FORM 10-Q/A
Amendment No.1
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, 2003
Commission file number 0-12611
AULT INCORPORATED
MINNESOTA 41-0842932
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7105 Northland Terrace
Minneapolis, Minnesota 55428-1028
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(Address of principal executive offices)
Registrant's telephone number: (763) 592-1900
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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 by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
YES _____ NO ___X___
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 October 6, 2003
--------------------- ---------------
No par value 4,666,774 shares
Total pages 21
Exhibit Index on Page 17
Page 1
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A amends the Registrant's Quarterly Report on
Form 10-Q for the quarter ended August 31, 2003, as filed on October 15, 2003,
but has no effect on previously reported loss from operations, net loss, or net
loss per share. This amendment is being filed for the sole purpose of correcting
the dates on the consolidated balance sheet, and consolidated cash flow. The
header was inadvertently transposed.
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Amounts Per Share)
(Unaudited)
Three Months Ended
--------------------------
August 31, September 1,
2003 2002
----------- -----------
Net Sales $10,816 $10,848
Cost of Goods Sold 8,276 7,990
--------- ---------
Gross Profit 2,540 2,858
Operating Expenses:
Marketing 954 1,125
Design Engineering 879 815
General & Administrative 1,404 1,336
Plant Closing Costs 98
--------- ---------
3,335 3,276
--------- ---------
Operating Loss (795) (418)
Non Operating Income (Expense):
Interest Expense (159) (109)
Interest Income 5
Other 30 (83)
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(129) (187)
--------- ---------
Loss Before Income Taxes (924) (605)
Income Tax Benefit (103)
--------- ---------
Net Loss (924) (502)
Preferred Stock Dividends (36) (19)
--------- ---------
Net Loss Applicable to Common Stock $(960) $(521)
========= =========
Loss Per Share:
Basic $(0.21) $(0.11)
Diluted $(0.21) $(0.11)
Common and equivalent shares outstanding:
Basic 4,657,421 4,571,973
Diluted 4,657,421 4,571,973
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
August 31, June 1,
2003 2003
---------- -------
Assets:
Current Assets
Cash and Cash Equivalents $1,190 $1,100
Trade Receivables, Less Allowance for Doubtful Accounts of $565,000
at August 31, 2003; $500,000 at June 1, 2003 8,429 7,417
Inventories (Note 3) 9,517 9,868
Prepaid and Other Expenses 1,648 1,064
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Total Current Assets 20,784 19,449
Other Assets 53 333
Property Equipment and Leasehold
Improvements:
Land 1,735 1,735
Building and Leasehold Improvements 7,845 7,845
Machinery and Equipment 9,015 8,961
Office Furniture 1,923 1,887
Data Processing Equipment 2,227 2,226
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22,745 22,654
Less Accumulated Depreciation 9,719 9,371
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13,026 13,283
------- -------
Total Assets $33,863 $33,065
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
August 31, June 1,
2003 2003
---------- -------
Liabilities and Stockholders' Equity:
Current Liabilities
Note Payable to Bank $4,090 $3,104
Current Maturities of Long-Term Debt (Note 6) 542 560
Accounts Payable 6,026 5,696
Accrued Compensation 1,297 1,162
Accrued Commissions 346 300
Other 450 195
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Total Current Liabilities 12,751 11,017
Long-Term Debt, Less Current Maturities (Note 6) 2,428 2,483
Deferred Tax Liability 23 23
Retirement and Severance Benefits 182 148
Redeemable Convertible Preferred Stock, No Par Value, 2,074 Shares
Issued and Outstanding 2,074 2,074
Stockholders' Equity:
Preferred Stock, No Par Value, Authorized,
1,000,000 Shares;
Common Shares, No Par Value, Authorized
10,000,000 Shares; Issued and Outstanding 4,665,774 on
August 31, 2003; and 4,648,499 on June 1, 2003; 21,062 21,026
Notes Receivable arising from the sale of common stock (45) (45)
Accumulated Other Comprehensive Loss (877) (886)
Accumulated Deficit (3,735) (2,775)
-------- --------
16,405 17,320
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$33,863 $33,065
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Three Months Ended
August 31, September 1,
2003 2002
---------- ------------
Cash Flows From Operating Activities:
Net Loss $(924) $(502)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 349 238
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables (1,020) (416)
Inventories 415 (294)
Prepaid and Other Expenses (260) (159)
Increase (Decrease) in:
Accounts Payable 303 (194)
Accrued Expenses 459 234
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Net Cash Used in Operating Activities (678) (1,093)
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Cash Flows From Investing Activities:
Purchase of Equipment and Leasehold Improvements (90) (107)
Acquisition Cost (366)
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Net Cash Used in Investment Activities (90) (473)
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Cash Flows From Financing Activities:
Net Borrowings (Payments) on Revolving Credit Agreements 927
Proceeds from Issuance of Common Stock 24
Principal Payments on Long-Term Borrowings (73) (68)
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Net Cash Provided by (Used in) Financing Activities 854 (44)
------- -------
Effect of Foreign Currency Exchange Rate Changes
on Cash 4 26
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Increase (Decrease) in Cash and Cash Equivalents 90 (1,584)
Cash and Cash Equivalents at Beginning of Period 1,100 4,775
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Cash and Cash Equivalents at End of Period $1,190 $3,191
======= =======
Non-Cash Transaction:
Issuance of Redeemable Convertible Preferred Stock for
Acquisition $2,074
Issuance of Common Stock to Pay Preferred Stock Dividends $36
Page 5
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED AUGUST 31, 2003
1. Summary of Consolidation Principles, Management Plans
The accompanying consolidated financial statements include the accounts of Ault
Incorporated, its wholly owned subsidiaries, Ault Shanghai, Ault Xianghe Co.
Ltd, and Ault Korea Corporation. All 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.
The balance sheet of the Company as of August 31, 2003, and the related
statements of operations and cash flows for the three months ended August 31,
2003 and September 1, 2002 have been prepared without being audited. In the
opinion of the management, these statements reflect all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the position
of Ault Incorporated and subsidiaries as of August 31, 2003, and the results of
operations and cash flows for all periods presented.
MANAGEMENT PLANS - The financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
sustained net losses applicable to common stock of $7,692,073 in 2003 and
$3,563,726 in 2002 and at June 1, 2003 had an accumulated deficit of $2,775,398.
The Company utilized $3,179,410 of cash for operating activities in 2003. This
trend has continued in the first quarter of fiscal 2004, with $960,000 of net
losses applicable to common stock. Future operations will require the Company to
borrow additional funds. The Company has a financing agreement, which includes a
$1,250,000 line-of-credit agreement through April 30, 2005. There was an
outstanding balance on this line-of-credit at August 31, 2003 of $1,024,000. The
Company believes they can remain in compliance with covenants in the financing
agreement, as amended, throughout fiscal 2004. The Company continues to take
steps to reduce expenses, improve cash flow and return to profitability,
including the consolidation of its manufacturing operations in this current
quarter. This consolidation includes the closing of its Minneapolis production
operations, eliminating approximately 40 jobs in assembly, equipment
maintenance, procurement and administrative support and the integration of
production into Ault's other manufacturing plants. Ault's engineering,
documentation, safety certification/reliability, sales, marketing and
administrative services will remain at the Minneapolis headquarters facility.
The consolidation is anticipated to take up to four months to complete to ensure
continuing service to Ault's global customer base.
Based on available funds, current plans and business conditions management
believes that the Company's available cash, borrowings and amounts generated
from operations, will be sufficient to meet the Company's cash requirements for
the next 12 months. The assumptions underlying this belief include, among other
things, that there will be no material adverse developments in the business or
market in general. There can be no assurances however that those assumed events
will occur. If management's plans are not achieved, there may be further
negative effects on the results of operations and cash flows, which could have a
material adverse effect on the Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. Therefore, these
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's June 1, 2003 Form 10-K.
The results of operations for the interim periods are not necessarily indicative
of results that will be realized for the full fiscal year.
Page 6
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED AUGUST 31, 2003
2. Stock Compensation
The Company's 1986 and 1996 stock option plan has reserved 600,000 and 1,200,000
common shares, respectively, for issuance under qualified and nonqualified stock
options for its key employees and directors. Option prices are the market value
of the stock at the time the option was granted. Options become exercisable as
determined at the date of grant by a committee of the Board of Directors.
Options expire ten years after the date of grant unless an earlier expiration
date is set at the time of grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no compensation cost has
been recognized for the stock option plan, as all options were issued with
exercised prices at or above fair value. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant date for
awards in 2003 and 2002 consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per share would have changed to the pro forma
amounts indicated below:
Amounts in thousands, except per share amounts
Period Ending
---------------------
Aug. 31 Sept. 1,
2003 2002
-------- --------
Net loss, as reported $ (960) $ (521)
Net loss, pro forma (1,039) (644)
Net loss, per share, basic, as reported (0.21) (0.11)
Net loss, per share, diluted, as reported (0.21) (0.11)
Net loss, per share, basic, pro forma (0.22) (0.14)
Net loss, per share, diluted, pro forma (0.22) (0.14)
3. Inventories
The components of inventory (in thousands) at August 31, 2003 and June 1, 2003
are as follows:
August 31, June 1,
2003 2003
---------- -------
Raw Materials $5,890 $6,020
Work-in-process 920 1,163
Finished Goods 2,707 2,685
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$9,517 $9,868
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Page 7
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED AUGUST 31, 2003
4. Warranty
The Company offers its customers a three-year warranty on products. Warranty
expense is determined by calculating the historical relationship between sales
and warranty costs and applying the calculation to the current period's sales.
Based on warranty repair costs and the rate of return, the Company periodically
reviews and adjusts its warranty accrual. Actual repair costs are offset against
the reserve. The following table shows the fiscal 2004 year-to-date activity for
the Company's warranty accrual (in thousands):
Beginning Balance $ 134
Charges and Costs Accrued 18
Less Repair Costs Incurred --
-------
Ending Balance $ 152
=======
5. Plant Closing
On July 17, 2003, the Company announced the consolidation of its manufacturing
operations. The consolidation includes the closing of its Minneapolis production
operations, eliminating approximately 40 jobs in assembly, equipment
maintenance, procurement and administrative support and the integration of
production into Ault's other manufacturing plants. Ault's engineering,
documentation, safety certification/reliability, sales, marketing and
administrative services will remain at the Minneapolis headquarters facility.
The consolidation is anticipated to take up to four months to complete to ensure
continuing service to Ault's global customer base. The consolidation was
implemented to reduce expenses, improve cash flow and return the Company to
profitability. Ault's management estimates that the consolidation will reduce
expenses by approximately $1.3 million annually.
As a result of these decisions, the Company recorded charges of $98,000, for
severance related to workforce reductions of approximately 40 employees. Cash of
$300,000 is expected to be used in connection with severance charges, which will
begin to be paid in the second quarter and completely paid by the end of fiscal
year 2004.
A summary of the restructuring activity during the three-month period ending
August 31, 2003 is as follows:
Current Period Restructuring
Balance at Plant Closing Cash Liabilities at
June 1, 2003 Charges Payments August 31, 2003
---------------- ---------------- ----------- -----------------
Employee termination costs $0 $98,000 $0 $98,000
Page 8
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED AUGUST 31, 2003
6. Debt
The Company has a financing agreement, which includes a $1,250,000 revolving
line-of-credit agreement through April 30, 2005. Interest on advances is at the
prime rate plus 2% (prime plus 7% default rate) for fiscal year 2004. The rate
at August 31, 2003 and June 1, 2003 was 11.00%. All advances are due on demand
and are secured by all assets of the Company. The Company's financing agreement
contains restrictive financial covenants. These covenants require the Company,
among other things, to maintain a minimum capital base, and also impose certain
limitations on additional capital expenditures and the payment of dividends. At
the end of fiscal 2003, the Company's actual capital base did not meet the
minimum capital base of the credit agreement. The Company has received a waiver
and amendment for this covenant. Following the August 29, 2003 amendment, the
Company believes the provisions imposed by this credit agreement are achievable
based on the Company's expected operating results for the next year. There were
advances outstanding on the revolving line of credit of $1,024,000 and $0 at
August 31, 2003 and June 1, 2003. Also, the Company's Korean subsidiary
maintains an unsecured $3,637,000 credit facility agreement to cover bank
overdrafts, short-term financing, and export financing at a rate of 6.25%.
Advances outstanding relating to the Korean facility were $3,078,000 and
$3,104,000 at August 31, 2003 and June 1, 2003, respectively.
Long-term debt (in thousands) including current maturities contain the
following:
August 31, June 1,
2003 2003
--------- ------
Term loan, 7.2% interest due in monthly installments through
December 2003, secured by equipment $38 $61
Term loan, 7.94% interest rate due in monthly installments
through September 2005, secured by furniture 71 87
Term loan, 5.3% interest rate due in January 2004 290 290
Term loan, 8.05% interest rate due in monthly installments to
February 2015, secured by Company's headquarters building 2,571 2,605
------ ------
Total 2,970 3,043
Less Current Maturities 542 560
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$2,428 $2,483
====== ======
7. Stockholders' Equity
Three Months Ended
August 31, 2003
------------------
($000)
Total Stockholders' Equity - June 1, 2003 $17,320
Net Loss $(924)
Net change in Foreign currency translation
adjustment 9
------
Comprehensive Loss (915)
Preferred Stock Dividends Declared (36)
Preferred Stock Dividends Paid with Common
Stock 36
--------
Total Stockholders' Equity $16,405
========
Page 9
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED AUGUST 31, 2003
8. Net Income Per Common Share
Basic and diluted earnings per share are presented in accordance with SFAS No.
128, EARNINGS PER SHARE. The Redeemable Convertible Preferred Stock and stock
options had no effect on diluted weighted average shares outstanding, as they
were anti-dilutive.
Three Months Ended
August 31, 2003 September 1, 2002
--------------- -----------------
Loss Applicable to Common Shareholders (in
thousands) $(960) $(521)
Basic - Weighted Average Shares Outstanding 4,657,421 4,571,973
Diluted - Weighted Average Shares Outstanding 4,657,421 4,571,973
Basic Loss per Share (0.21) (0.11)
Diluted Loss per Share (0.21) (0.11)
9. Aquisition
On July 16, 2002, the Company purchased a portion of the operating assets of the
Power General division of Nidec America Corporation. The Power General division
developed, manufactured, and sold high-efficiency DC/DC converters and custom
power supplies at various power levels up to 1200 watts under the Power General
brand name. Pursuant to the Purchase Agreement, the Company paid the seller
$366,000 in cash and issued $2,074,000 face amount of the Company's newly
created Series B 7% Convertible Preferred Stock, no par value (the Preferred
Stock). The Preferred Stock issued to seller is convertible into 488,000 shares
of the Company's common stock. The Company has filed a registration statement
covering the shares of common stock issuable upon conversion of the Preferred
Stock with the Securities and Exchange Commission. Diluted EPS reflects the
potential dilution that could occur if the Preferred Stock was converted into
common stock of the Company during reported periods. The Preferred Stock was
excluded from Diluted EPS in the current year as the effect of its inclusion
would be antidilutive. The Company has maintained Power General's engineering
group in Massachusetts and has moved Power General's manufacturing operations
and related functions to The Company's other facilities in North America and
Asia.
The addition of Power General benefits the Company in a number of ways. First,
the additional engineering capabilities have enhanced product development.
Second, the acquisition brings greater product breadth to the Company through
the addition of AC/DC power supplies and DC/DC converter products. This broader
offering affords The Company new business opportunities.
Page 10
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED AUGUST 31, 2003
The total cost of the acquisition, which closed on July 16, 2002, was $2,559,278
and was accounted for under the purchase method of accounting. Accordingly, the
acquired assets and liabilities assumed have been recorded at their respective
fair values as of the date of acquisition. The results of operations of the
acquired business is included in the financial statements since the date of the
acquisition. The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed from Nidec on the date of the
acquisition:
Inventories $ 1,048,675
Property and equipment 1,634,971
-----------
Total assets acquired 2,683,646
-----------
Current liabilities 124,368
-----------
Net assets acquired $ 2,559,278
===========
Pro-forma results of the Company, assuming the acquisition had been made at the
beginning of each period presented, are:
Amounts in thousands, except per share amounts
Period Ending
----------------------------
Aug. 31 Sept. 1,
2003 2002
------------ ------------
Revenue $ 10,816 $ 11,217
Net Loss (924) (836)
Preferred Stock Dividends 36 36
------------- ------------
Net Loss Applicable to Common Stock $ (960) $ (872)
------------- ------------
Basic/Diluted Loss Per Share $ (0.21) $ (0.19)
Common and equivalent shares outstanding: 4,657 4,572
10. Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS No. 150
establishes standards for issuer classification and measurement of certain
financial instruments with characteristics of both liabilities and equity.
Instruments that fall within the scope of SFAS No. 150 must be classified as a
liability. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003. For financial instruments issued prior to June 1,
2003 SFAS No. 150 is effective for the Company in the second quarter of fiscal
year 2004. Management is assessing the impact that SFAS No. 150 may have on the
Company's financial statements.
Page 11
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: October 16, 2003 /s/ Frederick M. Green
----------------------------- ------------------------------------
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: October 16, 2003 /s/ Donald L. Henry
----------------------------- ------------------------------------
Donald L. Henry
Chief Financial Officer