. Representations Warranties Authority, No
Adverse Claims.
4.1 Reassertion of Representations and Warranties, No
Default.
The Borrower hereby represents that on and as of the date
hereof and after giving effect to this Amendment (a) all of
the representations and warranties contained in the Credit
Agreement are true, correct and complete in all respects as
of the date hereof as though made on and as of such date,
except for changes permitted by the terms of the Credit
Agreement, and (5) there will exist no Event of Default
under the Credit Agreement as amended by this Amendment on
such date which has not been waived by the Lender.
4.2 Authority, No Conflict, No Consent Required.
The Borrower represents and warrants that the Borrower has
the power and legal right and authority to enter into the
Amendment Documents and has duly authorized as appropriate
the execution and delivery of the Amendment Documents and
other
agreements and documents executed and delivered by the
Borrower in connection herewith or therewith by proper
corporate, and none of the Amendment Documents nor the
agreements contained herein or therein contravene or
constitute a default under any agreement, instrument or
indenture to which the Borrower is a party or a signatory
or a provision of the Borrower's Articles of incorporation,
Bylaws or any other agreement or requirement of law, or
result in
the imposition of any lien on my of its property under any
agreement binding on or applicable to the Borrower or any
of its property except, if any, in favor of the Lender. The
Borrower represents and warrants that no consent, approval
or authorization of or registration or declaration with any
person, including but not limited to any governmental
authority, is required in connection with the execution and
delivery by the Borrower of the Amendment Documents or
other agreements and documents executed and delivered by
the Borrower in connection therewith or the performance of
obligations of the Borrower therein described, except for
those which the Borrower has obtained or provided and as to
which the Borrower has delivered certified copies of
documents evidencing each such action to the Lender.
4.3 No Adverse Claim. The Borrower warrants,
acknowledges and agrees that no events have been taken
plate and no circumstances exist at the date hereof which
would give the Borrower a basis to assert a defense, offset
or counterclaim to any claim of the Lender with respect to
the Borrower's obligations under the Credit Agreement as
amended by this Amendment.
Section 5. Affirmation of Credit Agreement Further
References,
Affirmation of Security interest. The Lender and the
Borrower each acknowledge and affirm that the Credit
Agreement, as hereby amended, is hereby ratified and
confirmed in all respects and all terms, conditions and
provisions of the Credit Agreement, except as amended by
this Amendment. shall remain unmodified and in full force
and effect. All references in any document or instrument to
the Credit Agreement are hereby amended and shall refer to
the Credit Agreement as amended by this Amendment. The
Borrower confirms to the Lender that the Borrower's
obligations under the Credit Agreement, as amended by this
Amendment are and continue to be secured by the security
interest granted by the Borrower in favor of the Lender
under that certain security agreement dated as of February
25, 1997, and made by the Borrower in favor of the Lender,
and all of the terms, conditions, provisions. agreements.
requirements, promises, obligations, duties, covenants and
representations of the Borrower under such documents and
any and all other documents and agreements entered into
with respect to the obligations under the Credit Agreement
are incorporated herein by reference and are hereby
ratified and affirmed in all respects by the Borrower
Section 6. Merger and Integration, Superseding
Effect. This Amendment, from and after the date hereof,
embodies the entire agreement and understanding between the
parties hereto and supersedes and has merged into this
Amendment all prior oral and written agreements on the same
subjects by and between the parties hereto with the effect
that this Amendment, shall control with respect to the
specific subjects hereof and thereof.
Section 7. Severability. Whenever possible, each
provision of this Amendment and the other Amendment
Documents and any other statement instrument or transaction
contemplated hereby or thereby or relating hereto or
thereto shall be interpreted in such manner as to be
effective, valid and enforceable under the applicable law
of any jurisdiction, but, if any provision of this
Amendment, the other Amendment Documents or any other
statement, instrument or transaction contemplated hereby or
thereby or relating hereto or thereto shall be held to be
prohibited, invalid or unenforceable under the applicable
law, such provision shall be ineffective in such
jurisdiction only to the extent of such prohibition.
Invalidity or unenforceability, without invalidating or
rendering unenforceable the remainder of such provision or
the remaining provisions of this Amendment, the other
Amendment Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating
hereto or thereto in such jurisdiction, or affecting the
effectiveness, validity or enforceability
of such provision in any other jurisdiction.
Section 8. Successors. The Amendment Documents
shall be binding on the borrower and the Lender and their
respective successors and assigns and shall inure to the
benefit of the Borrower and the Lender and the successors
and
assigns of the Lender.
Section 9. Legal Expenses. The borrower agrees to
reimburse the Lender, upon execution of this Amendment, for
an reasonable out-of-pocket expenses (including attorneys'
fees and legal expenses of Dorsey & Whitney LLP, counsel
for the Lender) incurred in connection with the Credit
Agreement, including in connection with the negotiation,
preparation and execution of the Amendment Documents and
all other documents negotiated. prepared and executed in
connection with the Amendment Documents, and in enforcing
the
obligations of the Borrower under the Amendment Documents,
and to pay and save the Lender harmless from 811 liability
for, any stamp or other taxes which may be payable with
respect to the execution or delivery of the Amendment
Documents, which obligations of the borrower shall survive
any termination of the Credit Agreement.
Section 10. Headings. The headings of various
sections of this Amendment have been inserted for reference
only and shall not be deemed to be a part of this
Amendment.
Section 11. Counterparts. The Amendment Documents
may be executed in several counterparts as deemed necessary
or convenient, each of which,
when so executed, shall 6e deemed an original, provided
that all such counterparts shall be regarded as one and the
same document, and either party to the Amendment Documents
may execute any such agreement by executing a counterpart
of such agreement
Section 12. Governing Law. THE AMENDMENT DOCUMENTS
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
MINNESOTA. WITHOUT GIVING EFFECT TO CONFLICT OF LAW
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND
THEIR AFFILIATES.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed as of the date and year first
above written.
BORROWER: AULT INCORPORATED
By: Carlos S. Montague
Title: Treasure
LENDER: FIRST BANK NATIONAL ASSOCIATION
By: Melody Holland-Reyder
Title: Vice President
AULT INCORPORATED AND SUBSIDIARY
CALCULATIONS OF CONSOLIDATED EARNINGS PER
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
Nov. 30, Dec.
1997 1,
1996
<S> <C> <C>
Computation of Primary Earnings Per
Share:
Net Income $596 $517
Common Shares Outstanding at the
Beginning 4,075,733 2,119,776
of the Year
Weighted Number of shares Issued
During the Six Months 38,920 17,499
Common and Equivalent Shares
Attributed to Stock Options Granted 161,546 263,944
Weighted Number of Common and
Equivalent Share 4,276,199 2,401,219
Primary Earnings Per Common and
Equivalent Share $0.14 $0.22
</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 SECOND QUARTER ENDED NOVEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-END> NOV-30-1997
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0
0
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</TABLE>
