FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SCURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 30, 1998
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 30, 1998
No par value 4,161,758 shares
Total pages 19
Exhibits Index on Page 18
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in Thousands, Except Amounts Per Share)
<TABLE>
<CAPTION>
(Unaudited)
First Quarter
Ended
August August
30, 31,
1998 1997
<S> <C> <C>
Net Sales $11,337 $9,423
Cost of Goods Sold 8,275 7,214
Gross Profit 3,062 2,209
Operating Expenses
Marketing 1,035 887
Design Engineering 485 403
General & Administrative 907 797
2,427 2,087
Operating Income 635 122
Other Income (Expense)
Interest Expense (29) (42)
Other 112 66
Income Before Income Taxes (Note 2) 718 146
Income Taxes 243 59
Net Income $475 $87
Earnings Per Common and Equivalent
Share
Outstanding (Note 3):
Basic EPS $0.11 $0.02
Diluted EPS $0.11 $0.02
Common and equivalent shares
outstanding:
Basic EPS 4,161,758 4,082,067
Diluted EPS 4,264,337 4,308,501
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in Thousands, Except Amounts Per Share)
<TABLE>
<CAPTION>
(Unaudited)
First Quarter
Ended
August August
30, 31,
1998 1997
<S> <C> <C>
Net Income $475 $87
Other Comprehensive Income Net of Tax:
Foreign Currency Translation 121 (29)
adjustments (Note 13)
Comprehensive Income $596 $58
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
August May
30, 31,
1998 1998
<S> <C> <C>
Assets:
Current Assets
Cash & Cash Equivalents (Note 4) $6,110 $5,935
Investment in Trading Securities
(Note 4) 880 866
Trade Receivables, Less Allowance
for doubtful Accounts of $39,000 at
August 30, 1998, and $31,000 at
May 31, 1998 8,034 6,255
Inventories:
Finished Goods 2,847 3,744
Work in Process 348 278
Raw Material 3,409 2,594
Total Inventories 6,604 6,616
Prepaid and Other Expenses (Note 5) 767 618
Deferred Taxes 74 74
Total Current Assets 22,469 20,364
Other Assets:
Other Receivables, Less Allowance
of $65,000, (Note 6) -- 199
Patents, (Note 7) 133 142
Deferred Taxes 178 192
Other 128 41
439 574
Property Equipment and Leasehold
Improvements at Cost:
Land 876 876
Building 813 813
Machinery and Equipment 6,114 5,969
Office Furniture 821 734
E.D.P. Equipment 1,493 1,493
Leasehold Improvements 980 978
11,097 10,863
Less Accumulated Depreciation 6,544 6,384
Net Equipment and Leasehold
Improvements 4,553 4,479
Total Assets $27,461 $25,417
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
August May
30, 31,
1998 1998
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities
Note Payable to Bank $426 $236
Current Maturities of Long-Term Debt
(Note 8) 239 213
Accounts Payable 4,497 3,427
Accrued Expenses:
Compensation (Note 9) 456 392
Other (Note 10) 729 594
Income Taxes Payable 243 198
Total Current Liabilities 6,590 5,060
Long-Term Debt, Less Current Maturities
Included Above (Note 8) 343 414
Deferred Rent Expense (Note 11) 56 70
Retirement and Severance Benefits
(Not 12) 248 245
Stockholders' Equity:
Preferred Stock, No Par Value,
Authorized,
1,000,000 Shares; None Issued.
Common Shares, No Par Value, Authorized
10,000,000 Shares; Shares
Outstanding:
August 30, 1998; and May 31, 1998;
4,161,758 Shares 18,359 18,359
Less Note Receivable From Sale of
Common Stock (204) (204)
Retained Earnings 2,846 2,371
Accumulated Other Comprehensive
Income (Note 13) (777) (898)
TOTAL 20,224 19,628
Total Liabilities and Stockholders's
Equity $27,461 $25,417
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
COMPUTATION OF CONSOLILDATED EARNINGS PER SHARE
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
August August
30, 31,
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities
Net Income: $475 $87
Adjustments to Reconcile Net Income to
Net Cash
(Used in) Operating Activities:
Depreciation 160 134
Amortization 12
Provision for Doubtful Accounts 8
Provision for Inventory Adjustments 70
Deferred Taxes 14 14
Deferred Rent Expenses (14) (11)
Decrease (Increase) in Market Value of
Securities (14) 1
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables (1,787) 570
Inventories (58) (1,162)
Prepaid and Other Expenses (149) (259)
(Decrease) Increase in:
Accounts Payable 1,070 463
Accrued Expenses 202 (139)
Income Tax Payable 45 (371)
Net Cash Provided by (Used in)
Operating Activities 22 (661)
Cash Flows From Investing Activities:
Purchase of Equipment and Leasehold
Improvements (234) (294)
Decrease in Other Assets 121 3
Net Cash Used in Investment Activities (113) (291)
Cash Flows From Financing Activities:
Net Borrowings on Revolving Credit
Agreements 190 404
Proceeds from Issuance of Common Stock 248
Principal Payments on Long-Term
Borrowings
Including Capital Leases (45) (75)
Net Cash Provided by Financing
Activities 145 577
Effect of Foreign Currency Exchange
Rate Changes on Cash 121 (29)
Cash and Cash Equivalents:
Increase 175 (404)
Beginning 5,935 3,677
Ending $6,110 $3,273
</TABLE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDING AUGUST 30, 1998
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 includes taxes accrued on US and
Korean income calculated at an average rate of 34.0% after
recognition of deferred tax assets.
NOTE 3, Net Income Per Share
The Company has presented basic and diluted per share
earnings in accordance with FASB Statement No. 128. Basic
per share earnings are presented only for outstanding common
stock. In addition to outstanding common stock,
presentation of diluted per share earnings also assumes the
conversion, exercise or issuance of all potential common
stock instruments that are not antidilutive, using average
common market values.
The Company also 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 three months of fiscal 1998 and fiscal 1999 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>
Fiscal Year
Ending
May 30, May 31,
1998 1997
<S> <C> <C>
Net Income, as reported $475,000 $ 87,000
Net Income (loss) pro
forma 396,154 (18,011)
Net Income, per share, as
reported, basic 0.11 0.02
Net income, per share, as
reported, diluted 0.11 0.02
Net Income, per share,
basic, pro forma 0.09 0
Net Income, per share,
diluted, pro forma 0.09 0
</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 1999 and fiscal 1998 calculations:
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDING AUGUST 30, 1998
<TABLE>
<CAPTION>
Fiscal Year
Ending
May 30, May 31,
1998 1997
<S> <C> <C>
Expected dividend yield
- -
Expected stock price 63.14% 67.68%
volatility
Risk free interest rate 5.37-6.61% 5.77-6.61%
Expected life of options 1-5 1-5
</TABLE>
NOTE 4, Cash and Investments
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. Investment in trading securities is comprised
of preferred stocks that pay dividends on which the Company
receives a tax benefit.
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 for fiscal 1998 represented amounts that
were owed to 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. A suit by the Company
resulted in collection of the amount in the first quarter of
fiscal 1999.
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 30, 1998
NOTE 8, Long-term Debt
Long-term debt, including current maturities contain the
following:
<TABLE>
<CAPTION>
AUGUST MAY
30, 31,
1998 1998
(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 $199 $216
6.5% note payable, due in
quarterly installments
of $28,019 plus interest
through April 2000,
secured by equipment 134 144
US Bancorp
7.9% term loan due in
monthly installments
of $7,320, including
interest to November
2001, secured by equipment 249 267
$582 $627
Less Current Maturities 239 213
Total $343 $414
</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 30, 1998
NOTE 12, Retirement & Severance Benefits
Deferred compensation is a provision by Ault Korea
Corporation, in accordance with requirements of 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 liability to the Korean National
Pension Fund. The liabilities recorded by the Company are
net of these transfers.
NOTE 13, Accumulated Other Comprehensive Income
Accumulated other comprehensive income is comprised of
foreign currency translation adjustments resulting from
translation of the financial statements of Ault Korea
Corporation from its functional currency, Korean Won, to US
dollars. Adjustments that were recorded during the quarter
of each fiscal year are as follows:
<TABLE>
<CAPTION>
AUGUST AUGUST
30, 31,
1998 1997
(000)
<S> <C> <C>
Beginning cumulative exchange gain
(loss) $(898) $31
Gain (loss) for the period from:
a. Long-term inter-company
receivables 131 (26)
b. Other (10) ( 3)
Total $(777) 2
</TABLE>
The amounts attributed to long-term inter-company
receivables for the quarter ending August 31, 1997, reflect
changes in the Won rate from 891.9 Wons to $1.00 at June 1,
1997, to 901.8 Wons to $1.00 at August 31, 1997. Amounts
attributed to long-term inter-company receivables for the
quarter ending August 30, 1998, reflect changes in the Won
rate from 1,393.0 Wons to $1.00 at June 1, 1998, to 1,307.8
Wons to $1.00 at August 30, 1998. Amounts were computed on
outstanding receivables of $2,327,000.
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS ANDRESULTS 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 make 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 expressions. 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; delays in new
product introductions; higher than expected expense related
to sales and new marketing initiatives; availability of
adequate supplies of raw materials and components; and other
risks affecting the Company's target markets generally.
RESULTS OF OPERATIONS
Net Sales: Net sales increased 20.3% in the first quarter
of fiscal 1999 to $11,337,000 from $9,423,000 in the first
quarter of fiscal 1998. The improvement in sales resulted
from continuing strong demand for external power conversion
products for applications in the telecommunications/data
communications, computer and medical markets served by the
Company. Significant among the applications are cable
modems which are designed to process data transmitted over
cable lines that also transmit television signals. Orders
by the Company's cable modem OEM customers improved during
the quarter resulting in greater revenues from sale of
switching power supplies. The Company believes that
infrastructure problems relating to installation of
transmission stations and wired systems that hindered growth
in demand for cable modems are being resolved and that
demand for cable modems will continue to grow, thereby
influencing further growth in the sale of power conversion
products. The Company also believes that, because of its
alliance with several major manufacturers of cable modems,
it is well positioned to benefit from growth in demand for
these products. Service to customers continues as a strong
strategic focus of the Company. To this end, the Company's
engineering activities are directed to various customer
product applications that are anticipated to generate
revenue in fiscal 1999. These applications include
uninterruptible power supplies, power supplies for
asymmetric digital subscriber line modems (a competing
technology to cable modem); medical product applications,
and hubs, routers and switches for the networking market.
Like the cable modem market, these programs are anticipated
to generate sales for the Company mainly in the latter
quarters of fiscal 1999.
Order Backlog: The Company"s order backlog at August 30,
1998 totaled $13.1 million, down from $15.4 million at June
1, 1998, and compared to $14.9 million at August 31, 1997.
The lower order backlog at August 30, 1998, represented
sales for approximately sixteen weeks and reflected the
posture of many OEMs to limit their contractual commitments
to the best lead-times of their customers. Because of the
Company's shortening lead-times, order backlog as an
indicator of future shipment and material requirements has
also changed. These changes require the Company to place
greater reliability on its ability to forecast customer
needs and requirements for on-time shipment of products.
Gross Profit: Gross profit increased to $3,062,000 or 27.0%
of net sales for the first quarter of fiscal 1999, from
$2,209,000 or 23.4% of net sales for the first quarter of
fiscal 1998. The improvements are due principally to the
greater proportions of sales in the quarter of battery
chargers, as well as linear and switching power supplies
which have higher margins as compared to transformer
products. Revenue from shipments of transformers,
traditionally a lower margin product, decreased during the
quarter compared to the first quarter of fiscal 1998.
Operating Expenses: Operating expenses were $2,427,000 or
21.4% of net sales in the first quarter of fiscal 1999, as
compared to $2,087,000 equaling 22.2% of net sales for the
first quarter of fiscal 1998. The additional $340,000 for
the first quarter of fiscal 1999 were incurred principally
for sales commissions paid to sales representatives on the
larger sales for the quarter and the continuing support of
strategic initiatives that were implemented during the
second half of fiscal 1998 for the following purposes:
1. Strengthening the Company's sales and marketing
competitive position in the US and Asia.
2. Enhancing Asian manufacturing supervision.
3. Providing direct internet communication links between
Ault US and Ault Korea.
4. Installation and maintenance of software for upgrading
the quality of management information services.
5. Certification of products for sale in broader foreign
markets and to afford a more expedient response to customer
requirements.
It is anticipated that these strategic initiatives will be
beneficial to future sales and to productivity improvements.
Operating Income: Benefiting largely from the revenue
growth and improvements in gross profits, offset somewhat by
the expenditures on strategic initiatives, operating income
increased to $635,000 for the first quarter of fiscal 1999
from $122,000 attained in the first quarter of fiscal 1998.
Non-Operating Income: Non-operating income of $112,000 and
$66,000 for the first quarter of fiscal 1999 and fiscal
1998, respectively, represented primarily interest income,
currency exchange rate gains on foreign contracts by the
Korean subsidiary and income derived from rented portions of
the Korean manufacturing facility. The Company incurred
interest expenses of $29,000 in the first quarter of fiscal
1999 and $42,000 in the first quarter of fiscal 1998, which
were paid principally on bank credit facilities including
long-term borrowings.
Income Tax: The Company had pre-tax income of $718,000 for
the first quarter of fiscal 1999 on which it accrued US and
Korean income taxes totaling $243,000. For the first
quarter of fiscal 1998, the Company had pre-tax income of
$146,000 on which US and Korean income taxes totaling
$59,000 were accrued.
Net Income: The Company reported diluted per share
earnings of $0.11 for the first quarter of fiscal 1999 based
on 4,264,337 outstanding weighted average shares, compared
to diluted per share earnings of $0.02 for the first quarter
of fiscal 1998, which were based on 4,308,501 outstanding
weighted average shares.
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's working capital
position at August 30, 1998, and at August 31, 1997:
<TABLE>
<CAPTION>
August August
30, 31,
1998 1997
(000)
<S> <C> <C>
Working capital $15,879 $15,373
Cash $6,110 $3,273
Trading Securities at market 880 848
Unutilized bank credit facilities $2,491 $2,637
Cash provided by (used in)
operations 22 (661)
</TABLE>
Current Working Capital Position
At August 30, 1998, the Company had current assets of
$22,469,000 and current liabilities of $6,590,000 which
amounted to working capital of $15,879,000 and current ratio
of 3.41 to 1.00. This represents an improvement from its
working capital of $15,373,000 and stability in current
ratio of 3.41 to 1.00 at August 31, 1997. In addition to
cash and trading securities, the Company relies on its
credit facilities and cash flows from operations as sources
of working capital supporting normal growth in revenue,
capital expenditures and attainment of profit goals.
Cash and Investments: At August 30, 1998, the Company had
cash and trading securities totaling $6,990,000, up from
$4,121,000 at August 31, 1997, principally due to amounts
provided by operations during the last three quarters of
fiscal 1998.
Credit Facilities
The Company maintains two credit facilities; its primary
credit facility with USBank, and a smaller facility with
Korea Exchange Bank that supports the South Korean
subsidiary.
The credit arrangement with USBank includes:
(a) A revolving credit facility of $2.0 million at prime
rate of interest, secured by trade receivables and expiring
on October 1, 1998. Documeants are being prepared for an
agreement that renews it for an extended period of one year.
At the end of the quarter, there were no outstanding
borrowings against it.
(b) One or more term loans, each up to an amount of
$300,000. At August 30, 1998, borrowings amounting to
$448,000 were outstanding on two term loans. See Note 8,
under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The South Korean credit facility is approximately $1.5
million of which borrowings at August 30, 1998, were
$560,000.
Cash Flows for Fiscal 1999
Operations: Operations contributed net cash of $22,000 in
the first quarter from activities that provided $1,946,000
and activities that used $1,924,000 of cash. The activities
that provided $1,946,000 of cash were the following:
(a) Net profit, adjusted for non-cash items, provided net
cash of $699,000, of which net profit totaled $475,000. Non-
cash items amounted to $224,000 and was comprised
principally of depreciation of capital assets. Further
working capital from profitability is anticipated for the
balance of fiscal 1999.
(b) Increase in accounts payable and accrued expenses
provided $1,272,000 of cash principally from growth in
liabilities associated with purchases of material to support
the high level of sales achieved during the period.
Additional contribution to cash from increases in accounts
payable is anticipated for the remaining periods of fiscal
1999.
(c) Amounts accrued for payment of income taxes provided
$45,000. Income tax payments during the quarter totaled
$148,000.
.
The activities that used $1,924,000 of cash were:
(a) Increases in trade receivable balances used $1,787,000
of cash, which was due principally to the large amounts of
sales for the quarter and the resulting growth of
outstanding receivables at the end of the quarter as
compared to amounts that were outstanding when the quarter
begun. Additional use of cash from increases in trade
receivables that are associated with levels of sales is
anticipated for the remaining quarters of fiscal 1999.
(b) Increases in inventories used $58,000 of cash during
the period due mainly to increases in the amounts of
finished products stored to facilitate the emergency needs
of customers, as required by contracts. Further growth in
inventories for these reasons is anticipated over the
remaining quarters of the year.
(c) Increases in prepaid and other expenses used $149,000
of cash during the quarter. Beneficial to future periods,
these expenses will be written off against revenues during
the remaining quarters of fiscal 1999.
Investing Activities: Investing activities used net cash of
$113,000 of which $234,000 was expended
for the purchase of capital equipment and tooling.
Additional purchases of capital assets are planned for the
remaining quarters of fiscal 1999. Decreases in other
assets, principal of which was the collection of a long-
term receivable from a litigated trade contract, provided
$121,000 of cash.
Financing Activities: Financing activities provided net
cash of $145,000 from additional borrowings of $190,000
under the credit facilities and payments totaling $45,000 on
long-term indebtedness.
Effect of Foreign Currency Exchange Rate Fluctuations: The
economic crisis in South Korea, which in fiscal 1998
resulted in a dramatic devaluation of the Won, the country's
currency, has improved, although, compared to its value
during the past several years, remains weak in relation to
the value of the US dollar. The effect of translating the
Korean financial statements, which were prepared in Won, to
US dollars, resulted in a net asset value increase of
$121,000 during the quarter, which related principally to
long-term inter-company receivables. See Note 13, under
NOTES 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.
Impact of Recent Accounting Standard Changes:
Statement No. 130: The FASB has issued Statement No. 130,
Reporting Comprehensive Income, effective for fiscal years
beginning after December 15, 1997. Statement No. 130
requires treatment of items, such as unrealized gains and
losses on certain investments in debt and equity securities
and certain foreign currency items as components of other
comprehensive income in the statements of income and in the
stockholder's equity segments of financial statements. As
required, the Company has adopted Statement No. 130 for the
quarter ending August 30, 1998. See CONSOLIDATED STATEMENT
OF INCOME and CONSOLIDATED BALANCE SHEETS, Stockholders'
Equity.
Statement No. 131: FASB has issued Statement No. 131,
Disclosures About Segments of an Enterprise and Related
Information, effective for fiscal years beginning after
December 15, 1997. Statement No. 131 requires disclosure of
certain information for each organizationally structured and
performance assessed business segment of an enterprise,
including, among other disclosures, profit and loss
information, segment assets and information on major
customers. The following information relates to adoption of
Statement No. 131 by the Company for its first quarter
ending August30, 1998:
Information About Products and Services
The Company's business operations are comprised of
principally one activity - the design, manufacture and sale
of equipment for converting electric power to a level used
by OEMs principally in computer peripherals, data
communications/telecommunications and medical markets to
charge batteries, and /or power equipment. The Company
supports these power requirements by making available to the
OEM products that have various technical features. These
products are managed as one product segment under the
Company's internal organizational structure and the Company
does not consider any financial distinctive measures,
including net profitability and segmentation of assets to be
meaningful to performance assessment.
Information About Revenue by Geography
Distribution of revenue from the US, from each foreign
country that is the source of significant revenue and from
all other foreign countries as a group are as follows:
<TABLE>
<CAPTION>
QUARTERS ENDING
MAY 30, MAY 31,
1998 1997
($000)
<S> <C> <C>
US $9,347 $7,369
Canada 745 574
France 5 1,118
Ireland 577 77
All Other Foreign
Countries 663 285
Total $11,337 $9,423
</TABLE>
The Company considers a country to be the geographic source
of revenue if it has contractual obligations, including
obligation to pay for trade receivable invoices.
Information About Major Customers
The Company sells its products to over 200 customers, and it
is its objective to maintain a diversified customer base and
to avoid, where practicable, dependence for revenue on a
single customer. For the fiscal 1999 and fiscal 1998
quarters ending August 30, 1998 and August 31, 1997,
respectively, revenues from customers that comprised 10.0%
or more of total revenues were:
<TABLE>
<CAPTION>
FISCAL YEARS
1999 1999 1998 1998
Revenue % Revene %
(000)
<S> <C> <C> <C> <C>
Customer "A" $1,724 12.3 - -
Customer "B" 886 7.8 1,178 12.5
Customer "C" 578 5.1 1,118 11.9
</TABLE>
Impact of Foreign Operations and Currency changes:
South Korea had a significant fall in the value of its
currency during the third quarter of fiscal 1998, but
recovered portions of the early loss by the end of the
fiscal year and showed relative stability through the first
quarter of fiscal 1999. Although products that were
manufactured by the Korean subsidiary contributed a large
portion of total sales, the devalued Won had no significant
impact on the Company's consolidated sales for the quarter
because a significant amount of the subsidiary's sales were
made under inter-company contracts with the US operations.
Sales by the subsidiary in its local market are not material
in amounts in contrast to its inter-company sales. The
Company's US operations have no significant exposure to
currency risks because the predominant portions of its
foreign contracts are made in US dollars.
Microchip Based Date-referenced Systems and Year 2000
Compliance
Most of the Company's microchip-based date referenced
systems, including computer software and hardware are
already year 2000 compliant. Others are being examined for
compliance and it is believed that the solution to any non-
compliance found will not be difficult. There are no
internal matters, therefore, that are expected to 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 and external infrastructure
would affect its business transactions if they were tested
today for year 2000 compliance. The Company is
communicating with these external sources and its objective
is to obtain their commitment, with reasonable verification,
that they, along with the Company will be Year 2000
compliant by December 31, 1998. It is the Company's plan to
exhibit its progress towards compliance on its website,
wwwaultinc.com, beginning during the fourth quarter of
calendar year 1998.
AULT INCORPORATED AND SUBSIDIARY
PART II. OTHER INFORMATION
ITEMS 1-5 OTHER INFORMATION: Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibits
Reference Title of Document Location
Part 1 Exhibits
<S> <C> <C>
11 Computation of Per Filed herewith at page
Share Earnings 5
27 Financial Data Filed Electronically
Scheduling
(a) None
(b) Reports on Form 8-K
There were no reports on
Form 8-K filed for the
quarter ended August 30,
1998.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
AULT INCORPORATED
(REGISTRANT)
<TABLE>
<S> <C> <C>
DATED: 1/10/96 /s/ Frederick M. Green
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: 1/10/96 /s/ Carlos S. Montague
Carlos S. Montague, Vice President
Chief Financial Officer and
Controller
</TABLE>
EXHIBIT 11
AULT INCORPORATED & SUBSIDIARY
COMPUTATION OF CONSOLILDATED EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
Three Three
Months Months
Ended Ended
August 30, August 31,
1998 1997
<S> <C> <C>
Basic EPS Computation
Net Income to Common
Stockholders $475 $87
Common Shares Outstanding:
Beginning of Year 4,161,758 4,075,733
Common Shares from Exercise
of Employee Stock Options
Daily Weighted:
First Quarter 6,334
Total Weighted Common Shares 4,161,758 4,082,067
Net Income $0.11 $0.02
Diluted EPS Computation
Net Income to Common
Stockholders $475 $87
Total Weighted Common Shares 4,161,758 4,082,067
Dilutive Potential Common
Shares, Daily Weighted, from:
Assumed Conversion of
Outstanding Dilutive
Underwriters' Common Stock
Warrants 112,000
Employee Stock Options 180,550 486,625
Employee Stock Purchase Plan,
Phase 2 13,759 11,605
194,309 610,230
Less Common Shares
Purchaseable from Proceeds:
Underwriters' Common Stock
Warrants -- 98,779
Employee Stock Options 82,516 276,238
Employee Stock Purchase Plan,
Phase 2 9,514 8,779
92,030 383,796
Adjusted Weighted Average
Shares * 4,264,067 4,308,501
Net Income $0.11 $0.02
<FN>
* For the first quarter of fiscal 1999 and fiscal 1998,
options totaling 599,600 and 28,425, respectively, were
excluded from dilutive EPS calculations because of their
higher exercise prices compared to the market values.
Underwriters' common stock warrants totaling 112,000
shares were also excluded from the dilutive EPS
calculations in the fiscal 1999 first quarter for similar
reasons.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED AUGUST 30, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STSTEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-30-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-30-1998
<CASH> 6110
<SECURITIES> 880
<RECEIVABLES> 8034
<ALLOWANCES> 0
<INVENTORY> 6604
<CURRENT-ASSETS> 22469
<PP&E> 11097
<DEPRECIATION> 6544
<TOTAL-ASSETS> 27461
<CURRENT-LIABILITIES> 6590
<BONDS> 0
0
0
<COMMON> 18359
<OTHER-SE> 1865
<TOTAL-LIABILITY-AND-EQUITY> 27461
<SALES> 11337
<TOTAL-REVENUES> 11337
<CGS> 8275
<TOTAL-COSTS> 8275
<OTHER-EXPENSES> 2315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 718
<INCOME-TAX> 243
<INCOME-CONTINUING> 475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 475
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
