SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MAY 28, 2000
Commission File Number 0-12611
AULT INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0842932
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
7105 NORTHLAND TERRACE 55428-1028
Registrant's telephone number, including area code: (763) 592-1900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation 8-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $21,847,000 based upon the closing price of the
Company's common stock on the NASDAQ National Market on August 11, 2000,
multiplied by the number of outstanding shares of the Company held by persons
other than officers, directors and 10% or more shareholders referred to in the
"Security Ownership of Principal Shareholders and Management" table referred to
under Item 12 herein.
On August 11, 2000, there were outstanding 4,455,432 shares of the Registrant's
common stock.
The Form 10-K consists of 46 pages. The Exhibit Index is located on page 44.
<PAGE>
AULT INCORPORATED
FORM 10-K
FOR THE FISCAL YEAR ENDED MAY 28, 2000
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Ault Incorporated (herein "Ault" or "Company") was incorporated under the laws
of the State of Minnesota in 1961. The Company designs, manufactures, and
markets external power conversion products and is a leading domestic supplier of
such products to original equipment manufacturers (OEMs) of data communications
equipment, telecommunications equipment, portable medical equipment, and
microcomputers and related peripherals.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in only one industry segment - the manufacture and sale of
power conversion devices.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS
Ault's power conversion products are used to adapt alternating current (AC) to
provide a source of power at various levels up to 90 watts for a wide variety of
electronic equipment. Most of the Company's products are located outside the
equipment they power as wall plug-in or as in-line components and are generally
referred to as external power conversion products. A small portion of the
Company's products are located inside the equipment they power, when this
feature is required by OEM customers, and are generally known as internal power
conversion devices. External power conversion products, in contrast to more
widely used internal power conversion devices, enable designers of electronic
equipment to remove heat and hazardous voltages from the end product thereby
allowing the end product to function more safely and effectively. Also, by
removing the power conversion feature from inside the end product, the OEM is
afforded greater flexibility in designing and styling. These advantages have
particular application in the Company's target markets where advances in
semiconductor technology have reduced power requirements of many items of
equipment to levels supplied by the Company's products, where rapid growth and
strong competition have resulted in competitive pressure to bring new products
to market quickly, and where there is increasing emphasis on smaller and
portable products that perform increasingly sophisticated functions. Ault's
business strategy is to offer OEMs in these markets an expanding line of high
quality power conversion products and devices, related design engineering and
flexible customer services.
(1) PRODUCTS
Ault's product line includes the four major types of external power
conversion products: switching power supplies, linear power supplies,
battery chargers and transformers. The Company's power conversion products
are capable of providing power at most output levels which OEMs expect from
an external device. The Company's design and application engineers work
closely with customers to assure that these products are appropriately
customized to meet each OEM customer's precise power conversion product
requirements.
The following table summarizes the proportion of sales of each of the
Company's four major product categories for its last three fiscal years
ended May 28, 2000:
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SALE OF PRODUCTS BY CATEGORY
AS A PERCENTAGE OF TOTAL SALES
Years Ended
May 28, May 30, May 31,
Product Type 2000 1999 1998
Switching Power Supplies 41% 49% 37%
Linear Power Supplies 31 17 15
Transformers 17 25 40
Battery Chargers 11 9 8
Total 100% 100% 100%
POWER SUPPLIES. The Company's power supplies provide all power conversion
elements for electronic equipment in power outputs ranging from 1 to 90
watts. These products contain a component level transformer, which reduces
the voltage level, as well as other circuitry and components which convert
alternating current (AC) to direct current (DC) and, in most cases,
maintain voltage within specific limits.
* SWITCHING POWER SUPPLIES. The Company believes the market for
switching power supplies is generally the fastest growing segment of
the overall external power conversion product market. Switching power
supplies use switching transistors to convert power from AC to DC and
are more energy efficient and considerably smaller and lighter in
weight than linear units with comparable power outputs. For power
requirements exceeding 12 watts, switching power supplies are
generally more cost effective. The Company currently manufactures
these products up to 90 watts of power. The applications in which
these products are currently used include telecommunications products,
data communications products, modems, computers and computer
peripherals, medical equipment, microprocessor controlled systems,
security systems, automatic teller terminals, test equipment,
multiplexers, digital cameras and point of sales equipment.
The Company's switching power supply products include a family of
universal input power supplies which provide output power from input
power sources ranging from 90 to 265 volts. This family of power
supplies can be used in virtually any country for applications such as
local area networks ("LANs"), printer and fiber optic links. The
Company also designs universal input switching power supplies
specifically for medical markets. The Company believes it offers the
widest range of external switching power supply products currently
available for medical applications.
The company designs and manufactures switching power supplies
principally for external applications, but also designs and
manufactures these products for internal power when such action
enhances customer relations.
* HIGH DENSITY SWITCHING POWER SUPPLIES. In fiscal 1997, the Company
introduced product families based upon patented high density power
conversion technology. This technology enables the Company to offer
switching power supply products less than one-half the size of its
existing switching power supplies which provide comparable power
output. The Company's high density switching power supplies provide
approximately 45 watts to 90 watts of power. Technologies acquired
from the purchase of LZR Electronics in fiscal 1999 enabled the
Company to offer high density power supplies with considerably higher
power ranges. The addition of these products allow the Company to
compete for product applications currently not served by the Company
or its competitors, including routers, servers and wireless
communications that operate on higher power ranges.
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* LINEAR POWER SUPPLIES. Linear power supplies are larger and generally
less expensive than switching power supplies because their design is
based on technology employing steel laminations with windings of
copper wire rather than switching transistors. Linear power supplies
tend to be used when the wattage output required is relatively low.
Ault manufactures linear power supplies that provide up to 11 watts of
regulated power and 70 watts of unregulated power. The Company's
linear power supplies are used in a variety of applications, including
modems, telecommunications products, local area networks,
microprocessor controlled systems, test equipment and multiplexers.
* TRANSFORMERS. The Company manufactures a wide variety of wall plug-in
transformers, as part of its full range of power conversion products.
Transformers are used primarily in applications where OEMs desire to
remove heat, electromagnetic interference and weight from electronic
equipment, while incorporating the rest of the power conversion system
within the product. These products reduce AC voltage from
approximately 110 volts (230 volts in some countries) down to lower
voltage that range from 5 to 60 volts AC. The Company's product line
also includes highly customized transformers that operate within
stringent power output tolerances, features that are not offered by
most of the Company's competitors. The Company's transformers are
utilized in a broad spectrum of applications, including modems,
telephone sets, multimedia products and scanners.
* BATTERY CHARGERS. Ault has been an innovator in battery charging
technology since the early 1980s. Ault specializes in providing custom
designed, advanced solutions for manufacturers of portable and battery
powered equipment. Applications for the Company's battery chargers
include medical devices, mobile telecom devices, notebook computers,
global positioning equipment and radio frequency communications
products.
The Company's products serve the entire range of widely used battery
chemistries such as nickel cadmium, sealed lead acid, gel cell and
nickel-metal hydride. In addition, the Company has developed battery
chargers for the particular requirements of emerging battery
chemistries such as zinc air, lithium ion and lithium polymer. The
Company is committed to supporting these new emerging chemistries and
to developing battery charger products to be introduced as this new
battery chemistries become commercially accepted.
The Company sells primarily "smart" battery chargers as distinguished
from trickle chargers. Smart charger products use integrated circuits
to control various charging characteristics while allowing for fast
charge time and extended battery life. Trickle charging is typically
used for slow (8 to 10 hours) charging and/or standby battery
maintenance.
The Company believes that the demand for high quality battery chargers
will continue to increase to accommodate the growing sophistication of
portable electronic equipment.
(2) MARKETS AND CUSTOMERS
The Company's marketing efforts are directed primarily toward OEMs
producing non-consumer electronic equipment for telecommunications, data
communications, computer peripheral and medical applications. These markets
are characterized by trends toward smaller, portable products capable of
performing increasingly sophisticated functions, as well as intense
competitive pressure to rapidly introduce new products and product
enhancements. Based on its expertise in customizing a broad range of
products to meet customer requirements, the Company believes it is well
positioned to serve the needs of its OEM customers as they respond to these
trends and competitive factors.
Historically, the most significant market for the Company's products has
been OEMs of telecommunications/data communications equipment, and in
fiscal 2000 sales in this market represented approximately 64% of net
sales. The Company's products power cable and ADSL modems, network
termination equipment (devices which interface between telephone network
and the customer's PBX or other telephone system), line conditioning
equipment (devices which prepare telephone lines for the transmission of
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computer generated data), and various items of equipment ancillary to
business telephones, including speaker phones, automatic dialers, caller
identification units and alpha numeric displays, low to medium speed PC
modems and multiplexers (equipment which enables the simultaneous
transmission of multiple channels of information over the same telephone
line).
The Company believes the telecommunications/data communications market is
growing at a rapid rate and is devoting significant portions of its product
development effort toward introduction of new product families for
applications in this combined market.
In fiscal 2000 approximately 24% of the Company's net sales were to OEMs of
computers and computer peripherals such as digitizers, printers, plotters,
portable terminals, point of sales scanners and optical character readers,
LAN hardware and multimedia speakers for computer applications.
Approximately 9% of net sales in fiscal 2000 were to OEMs of portable
medical equipment such as infusion pumps, patient monitoring systems, apnea
monitors, and portable terminals for patient history input diagnostics.
The balance of approximately 3% of the Company's net sales in fiscal 2000
was to OEMs of various industrial equipment, including digital cameras and
mine safety devices.
(3) DESIGN ENGINEERING AND PRODUCT DEVELOPMENT
Design engineering teams at the Company's facilities in the United States,
Peoples Republic of China and South Korea are responsible for developing
new power conversion products and customizing existing products to meet
customer needs. The Company also utilizes the significant engineering
resources of its Asian subcontractors for the development of products
targeted for subcontract manufacturing. The Company's product development
activities are divided equally between developing products to satisfy
customer needs and new products based upon anticipated customer needs and
market trends. New product development opportunities are evaluated based
upon criteria such as global market potential, return on investment and
technological advantages. The Company believes that its collaborative
efforts with customers, combined with its forward-looking concern for power
technology and market trends, have enabled it to gain a reputation as a
leading innovator in the development of new external power conversion
products.
(4) SALES AND DISTRIBUTION
The Company markets its products primarily in the U.S. and Canada through a
network of 20 manufacturer representatives employing approximately 115
salespersons, each of whom represents, in addition to Ault's products,
several different but complementary product lines of other manufacturers.
The Company also sells through four national distributor organizations
which employ over 1,000 salespersons. The Company selects representatives
based upon their industry knowledge as well as account expertise with
products that are synergistic with the Company's products. Individual
salespersons are trained, mentored and technically assisted by the
Company's application engineers and other sales administration staff. Any
reduction in the efforts of these manufacturer representatives or
distributors could adversely affect the Company's business and operating
results.
The Company begins the sales process by identifying a potential customer or
market; researching the target or potential customer's total business,
product and strategic needs; and then preparing a total solution proposal
that includes engineering, product development, safety agency approvals,
logistics and project development processes, coordinating pilot runs and
assisting OEMs with their product introductions. Among the logistics
services provided by the Company are warehousing of finished products for
unscheduled requirements and customs clearance in order to facilitate
just-in-time production schedules.
The Company focuses its selling efforts primarily on OEMs in the U.S. and
Canada. Many of the larger OEM customers of the Company manufacture and
sell their products globally. As a result, the Company has extended its
presence to markets throughout the world.
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The Company's sales in the Pacific Rim are primarily to customers in South
Korea, China and Australia. Certain of the Company's products have already
obtained required MITI (Ministry of International Trade and Industry)
approvals in Japan and actions are being taken to establish a sales
administrative presence in that country to further strengthen opportunity
for selling in the Japanese market.
The Company markets its products in Europe through a network of
distributors who are managed through the Company's European sales office.
(5) SAFETY AGENCY CERTIFICATION
The power conversion system is potentially the most hazardous element in
most electronic equipment because the power supply modifies standard power
to a level appropriate for such equipment. Virtually all of the Company's
customers require that the power conversion products supplied by the
Company meet or exceed established international safety and quality
standards, since many of the Company's products are used in conjunction
with equipment which are distributed through the world. In response to
these customer requirements, the vast majority of the Company's products
are designed and manufactured in accordance with certification requirements
of many safety agencies, including Underwriters Laboratories Incorporated
("UL") in the United States; the Canadian Standards Association (CSA) in
Canada; Technischer Uberwachungs-Verein ("TUV") in Germany; the British
Approval Board for Telecommunication ("BABT") in the United Kingdom; the
International Electrotechnical Committee ("IEC"), a European standards
organization and ("CE") a standard for the European Community. In addition,
some of the Company's products have also received Japanese MITI approval.
For certain safety applications, the Company's products conform to FCC
Class B requirements which regulate the levels of electronic magnetic
interference that may be emitted by electronic equipment. Unlike most of
its competitors, the Company is a certified test laboratory for UL, CSA and
TUV and is able to conduct most certification tests at its plant in
Minneapolis. This procedure reduces the time required to obtain safety
certifications. The Company's Minneapolis and South Korean facilities are
certified to ISO 9001.
(6) INNOVATIVE TEAM APPROACH
The Company uses a team-based organizational structure consisting of seven
teams. The Company's customer base is divided into six geographical regions
with a specific Ault team assigned to manage the needs of customers in each
region. A seventh team, Ault Express, manages the requirements of customers
who have orders of certain minimum annual levels. Each team is headed by a
coordinator selected by the president and an assistant coordinator who is
elected annually by the team. The teams consist of people from all areas of
the business, including salespersons from manufacturer representative
organizations and national distributors as well as the Company's own
production personnel, engineers, technicians, administrative personnel and
others. Guided by a written statements of corporate values, these teams are
charged with responsibility for all aspects of the customer relationship,
including sales, manufacturing, design engineering and other support
functions with a view to achieving continuous improvements in customer
service. The Company believes that its innovative implementation of this
team-based organizational structure provides competitive advantages by
increasing communication with customers as well as facilitating
responsiveness to the needs of the Company's diverse worldwide customer
base. In 1996, Ault received recognition for its innovative approach from
the trade publication of the American Manufacturing Association.
(7) COMPETITION
The Company competes primarily with various manufacturers of external power
conversion products. The industry is highly fragmented, with manufacturers
generally focusing their marketing on specific segments. The Company has
experienced strong competition from Taiwanese-based manufacturers
principally on price. Many of these competitors have a smaller presence in
the external conversion market than the Company, although several are
engaged in more than one business and have significantly greater financial
resources.
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No single company dominates the overall external power conversion product
market, and the Company's competitors vary depending upon the particular
power conversion product category. The companies with which Ault competes
most directly in each of its major product categories are: Leader
Electronics, Inc. and Golden Pacific Electronics, Inc. for transformers;
Dee Van Enterprise Co., Ltd and Sino American Electronics Company., Ltd.
for linear power supplies; Potrans Electrical Corp., Ltd. and Phihong
Enterprise Co., Ltd. for switching power supplies; and Engineering Design
Sales, Inc. and Xenotronics Company for battery chargers.
The Company competes on the basis of the quality and performance of its
products, the breadth of its product line, customer service, dependability
in meeting delivery schedules, design engineering services, and price. The
Company believes it is currently one of a small number of companies that
design, manufacture and obtain certifying agency approvals for the full
range of external power conversion devices which OEMs consider in designing
their electronic product.
The Company provides a total solution approach to the OEM's entire external
power conversion product needs through its commitment to reliable
partnerships and its delivery of high quality products supported by
solution-oriented design engineering. In addition, the presence of Ault
Korea and Ault China and the expanding arrangements with subcontract
manufacturers in China and Thailand, provide the Company with additional
strength to compete effectively when price is the primary consideration.
Internal power conversion products continue to be used for most electronic
equipment, and as a result the Company experiences competition from
numerous companies providing such internal products, including both OEMs
and independent suppliers. With the trend toward lower power requirements
in portable electronic equipment and with the increasing availability of
smaller, competitively-priced internal switching power supplies, certain
customers of the Company may choose to return to internal power supplies in
place of the external power conversion products they currently purchase. In
relation to this competition, the Company stresses the several advantages
of external power conversion products, which generally can be obtained with
only a relatively small increase in unit cost.
(8) MANUFACTURING AND SOURCES OF SUPPLY
The Company's manufacturing operations consist of assembly and integration
of electronic components to meet product specifications and design
requirements for a variety of power conversion applications. Manufacturing
is currently conducted at the Company's facility in Minneapolis, Minnesota;
Seoul, South Korea; Xianghe, China and at four locations in China and
Thailand using subcontract manufacturers. Ault typically manufactures
prototypes and low volume products at its facility in Minneapolis,
Minnesota.
A number of the components and raw material integral to the manufacture of
the Company's products are purchased from a single supplier or a limited
number of suppliers. Electronic components and raw material used in the
Company's products are nevertheless generally available from a large number
of suppliers, although from time to time shortages of particular items are
experienced.
Quality and reliability are emphasized in both the design and manufacture
of the Company's products. This emphasis is reflected in the ISO 9001
certification of the Company's Minneapolis facility in 1991 and of its
South Korea facility in 1998. The Company tests 100% of its finished
products against its own and the customers' specifications, then ships the
products in custom-engineered, protective packaging to minimize any damage
during shipment.
The Company has subcontract manufacturing arrangements with business
partners in Thailand and two in China. The Company does not have long-term
commitments from the subcontractors and the subcontractors build product
for the Company pursuant to individual purchase orders. The Company selects
its subcontract manufacturers based upon their ability to manufacture high
quality products, the sufficiency of their engineering capabilities to
support products being manufactured; and their ability to meet required
delivery times. In addition, each of the Company's subcontract
manufacturers is regularly reviewed by the Company's Taiwanese-based
Director of Far East Operations with respect to product quality and other
performance criteria.
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(9) SIGNIFICANT CUSTOMERS: BACKLOG
The Company sells its products to over 400 customers and it is the
Company's objective to maintain a diversified customer base and to avoid,
where practicable, dependence upon a single customer. In fiscal 2000, there
were no customers that accounted for more than 10% of sales.
The Company enters into buying commitments and other scheduling agreements
with certain customers. For its larger customers, these agreements allow
for order increases and decreases within scheduled limits and include
cancellation charges for completed and in-process products and procured
materials. Most products are shipped within 4 to 10 weeks of an order.
(10) WARRANTIES
The Company provides up to a three-year parts and labor warranty against
defects in materials or workmanship on all of its products. Servicing and
repairs are conducted at the Company's manufacturing facilities in
Minneapolis and South Korea. The Company's warranty expenses have not been
significant.
(11) PATENTS
The Company holds no significant patents.
(12) SEASONALITY
As indicated by ITEM 8(b) SUPPLEMENTAL FINANCIAL INFORMATION, net sales of
the Company have reflected a certain degree of seasonality. The Company's
first quarter falls during the summer months and during the first quarter
of fiscal 1999 and fiscal 2000, the Company recorded levels of sales which
were generally lower than sales that were recorded for the succeeding
periods. The Company attributes this seasonality to the buying patterns of
its customers, the timing of industry trade shows where new products are
introduced and to other factors. The Company believes that similar
seasonality trends will be experienced in the future.
(13) EMPLOYEES
As of August 11, 2000, the Company employed approximately 565 full-time
employees at its facilities as follows:
South
Korea China Taiwan US Total
Manufacturing 126 180 45 351
Engineering 24 20 20 64
Marketing 9 15 11 35
General and Administrative 32 25 1 57 115
---- ---- ---- ---- ----
Total 191 240 1 133 565
None of the Company's employees are represented by a labor organization and
the Company has never experienced a work stoppage or interruption due to a
labor dispute. Management believes that its relations with its employees
are good.
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(14) EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to the executive officers of the Company
is set forth:
<TABLE>
<CAPTION>
Name Age Position Officer Since
<S> <C> <C> <C>
Frederick M. Green 57 President and Chief Executive Officer and Director 1980
Donald L. Henry 44 Vice President, Treasurer, Chief Financial Officer and 1999
Assistant Secretary
Richard A. Primuth 54 Secretary 1995
Gregory L. Harris 47 Vice President - Business Development 1988
</TABLE>
(15) RISK FACTORS
The following risk factors are relevant to an understanding of the business
matters discussed herein:
* TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT. The electronic
equipment market is characterized by rapidly changing technology and
shorter product life cycles. The Company's future success will
continue to depend upon its ability to enhance its current products
and to develop new products that keep pace with technological
developments and respond to changes in customer requirements. Any
failure by the Company to respond adequately to technological changes
and customer requirements or any significant delay in new product
introductions could have a material adverse effect on the Company's
business and results of operations. In addition, there can be no
assurance that new products to be developed by the Company will
achieve market acceptance. See "Business-Design Engineering and
Product Development."
* FLUCTUATION IN FINANCIAL RESULTS. The Company's financial results are
subject to fluctuation due to various factors, including general
business cycles in the Company's markets, the mix of products sold,
the stage of each product in its life cycle and the rate and cost of
development of new products. In addition, component and material
costs, the timing of orders from and shipments of products to
customers and deferral or cancellation of orders from major customers
could adversely affect financial results. Price competition in the
markets in which the Company competes is intense, and could result in
a decline in gross margin, which in turn could adversely impact the
Company's profitability.
* DEPENDENCE ON OUTSIDE CONTRACTORS. The Company currently depends on
third parties located in foreign countries for a significant portion
of the manufacture and assembly of certain of its products. Some of
these countries are economically troubled areas. The Company's
reliance on such outside contractors reduces its control over quality
and delivery schedules. While the Company takes an active role in
overseeing quality control with its third party manufacturers, the
failure by one or more of these subcontractors to deliver quality
products or to deliver products in a timely manner could have a
material adverse effect on the Company's operations. In addition, the
Company's third-party manufacturing arrangements are short-term in
nature and could be terminated with little or no notice. If this
happened, the Company would be compelled to seek alternative sources
to manufacture certain of its products. There can be no assurance that
any such attempts by the Company would result in suitable arrangements
with new third-party manufacturers. See "Manufacturing and Sources of
Supply."
* DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH. The Company's
success depends in part upon the continued services of many of its
highly skilled personnel involved in management, engineering and
sales, and upon its ability to attract and retain additional highly
qualified employees. The loss of service of any of these key personnel
could have a material adverse effect on the Company. The Company does
not have key-person life insurance on any its employees. In addition,
the Company's future success will depend on the ability of its
officers and key employees to manage growth successfully and to
attract, retain, motivate and effectively utilize the team approach to
manage its employees. If the Company's management is unable to manage
growth effectively, the Company's business and results of operations
could be adversely affected.
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* ANTI-TAKEOVER CONSIDERATIONS. Certain anti-takeover provisions of the
Minnesota Business Corporation Act and the ability of the Board of
Directors to issue preferred stock without stockholder approval under
the Company's Right Plan may have the effect of delaying or preventing
a change in control or merger of the Company. These provisions could
delay, discourage, hinder or preclude an unsolicited acquisition of
the Company, could make it less likely that stockholders receive a
premium for their shares as a result of any such attempt and could
adversely affect the market price of the Common Stock. See "Note 7 -
Stockholders' Equity" under NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Export Sales by the U.S. Operations in fiscal year 2000 represented 15.2% of the
Company's gross sales most of which were to OEMs in Europe and Canada. All other
revenues were derived from domestic sales principally in the U.S. For other
financial information about foreign and domestic operations and export sales
including the amount of export sales for the last 3 years, refer to "Note 9 -
Segment Information and Foreign Operations" under NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
ITEM 2. PROPERTIES
The Company's headquarters and US manufacturing facility is located in Brooklyn
Park, a suburb of Minneapolis, Minnesota and is approximately 65,000 square feet
in size.
The Company's subsidiary, Ault Korea Corporation, operates in a 36,000 square
foot facility in Suwon City in the province of Kyungki-Do, Korea. The Company
will relocate to a new facility, also located in Suwon City, during fiscal 2001.
Ault China, a subsidiary of Ault Korea Corporation, occupies a 40,000 square
foot leased facility in The Province of Xianghe in China. The lease expires in
the year 2050.
Management considers all of the Company's properties to be well maintained and
current manufacturing arrangements, including subcontract arrangements in China
and Thailand, are believed to be adequate for manufacturing requirements.
ITEM 3. LEGAL PROCEEDINGS
No material litigation or other claims are presently pending against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
Ault common shares are traded on the NASDAQ market under the symbol AULT. The
following table presents the range of closing bid prices for the Company's
common stock on the NASDAQ Market for fiscal 2000 and 1999.
Fiscal 2000 Fiscal 1999
----------- -----------
$ $ $ $
Quarter High Low High Low
1st 7.437 7.038 6.125 3.375
2nd 6.946 6.565 7.375 6.600
3rd 8.222 7.680 8.375 6.200
4th 7.794 7.240 11.875 6.750
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(b) Holders
As of August 11, 2000 there were 279 shareholders of record for the Company's
common stock. This number of record stockholders does not include beneficial
owners of common stock whose shares are held of record by Depository Trust under
the name CEDE & Co.
(c) Dividends
Ault has not paid cash dividends on its common shares, and, under present policy
of its Board of Directors to retain any earnings for use in the business, does
not anticipate paying cash dividends on its common shares in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED
May 28, May 30, May 31, June 1, June 2,
2000 1999 1998 1997 1996
(Amounts in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Net Sales $ 66,123 $ 50,938 $ 41,136 $ 40,012 $ 33,774
Gross Profit 16,436 14,018 10,761 10,523 8,265
Operating Expenses 12,832 11,426 8,883 7,941 6,699
Operating Income 3,604 2,592 1,878 2,582 1,566
Non Operating Income (Expense) (680) 256 49 (307) (658)
Income Before Income Taxes 2,924 2,848 1,927 2,275 908
Income Taxes (Benefit) 1,061 860 609 (90) 25
Net Income $ 1,863 $ 1,988 $ 1,318 $ 2,365 $ 883
Net Income Per Share:
Basic $ 0.42 $ 0.47 $ 0.32 $ 0.79 $ 0.42
Diluted 0.40 0.45 0.31 0.72 0.39
Total Assets $ 46,256 $ 33,303 $ 25,417 $ 26,094 $ 18,730
Property Equipment and Leasehold
Improvements, Net $ 10,537 $ 6,808 $ 4,479 $ 3,568 $ 2,849
Working Capital 17,708 16,364 15,304 15,231 3,754
Long-term Notes Payable 3,657 1,187 414 441 935
Stockholders' Equity $ 25,805 $ 23,442 $ 19,628 $ 18,936 $ 5,571
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's working capital position at May 28,
2000, and at May 30, 1999:
May 28, May 30,
2000 1999
---------------- ----------------
($000) ($000)
Working capital 17,708 16,364
Cash 2,419 3,303
Securities available for sale 497 850
Unutilized bank credit facilities 4,041 4,073
Cash provided by (used in) operations (2,426) (1,145)
CURRENT WORKING CAPITAL POSITION
At May 28, 2000, the Company had current assets of $34,269,000 and current
liabilities of $16,561,000 representing working capital of $17,708,000 and a
current ratio of 2.1. This represents an improvement from working capital of
$16,364,000 at May 30, 1999. The Company relies on its credit facilities and
cash flows from operations as sources of working capital to support normal
growth in revenue, capital expenditures and attainment of profit goals.
CASH AND INVESTMENTS: At May 28, 2000, the Company had cash and securities
totaling $2,916,000, down from $4,153,000 at May 30, 1999. This decrease in cash
was principally because of payments made to acquire and relocate to a new
manufacturing and office facility in Minneapolis, Minnesota. Some of this cash
outlay was offset by a cash receipt from the sale of Korean real estate in the
fourth quarter.
CREDIT FACILITIES: The Company maintains credit facilities with US Bank and with
Korea Exchange Bank. See Note 3, under NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
The credit arrangement with US Bank includes:
(a) A revolving credit facility of $4.0 million, secured by Company
assets. At May 28, 2000, there were no borrowings against this
facility.
(b) One or more term loans, each up to $400,000. At May 28, 2000,
borrowings totaling $494,000 were outstanding on three term loans.
The South Korean credit facility is approximately $2.2 million of which
borrowings at May 28, 2000 totaled $2,159,000
CASH FLOWS FOR 2000
OPERATIONS: Operations used $2,426,000 of cash during fiscal 2000 due
principally to the following activities:
(a) Increases in trade receivables mainly due to the increased net sales
in fiscal 2000 used $5,432,000 of cash. Further use of cash from
increased net sales is anticipated for fiscal 2001.
(b) Increases in inventories used $5,210,000 of cash. The increases are
due principally to customer requirements that the Company carry
additional finished products to support short-term needs. This is a
normal business practice in the power supply market.
(c) Increases in accrued expenses and accounts payable provided $6,570,000
of cash from liabilities associated with purchases of material to
support customer orders.
12
<PAGE>
INVESTING ACTIVITIES: Investing activities used net cash of $2,435,000 relating
principally to the construction of the new manufacturing/office facility in
Minneapolis offset by the sale of Korean real estate.
FINANCING ACTIVITIES: Financing activities provided net cash of $3,925,000,
comprised principally of borrowings in connection with the construction of the
new manufacturing/office facility in Minneapolis.
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS: The effect of translating
the Korean financial statements, which were prepared in Won, to US dollars,
resulted in a net asset value increase of $51,000 during the year, which related
principally to long-term inter-company receivables.
SUMMARY: The Company's cash and working capital positions are sound and,
together with its credit facilities, are adequate to support the Company's
strategies for the fiscal 2001.
CASH FLOWS FOR FISCAL 1999
OPERATIONS: Operations used $1,145,000 of cash during fiscal 1999 due
principally to the following activities in trade receivables, inventories,
accounts payables and accrued expenses:
(a) Increases in trade receivables, mainly due to the increased net sales
in fiscal 1999, used $4,025,000 of cash.
(b) Increases in inventories used $253,000 of cash. The increases are due
principally to customer requirements that the Company carry additional
stock of finished products. This is a typical business practice in the
power supply industry. No changes are anticipated over the near term.
(c) Increases in accounts payable and accrued expenses provided $466,000
of cash from liabilities associated with purchases of material to
support customer orders.
INVESTING ACTIVITIES: Investing activities used net cash of $4,487,000 relating
principally to:
(a) Manufacturing and tooling equipment obtained and goodwill, net of
amortization, recognized from the purchase of LZR Electronics, Inc.
(b) Purchases of manufacturing and tooling equipment amounting to
$1,544,000, required to support normal operations.
(c) Purchase of land in South Korea. Acquired at a cost of $445,000, the
land will be the site of a new Korean manufacturing facility. The
Korean Government has acquired the current site, for a public
improvement project.
FINANCING ACTIVITIES: Financing activities provided net cash of $2,745,000,
principally due to the following transactions:
(a) Borrowings under the revolving credit facilities provided $729,000 of
cash.
(b) Proceeds from long-term borrowings provided $1,491,000 of cash for
equipment, working capital and a mortgage loan. The mortgage loan was
acquired on the South Korean property that is to be the site for the
subsidiary's manufacturing facility. The current facility has been
acquired by the Korean Government, as discussed under "Investing
Activities".
(c) Payments from notes receivable from the sales of common stock provided
$59,000 and proceeds from the issuance of common stock provided
$636,000. LZR Electronics, Inc. converted the Company's promissory
note that was issued as discussed under Cash and Investments.
(d) Principal payments on long-term borrowings used $170,000 of cash.
13
<PAGE>
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MAY 28, 2000
$000 Fiscal Fiscal Increase / (Decrease)
------------------------
2000 1999 Amount Percent
-------------------------------------------------
Net Sales $66,123 $50,938 $15,185 30%
Operating Income 3,605 2,592 1,013 39%
Net sales were $66,123,000 for fiscal 2000 up 30% from $50,938,000 for fiscal
1999. The growth was primarily due to significantly higher power supply
shipments to major OEMs of high-speed ADSL modems. The Company is also
benefiting from growing business volumes with OEMs serving the wireless
communication, medical equipment and cable modem markets. The Company is a
supplier for several major cable modem manufacturers and believes the market for
cable modems will remain strong.
The gross margin for fiscal 2000 was 24.9%, compared to 27.5% for fiscal 1999.
Several factors partially offset the positive impact of Ault's strong fiscal
2000 sales growth. During the second half, gross margins were affected by a
shift in the sales mix toward lower-margin linear power supplies. In response,
the Company is re-engineering the entire line of power supplies to reduce
manufacturing costs. The significant growth of Asian sales also had a impact on
gross margins. As an aggressive new undertaking, the Asian sales effort entails
the normal array of start-up costs and pricing initiatives. The Company is
forecasting strong Asian sales in fiscal 2001, and believes that margins on this
business should improve as the year progresses. Finally, significantly higher
air and maritime freight costs as well as high capacity utilization in shipping
from Asia, resulting from the dramatic increase in fuel prices, also affected
margins. The Company has started passing through increased fuel costs. The move
has not affected business activities. To further strengthen margins, the Company
is also implementing a global procurement system that will leverage purchasing
power for key electronic components.
Operating income totaled $3,605,000 for fiscal 2000 and $2,592,000 for the same
period in fiscal 1999 equaling, respectively, 5.5% and 5.1% of net sales. The
operating expense change was incurred principally due to (1) facility sales and
relocations (2) Asian start-up costs (3) commissions paid to sales
representatives on the increased sales and (4) continued support of strategic
initiatives, including new product and sales development:
FACILITY SALE AND RELOCATION: The company realized a gain on the sale of Korean
real estate of $1,500,000, which was partially offset by the relocation of the
Gaithersburg, Maryland site to Minneapolis, as well as the moves of both the
Shanghai sales office and the Beijing factory.
NEW PRODUCT DEVELOPMENT: Service to customers continues as a strong strategic
focus of the Company. The Company's engineering activities are directed to
developing products for various customer applications. In addition to data
convergence and portable medical products, these applications include
uninterruptible power supplies, hubs, routers and switchers for the networking
market.
SALES DEVELOPMENT: During the latter half of fiscal 1999, the Company opened
sales offices in Shanghai and in Europe and strengthened the Korean sales
office.
The Company's order backlog at May 28, 2000 totaled $17,877,000 compared to
$12,963,000 at May 30, 1999. The order backlog represents sales for
approximately twelve weeks and reflects the posture of many OEMs to limit their
contractual commitments to the best lead-times of their suppliers. This requires
the Company to place greater reliability on its ability to forecast customer
needs and requirements for on-time shipment of products.
Other expenses of ($274,000) for fiscal 2000 and income of $402,000 for the same
period in fiscal 1999 represented principally interest income, currency exchange
rate gains (losses) on foreign contracts by the Korean subsidiary and income
derived from rented portions of the Korean manufacturing facility. The Company
incurred interest expenses of $406,000 in fiscal 2000 and $146,000 in fiscal
1999. The increase is primarily due to the mortgage on the new facility in
Minneapolis.
14
<PAGE>
FISCAL YEAR MAY 30, 1999
$000 Fiscal Fiscal Increase / (Decrease)
------------------------
1999 1998 Amount Percent
-------------------------------------------------
Net Sales $50,938 $41,136 $9,802 24%
Operating Income 2,592 1,887 705 37%
Net sales were $50,938,000 for fiscal 1999 up 24% from $41,136,000 for fiscal
1998. The improvement in fiscal 1999 is primarily due to strong growth in sales
within the telecommunications and data communications markets. In fiscal 1999,
the Company acquired the assets of the power supply division of LZR Electronics,
a closely held corporation located in Gaithersburg, Maryland. Prior to being
acquired by Ault, LZR had annual revenues of approximately $6.5 million in
calendar 1997 and 1998.
The Company's order backlog at May 30, 1999 totaled $12,963,000 compared to
$15,340,000 at May 31, 1998. The order backlog at May 30, 1999 represented sales
for approximately thirteen weeks
Gross profit increased to $14,018,000 or 27.5% of net sales for fiscal 1999,
$10,761,000 or 26.2% of net sales for 1998. The improvements are due principally
to the greater proportions in the sales mix 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 fiscal 1999 compared to fiscal 1998.
Operating expenses were $11,427,000 or 22.4% of net sales in fiscal 1999, as
compared to $8,883,000 equaling 21.6% of net sales for fiscal 1998. The
increased expenditures were incurred principally due to (1) sales commissions
paid to sales representatives on the larger sales in fiscal 1999, (2)
integration of LZR into the Company, and (3) continued support of strategic
initiatives to achieve the following purposes:
1. Strengthen the Company's sales and marketing competitive position
in the US and Asia.
2. Enhance Asian manufacturing supervision.
3. Provide and maintain direct communication links between Ault US
and Ault Korea.
4. Install and maintain programs to upgrade the quality of
management information services.
5. Certify products for sale in broader foreign markets and to
respond more expeditiously to customer requirements.
6. Upgrade logistic support to provide forecasting techniques
necessary to meet product delivery lead-times and to support US
Customs requirements necessitated by increased foreign business
activities.
Operating income totaled $2,592,000 for fiscal 1999 and $1,877,000 for fiscal
1998 equaling, respectively, 5.1% and 4.6% of net sales. The improvements in
operating income for fiscal 1999 are due principally to the greater sales and
better gross margin on the mix of products, as previously discussed.
Other income of $402,000 for fiscal 1999 and $197,000 for fiscal 1998
represented principally 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
$146,000 in fiscal 1999 and $148,000 in fiscal 1998 principally on bank credit
facilities and long-term borrowings.
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.
15
<PAGE>
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:
FISCAL YEAR ENDING
May 28, May 30,
2000 1999
($000) ($000)
------ ------
US $51,685 $42,076
Canada 2,667 1,977
Ireland 1,663 2,884
Korea 4,381 1,572
Belgium 2,495 435
Other Foreign 3,232 1,994
----- -----
Total $66,123 $50,938
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.
IMPACT OF FOREIGN OPERATIONS AND CURRENCY CHANGES
Products manufactured by the Korean subsidiary contributed a large portion of
total sales. The value of the Won had no significant impact on the Company's
consolidated sales for the year because the predominant portions 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.
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 original equipment manufacturers (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; fuel prices;
and other risks affecting the Company's target markets generally.
ACCOUNTING PRONOUNCEMENTS - In June 1998, FASB issued SFAS No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 as amended by
SFAS No. 138, ACCOUNTING FOR CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB
NO. 133, requires companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. In July 1999,
FASB issued SFAS No. 137 delaying the effective date of SFAS No. 133 for one
year to fiscal years beginning after June 15, 2000, with earlier adoption
encouraged. Management has not yet determined the effects SFAS No. 133 will have
on its financial position or the results of its operations. The Company will be
required to adopt SFAS No. 133 in fiscal 2002.
16
<PAGE>
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101 REVENUE RECOGNITION IN FINANCIAL STATEMENTS.
SAB No. 101 summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB No.
101 is to be implemented by the Company no later than the fourth quarter of
fiscal 2001. The Company is currently reviewing SAB No. 101 and its effects on
the financial statements, but has not yet determined the effect on its financial
position or results of its operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company experiences foreign currency gains and losses, which are reflected
in the financial statements, due to the strengthening and weakening of the U.S.
dollar against currencies of the Company's foreign subsidiaries. The net
exchange gain or foreign loss arising from this was not material in 2000, 1999
and 1998. The Company anticipates that it will continue to have exchange gains
or losses in the future.
At the end of fiscal 2000, the company had an investment portfolio of fixed
income securities of $497,000. These securities, like all fixed income
instruments, are subject to interest rate risk and will decline in value if
market interest rates increase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
(a) Financial Statements
Index to Consolidated Financial Statements
Page
* Independent Auditors' Reports 18
* Consolidated Balance Sheets, May 28, 2000 and May 30, 1999. 20
* Consolidated Statements of Income for the Years Ended
May 28, 2000, May 30, 1999, and May 31, 1998. 22
* Consolidated Statements of Stockholders' Equity for the Years
Ended May 28, 2000, May 30, 1999, and May 31, 1998. 23
* Consolidated Statements of Cash Flows for the Years Ended
May 28, 2000, May 30, 1999, and May 31, 1998. 24
* Notes to Consolidated Financial Statements 25
(b) Supplemental Financial Information
* Quarterly Financial Data 36
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Ault Incorporated and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Ault Incorporated
and Subsidiary (the Company) as of May 28, 2000 and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
index as Item 14.a.(2). These consolidated financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 2000 consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the 2000
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the 2000 consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall 2000 consolidated financial
statement presentation. We believe our audit provides a reasonable basis for our
opinion.
In our opinion, such 2000 consolidated financial statements present fairly, in
all material respects, the financial position of Ault Incorporated and
Subsidiary as of May 28, 2000 and the results of their operations and their cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Minneapolis, Minnesota
July 24, 2000
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Ault Incorporated and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Ault Incorporated
and Subsidiary (the Company) as of May 30, 1999 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the two
fiscal years in the period ended May 30, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ault Incorporated
and Subsidiary as of May 30, 1999 and the results of its operations and its cash
flows for each of the two fiscal years in the period ended May 30, 1999, in
conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
July 9, 1999
19
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MAY 28, 2000 AND MAY 30, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
ASSETS MAY 28, MAY 30,
2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,418,671 $ 3,303,277
Available-for-sale investments 497,461 849,914
Trade receivables, less allowance for doubtful accounts of
$94,000 in 2000; $30,000 in 1999 (Note 10) 15,898,979 10,466,897
Inventories (Note 2) 14,260,569 9,050,605
Prepaid and other expenses 982,675 701,743
Deferred taxes (Note 4) 211,000 265,000
Income tax receivable 152,428
------------- -------------
Total current assets 34,269,355 24,789,864
OTHER ASSETS:
Intangibles, less accumulated amortization of $150,000 in 2000;
$126,000 in 1999 1,353,702 1,559,867
Deferred taxes (Note 4) 72,000 105,000
Other 24,406 40,676
------------- -------------
1,450,108 1,705,543
PROPERTY, EQUIPMENT, AND LEASEHOLD
IMPROVEMENTS:
Land 1,583,072 2,116,875
Building 5,260,933 816,376
Machinery and equipment 7,122,671 6,423,234
Office furniture and equipment 1,264,761 929,913
Data processing equipment 1,675,346 1,465,077
Leasehold improvements 975,038
Construction in progress 814,735
------------- -------------
16,906,783 13,541,248
Less accumulated depreciation 6,369,858 6,733,372
------------- -------------
10,536,925 6,807,876
------------- -------------
$ 46,256,388 $ 33,303,283
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MAY 28, 2000 AND MAY 30, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY MAY 28, MAY 30,
2000 1999
<S> <C> <C>
CURRENT LIABILITIES:
Note payable to bank (Note 3) $ 2,158,377 $ 1,427,614
Current maturities of long-term debt 802,413 401,910
Accounts payable 11,762,692 5,557,255
Accrued compensation 537,490 416,693
Accrued commissions 745,609 536,105
Other 135,235 85,956
Income tax payable 419,061
-------------- --------------
Total current liabilities 16,560,877 8,425,533
LONG-TERM DEBT, less current maturities (Note 3) 3,657,067 1,187,364
DEFERRED RENT EXPENSE 14,032
RETIREMENT AND SEVERANCE BENEFITS (Note 1) 233,162 234,374
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 5, 6, and 7):
Preferred stock, no par value; authorized 1,000,000 shares;
none issued
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding 4,445,432 shares in 2000;
4,372,789 shares in 1999 20,275,483 19,827,000
Notes receivable arising from the sale of common stock (145,000) (145,000)
Accumulated other comprehensive loss (548,074) (599,337)
Retained earnings 6,222,873 4,359,317
-------------- --------------
25,805,282 23,441,980
-------------- --------------
$ 46,256,388 $ 33,303,283
============== ==============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MAY 28, 2000, MAY 30, 1999, AND MAY 31, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
NET SALES $ 66,122,725 $ 50,938,193 $ 41,136,232
COST OF GOODS SOLD 49,686,426 36,919,753 30,375,684
-------------- -------------- --------------
Gross profit 16,436,299 14,018,440 10,760,548
OPERATING EXPENSES (INCOME):
Marketing 5,450,546 4,375,893 3,707,267
Design engineering 3,413,502 2,425,303 1,788,736
General and administrative 5,492,362 4,625,370 3,387,120
Gain on sale of facility (1,524,879)
-------------- -------------- --------------
12,831,531 11,426,566 8,883,123
-------------- -------------- --------------
OPERATING INCOME 3,604,768 2,591,874 1,877,425
NONOPERATING INCOME (EXPENSE):
Interest expense (405,936) (146,016) (148,415)
Interest income 100,981 292,308 299,271
Other (375,613) 109,950 (101,563)
-------------- -------------- --------------
(680,568) 256,242 49,293
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES 2,924,200 2,848,116 1,926,718
INCOME TAXES (Note 4) 1,060,644 860,000 609,000
-------------- -------------- --------------
NET INCOME $ 1,863,556 $ 1,988,116 $ 1,317,718
============== ============== ==============
EARNINGS PER SHARE (Note 1):
Basic $ 0.42 $ 0.47 $ 0.32
Diluted 0.40 0.45 0.31
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
NOTES ACCUMULATED
RECEIVABLE OTHER
COMMON STOCK FROM SALE COMPREHENSIVE TOTAL
------------------------- OF COMMON RETAINED INCOME STOCKHOLDERS'
SHARES AMOUNT STOCK EARNINGS (LOSS) EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 1, 1997 4,075,733 $18,055,290 $ (203,750) $ 1,053,483 $ 30,788 $18,935,811
Comprehensive income:
Net income 1,317,718 1,317,718
Net change in foreign currency
translation adjustment (928,915) (928,915)
-----------
Total comprehensive income 388,803
-----------
Issuance of 86,025 shares of common
stock in accordance with stock purchase
plan and stock option plan (Notes 5 and 6) 86,025 303,507 303,507
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT MAY 31, 1998 4,161,758 18,358,797 (203,750) 2,371,201 (898,127) 19,628,121
Comprehensive income:
Net income 1,988,116 1,988,116
Net change in foreign currency
translation adjustment 298,790 298,790
-----------
Total comprehensive income 2,286,906
-----------
Issuance of 132,166 shares of common
stock in accordance with stock purchase
plan and stock option plan (Notes 5 and 6) 132,166 636,203 636,203
Issuance of 78,895 shares of common
stock in connection with acquisition
of LZR Electronics, Inc. (Note 1) 78,865 500,000 500,000
Repayment of note receivable from sale
of common stock 58,750 58,750
Income tax benefit from stock options
exercised 332,000 332,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT MAY 30, 1999 4,372,789 19,827,000 (145,000) 4,359,317 (599,337) 23,441,980
Comprehensive income:
Net income 1,863,556 1,863,556
Net change in foreign currency
translation adjustment 51,263 51,263
-----------
Total comprehensive income 1,914,819
-----------
Issuance of 66,143 shares of common
stock in accordance with stock purchase
plan and stock option plan (Notes 5 and 6) 66,143 324,168 324,168
Income tax benefit from stock options
exercised 86,000 86,000
Stock Grants 6,500 38,315 38,315
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT MAY 28, 2000 4,445,432 $20,275,483 $ (145,000) $ 6,222,873 $ (548,074) $25,805,282
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 28, 2000, MAY 30, 1999, AND MAY 31, 1998
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,863,556 $ 1,988,116 $ 1,317,718
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 752,535 620,805 528,193
Amortization 136,580 191,576 36,306
Stock grants 38,315
(Gain)/loss on disposal of property and equipment (1,608,423) 1,437 28,830
Deferred taxes 87,000 71,198 415,000
Change in assets and liabilities, net of effect of acquisition:
(Increase) decrease in:
Trade receivables (5,432,082) (4,024,584) 2,640,944
Inventories (5,209,964) (253,329) 645,568
Prepaid and other expenses (280,932) (17,715) 42,479
Increase (decrease) in:
Accounts payable 6,205,437 583,830 (103,926)
Accrued expenses 364,336 (117,863) (500,231)
Income tax payable 657,489 (188,830) (232,597)
------------ ------------ ------------
Net cash (used in) provided by operating activities (2,426,153) (1,145,359) 4,818,284
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,593,031) (1,988,716) (1,467,732)
Proceeds from disposition of property and equipment 2,719,870
Acquisition of LZR Electronics, Inc. (2,554,509)
Decrease in intangibles and other assets 85,855 39,645 82,739
Proceeds from the sale of securities 352,453 16,260 (17,475)
------------ ------------ ------------
Net cash used in investing activities (2,434,853) (4,487,320) (1,402,468)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on revolving credit agreement 731,144 729,133 (519,228)
Proceeds from long-term borrowings 3,305,467 1,490,724 300,000
Proceeds from issuance of common stock 324,168 636,203 303,507
Payments received from notes receivable arising from sale of common stock 58,750
Principal payments on long-term borrowings (435,642) (170,246) (313,475)
------------ ------------ ------------
Net cash provided by (used in) financing activities 3,925,137 2,744,564 (229,196)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH 51,263 256,598 (928,915)
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (884,606) (2,631,517) 2,257,705
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,303,277 5,934,794 3,677,089
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,418,671 $ 3,303,277 $ 5,934,794
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash payments for:
Interest (Net of Capitalized interest of $144,930 in 2000,
$0 in 1999 and 1998) $ 386,488 $ 145,588 $ 147,149
Taxes 433,000 971,000 420,000
Supplemental Schedule of Noncash Investing and Financing Activities:
Construction payable for new facility 734,972
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company and its subsidiary operate in one business
segment which includes the design, manufacturing, and marketing of power
conversion products, principally to original equipment manufacturers of
data communications equipment, microcomputers and related peripherals,
telecommunications equipment, and portable medical equipment. Sales are to
customers worldwide, and credit is granted based upon the credit policies
of the Company.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Ault Incorporated, its wholly owned subsidiary, Ault Korea
Corporation, and its wholly owned subsidiary, Ault Xianghe Co. Ltd.
(located in China), which commenced operations in May 1997. All significant
intercompany transactions have been eliminated. The foreign currency
translation adjustment represents the translation into United States
dollars of the Company's investment in the net assets of its foreign
subsidiary in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 52.
FISCAL YEAR - The Company operates on a 52- to 53-week fiscal year. The
fiscal years for the financial statements presented end on May 28, 2000,
May 30, 1999, and May 31, 1998, all of which contain 52 weeks.
ACQUISITION - On December 1, 1998, the Company acquired the power supply
division of LZR Electronics, Inc., a manufacturer, developer, and seller of
power supplies, for approximately $3,050,000. The purchase method has been
used to account for this transaction, with results of operations included
in the financial statements from the date of acquisition.
Unaudited pro forma results of operations for the year ended May 30, 1999,
as though the Company had acquired LZR Electronics, Inc. as of May 31,
1998, are as follows:
Revenues $ 54,050,000
Net income 2,018,000
Basic earnings per share 0.48
Diluted earnings per share 0.46
25
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
MAY 30,
1999
Acquisition of LZR Electronics, Inc. -
Fair value of assets purchased:
Inventories $ 1,863,260
Prepaid expenses 48,366
Property and equipment 193,298
Goodwill 1,400,000
------------
Total assets purchased 3,504,924
Liabilities assumed and debt issued:
Accounts payable (421,080)
Accrued expenses (29,335)
Convertible note payable (500,000)
------------
Cash purchase price $ 2,554,509
============
CASH AND CASH EQUIVALENTS - The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of short-term commercial paper.
AVAILABLE-FOR-SALE INVESTMENTS - Investments are classified as
available-for-sale securities and consist primarily of preferred stock that will
be held for indefinite periods of time, including securities that may be sold in
response to changes in market interest, needs for liquidity, or changes in the
availability or yield of alternative investments. These securities are carried
at fair market value.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out)
or market.
INTANGIBLES - Intangibles consist primarily of goodwill, which is being
amortized using the straight-line method over its economic useful life, which
has been estimated to be 15 years.
DEPRECIATION - Depreciation is based on the estimated useful lives of the
individual assets. The methods and estimated useful lives are as follows:
<TABLE>
<CAPTION>
Method Years
<S> <C> <C>
Building Straight-line 36
Machinery and equipment Straight-line 3-10
Office furniture and equipment Straight-line 5-15
Data processing equipment Double declining balance and straight-line 3-5
Leasehold improvements Straight-line Life of lease
</TABLE>
LONG-TERM DEBT - The fair value of the long-term debt is estimated based on
interest rates for the same or similar debt offered to the Company having the
same or similar remaining maturities and collateral requirements. The carrying
value of the long-term debt approximates fair value.
26
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
RETIREMENT AND SEVERANCE BENEFITS - Retirement and severance benefits represents
the accrual of compensation expense, net of deposits, for the Korean operations'
employees that is payable upon termination of employment.
The Company does not fund the retirement and severance benefits accrued, but
rather provides for the estimated accrued liability under the plans as of the
balance sheet date. Under the National Pension Scheme of Korea, the Company is
required to transfer a certain portion of the retirement allowances of employees
to the National Pension Fund. The amount transferred reduces the retirement and
severance benefit liability recorded in the consolidated financial statements.
REVENUE RECOGNITION - Revenue from product sales is recognized when shipped.
DESIGN ENGINEERING - Design engineering costs are those incurred for research,
design, and development of new products and redesign of existing products. These
costs are expensed currently.
ADVERTISING EXPENSE - The Company expenses advertising costs as incurred.
Advertising expenses of approximately $171,000, $229,000, and $294,000 were
charged to operations during the periods ended May 28, 2000, May 30, 1999, and
May 31, 1998, respectively.
SALE OF KOREAN FACILITY - The Company's facility in Korea was expropriated by
the government for the construction of a provincial road. In the fourth quarter
the company received expropriation proceeds and recognized a gain on the
disposition of $1,524,879. At May 28, 2000 the company was still operating in
the facility while it is in the process of building a new facility. All proceeds
received for relocation have been deferred.
INCOME TAXES - Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Investment tax credits, research and development credits, and job credits are
accounted for by the flow-through method whereby they reduce income taxes
currently payable and the provision for income taxes in the period the assets
giving rise to such credits are placed in service. To the extent such credits
are not currently utilized on the Company's tax return, deferred tax assets,
subject to considerations about the need for a valuation allowance, are
recognized for the carryforward amount.
LONG-LIVED ASSETS - In accordance with Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, the Company reviews its long-lived assets
and intangibles related to those assets periodically to determine potential
impairment by comparing the carrying value of the long-lived assets outstanding
with estimated future cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
cash flows be less than the carrying value, the Company would recognize an
impairment loss. An impairment loss would be measured by comparing the amount by
which the carrying value exceeds the fair value of the long-lived assets and
intangibles. To date, management has determined that no impairment of long-lived
assets exists.
EARNINGS PER SHARE - Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period adjusted by common share
equivalents related to stock options (when dilutive), warrants, and the employee
stock purchase plan. Options to purchase 196,812, 227,413, and 217,435 shares of
common stock were outstanding during the fiscal years ended May 28, 2000, May
30, 1999, and May 31, 1998, respectively, but were excluded from the computation
of common stock equivalents because they were anti-dilutive.
27
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
The following table reflects the calculation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
Numerator -
Income available to common shareholders $ 1,863,556 $ 1,988,116 $ 1,317,718
------------ ------------ ------------
Denominator:
Basic - weighted-average shares outstanding 4,391,333 4,195,849 4,136,059
Effect of dilutive shares:
Stock options outstanding 270,887 218,443 118,113
Warrants outstanding 173
------------ ------------ ------------
Diluted - weighted-average shares outstanding 4,662,220 4,414,465 4,254,172
------------ ------------ ------------
Basic earnings per share $ 0.42 $ 0.47 $ 0.79
============ ============ ============
Diluted earnings per share $ 0.40 $ 0.45 $ 0.31
============ ============ ============
</TABLE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME - The Company's comprehensive income consists of net
income, foreign currency translation adjustments, and unrealized gains and
losses on certain investments in debt and equity securities.
RECLASSIFICATIONS - Certain fiscal year 1999 and 1998 amounts have been
reclassified to be consistent with the 2000 presentation. These
reclassifications had no impact on net income or stockholders' equity as
previously reported.
ACCOUNTING PRONOUNCEMENTS - In June 1998, FASB issued SFAS No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 as amended by
SFAS No. 138, ACCOUNTING FOR CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB
NO. 133, requires companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. In July 1999,
FASB issued SFAS No. 137 delaying the effective date of SFAS No. 133 for one
year to fiscal years beginning after June 15, 2000, with earlier adoption
encouraged. Management has not yet determined the effects SFAS No. 133 will have
on its financial position or the results of its operations. The Company will be
required to adopt SFAS No. 133 in fiscal 2002.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101 REVENUE RECOGNITION IN FINANCIAL STATEMENTS.
SAB No. 101 summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB No.
101 is to be implemented by the Company no later than the fourth quarter of
fiscal 2001. The Company is currently reviewing SAB No. 101 and its effects on
the financial statements, but has not yet determined the effect on its financial
position or results of its operations.
28
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
2. INVENTORIES
The components of inventory at May 28, 2000 and May 30, 1999 are as
follows:
MAY 28, MAY 30,
2000 1999
Raw materials $ 7,275,273 $ 4,958,646
Work-in-process 406,626 216,341
Finished goods 6,578,670 3,875,618
------------- -------------
$ 14,260,569 $ 9,050,605
============= =============
3. FINANCING ARRANGEMENT AND LONG-TERM DEBT
FINANCING ARRANGEMENT - The Company has a financing agreement, which
includes a $4,000,000 revolving line-of-credit agreement through December
1, 2000. Interest on advances is at the bank's reference rate less one-half
percent, 9.0 percent and 7.75 percent at May 28, 2000 and May 30, 1999. All
advances are due on demand and are secured by substantially all assets of
the Company. There were no advances outstanding on the revolving line of
credit at May 28, 2000 and $729,133 advances outstanding at May 30, 1999.
Also, the Company's Korean subsidiary maintains a $2,200,000 credit
facility agreement to cover bank overdrafts, short-term financing, and
export financing. Advances outstanding relating to the Korean facility were
$2,158,377 and $698,481 at May 28, 2000 and May 30, 1999, respectively.
LONG-TERM DEBT -
<TABLE>
<CAPTION>
MAY 28, MAY 30,
2000 1999
<S> <C> <C>
7.97% term loan, due in monthly installments of $7,320,
including interest to November 2001, secured by equipment $ 123,796 $ 198,501
8.0% term loan, due in monthly installments of $7,340, including
interest to February 2001, secured by equipment 63,849 143,221
7.2% term loan, due in monthly installments of $7,978, including
interest to December 2003, secured by equipment 306,621 371,199
7.5% note payable, quarterly interest payments until August
1999, thereafter due in quarterly principal installments of
$46,588, plus interest, through November 2001, secured by
Korean government funded agency 293,702 372,702
7.5% note payable, quarterly interest payments until April 2000,
thereafter due in quarterly principal installments of $52,464
plus interest, through April 2002, secured by
Korean government funded agency 440,866 419,709
8.0% note payable, due in quarterly installments of $20,985 plus
interest, final payment April 2000, secured by land, buildings, and
Korean government funded agency 83,942
7.94% term loan, due in monthly installments of $6,144, including
interest to September 2005, secured by furniture 265,230
8.05% term loan, due in monthly installments of $28,756, including
interest to February 2015 2,965,416
------------ ------------
Total 4,459,480 1,589,274
Less current maturities 802,413 401,910
------------ ------------
$ 3,657,067 $ 1,187,364
============ ============
</TABLE>
29
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
Maturities of long-term debt for years subsequent to May 28, 2000 are as
follows:
<TABLE>
<S> <C>
2001 $ 802,413
2002 719,697
2003 599,849
2004 270,193
2005 170,362
Thereafter 1,896,966
------------
$ 4,459,480
============
</TABLE>
4. INCOME TAXES
Pretax income (loss) for domestic and foreign operations was as follows:
<TABLE>
<CAPTION>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
Domestic $ 1,235,890 $ 2,729,229 $ 1,516,396
Foreign 1,688,310 118,887 410,322
------------ ------------ ------------
Total $ 2,924,200 $ 2,848,116 $ 1,926,718
============ ============ ============
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
Current:
Domestic $ 407,644 $ 699,000 $ 129,000
Foreign 537,000 10,000 21,000
State 29,000 74,000 44,000
Deferred 87,000 77,000 415,000
------------ ------------ ------------
$ 1,060,644 $ 860,000 $ 609,000
============ ============ ============
</TABLE>
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income for the
fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998, due to the
following:
<TABLE>
<CAPTION>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
Computed expected tax provision $ 1,049,000 $ 968,000 $ 655,000
Increase (decrease) in income taxes resulting from:
Nondeductible expenses 15,000 8,000 9,000
State income taxes, net of federal benefit 93,000 67,000 39,000
Foreign taxes at higher (lower) rates (37,000) (30,000) (66,000)
Current year R&D tax credits:
Domestic (117,000) (80,000)
State (79,000)
Reduction in valuation allowance (28,000)
Other 57,644 6,000
------------ ------------ ------------
$ 1,060,644 $ 860,000 $ 609,000
============ ============ ============
</TABLE>
30
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
Net deferred taxes consist of the following components:
<TABLE>
<CAPTION>
MAY 28, MAY 30,
2000 1999
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 35,000 $ 12,000
Future income tax benefit from stock options exercised 72,000 181,000
Accrued vacation 45,000 42,000
Accrued warranty 29,000 30,000
Equipment and leasehold improvements 56,000
Tax credit carryforwards and other 86,000 49,000
Unicap adjustment 16,000
----------- ----------
$ 283,000 $ 370,000
=========== ==========
</TABLE>
The components giving rise to the net deferred tax asset described above
have been included in the consolidated balance sheet:
<TABLE>
<CAPTION>
MAY 28, MAY 30,
2000 1999
<S> <C> <C>
Current assets $ 211,000 $ 265,000
Noncurrent assets 72,000 105,000
</TABLE>
The Company has assessed its past earnings history and trends, budgeted
sales, and expiration of dates of carryforwards and has determined that it
is more likely than not that its deferred tax assets will be realized.
At May 28, 2000, the Company had research and development tax credit
carryforwards of approximately $116,000 available to reduce future income
taxes in Minnesota for income tax purposes. These credits expire in varying
amounts beginning in 2009 through 2015.
5. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN - The Company has a profit sharing plan covering
substantially all U.S. employees. The Company is required to match 25
percent of the employees' first 6 percent of contributions and may make
additional contributions to the plan to the extent authorized by the Board
of Directors. The contribution amounts charged to operating expenses in the
fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998
approximated $63,000, $45,000, and $39,000, respectively.
STOCK PURCHASE PLAN - On March 10, 1996, the Company established a stock
purchase plan in which up to 100,000 shares of common stock may be
purchased by employees. The purchase price is equal to the lesser of 85
percent of the fair market value of the shares on the date the phase
commences or 85 percent of the fair market value of the shares on the
termination date of the phase. Each phase is one year from the commencement
date of a phase. There were 11,359, 11,766, and 10,825 shares purchased
under this plan during the fiscal year ended May 28, 2000, May 30, 1999,
and May 31, 1998, respectively.
6. STOCK OPTION PLAN
The Company's 1986 and 1996 stock option plan has reserved 600,000 and
500,000 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.
31
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
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. Had compensation cost for
the Company's stock option plans been determined based on the fair value at
the grant date for awards in 2000, 1999, and 1998 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>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
Net income, as reported $ 1,863,556 $ 1,988,116 $ 1,317,718
Net income, pro forma 856,392 1,305,841 700,698
Net income, per share, basic, as reported 0.42 0.47 0.32
Net income, per share, diluted, as reported 0.40 0.45 0.31
Net income, per share, basic, pro forma 0.20 0.31 0.17
Net income, per share, diluted, pro forma 0.18 0.29 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 in 2000, 1999, and 1998:
<TABLE>
<CAPTION>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
Expected dividend yields $ -- $ -- $ --
Expected stock price volatility 81.20% 71.51% 63.14%
Risk-free interest rate 6.85% 5.24% 6.04%
Expected life of options 7.81 years 4 years 4 years
</TABLE>
Additional information relating to all outstanding options as of May 28,
2000, May 30, 1999, and May 31, 1998 is as follows:
<TABLE>
<CAPTION>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
Weighted- Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 675,250 $ 5.14 512,550 $ 4.44 426,750 $ 4.44
Options exercised (54,786) 4.38 (120,400) 4.79 (75,200) 3.30
Options expired (5,000) 7.75 (18,000) 8.50 (2,500) 7.75
Options granted 217,500 5.45 301,100 3.98 163,500 8.43
------- ------- -------
Options outstanding at end of year 832,964 $ 5.22 675,250 $ 5.14 512,550 $ 5.86
======= ======= ======= ======= ======= =======
Options exercisable at end of year 515,789 $ 5.28 352,300 $ 5.02 283,175 $ 4.65
======= ======= ======= ======= ======= =======
Weighted-average fair value of
options granted during the year $ 4.84 $ 3.14 $ 4.66
</TABLE>
32
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at May 28, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------- ------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at May 28, Contractual Exercise at May 28, Exercise
Prices 2000 Life (Years) Price 2000 Price
<S> <C> <C> <C> <C> <C>
$1.1875 - $1.6300 36,000 4.7 $ 1.0661 33,000 $ 1.1630
1.6301 - 2.7500 83,500 4.3 2.3803 83,500 2.3803
2.7501 - 3.8750 272,912 8.0 3.7772 122,612 3.7581
3.8751 - 6.5300 237,718 8.3 5.9891 107,468 6.1260
6.5301 - 8.6250 202,834 6.9 8.1555 169,209 8.0871
----------------- ---------- ----------
$1.1875 - 8.6250 832,964 7.3 $ 5.2174 515,789 $ 5.2825
================= ========== ====== ========= ========== ========
</TABLE>
7. STOCKHOLDERS' EQUITY
The Board of Directors is empowered to establish and to designate classes
and series of preferred shares and to set the terms of such shares,
including terms with respect to redemption, dividends, liquidation,
conversion, and voting rights. The Restated Articles of Incorporation
provide that the preferred shares are senior to the common shares with
respect to dividends and liquidation. No preferred shares have been issued.
The Company has a shareholders' rights plan. Under this plan, a Class A,
Junior Participating Preferred Stock with no par value was created. In
addition, a dividend of one right was declared for each share of common
stock at an exercise price of $36 per right and a redemption price of
$0.001 per right. Each right is equal to a right to purchase one
one-hundredth of a share of the Class A, Junior Participating Preferred
Stock. 100,000 shares of preferred stock are reserved for the exercise of
the rights. No rights were exercised during the years ended May 28, 2000,
May 30, 1999, and May 31, 1998.
The Company has notes receivable from certain officers of the Company
arising from the sale of common stock recorded as an offset to
stockholders' equity. The notes are due in September 2001.
In December 1996, the Company completed a secondary stock offering of
1,840,000 shares of common stock. In connection with this offering,
warrants to purchase 112,000 shares of common stock were issued. These
warrants are exercisable at $7.80 per share through December 2001.
8. COMMITMENT AND CONTINGENCIES
OPERATING LEASES - The Company leased its United States plant under an
operating lease through August 1999 before moving into its newly
constructed facility. In addition, certain equipment and motor vehicles are
leased under operating leases with terms of approximately 36 months.
Approximate minimum annual rental commitments at May 28, 2000 are as
follows:
2001 $ 114,000
2002 101,000
2003 94,000
2004 80,000
----------
$ 389,000
==========
33
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
Total rental expense for the fiscal years ended May 28, 2000, May 30, 1999,
and May 31, 1998 was approximately $304,000, $511,000, and $391,000,
respectively.
9. SEGMENT INFORMATION AND FOREIGN OPERATIONS
FASB has issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION. This statement requires disclosure of certain
information for each reportable segment, including general information,
profit and loss information, segment assets, etc.
The Company conducts its business within one reportable segment: the power
conversion product industry. Foreign manufacturing is done by the Korean
subsidiary, including its wholly owned subsidiary located in China, and
certain nonaffiliated companies in China and Thailand. All United States
manufacturing is done by Ault Incorporated. A summary of the Company's
revenues, net income, and identifiable assets by geographic area is
presented below:
<TABLE>
<CAPTION>
MAY 28, MAY 30, MAY 31,
2000 1999 1998
<S> <C> <C> <C>
Revenues:
Domestic operations $ 61,741,358 $ 49,366,148 $ 39,849,215
Korean and Chinese operations - customers 4,381,367 1,572,045 1,287,017
Korean and Chinese operations - parent 12,228,917 8,310,867 9,056,631
Eliminations (12,228,917) (8,310,867) (9,056,631)
------------ ------------ ------------
Consolidated $ 66,122,725 $ 50,938,193 $ 41,136,232
============ ============ ============
Net income (loss):
Domestic operations $ 792,583 $ 1,879,164 $ 964,396
Korean and Chinese operations 1,038,863 44,812 419,261
Eliminations 32,110 64,140 (65,939)
------------ ------------ ------------
Consolidated $ 1,863,556 $ 1,988,116 $ 1,317,718
============ ============ ============
Identifiable assets:
Domestic operations $ 40,242,985 $ 31,287,114 $ 24,381,633
Korean and Chinese operations 14,965,140 8,770,190 7,108,449
Eliminations (8,951,737) (6,754,021) (6,072,768)
------------ ------------ ------------
Consolidated $ 46,256,388 $ 33,303,283 $ 25,417,314
============ ============ ============
</TABLE>
Sales from the subsidiary to the parent company are based upon profit
margins which represent competitive pricing of similar products.
EXPORT SALES - The Company also had foreign export sales amounting to 15.2,
14.3, and 27.1 percent of total sales for the fiscal years ended May 28,
2000, May 30, 1999, and May 31, 1998, respectively.
OTHER FOREIGN PRODUCTION - In addition to the manufacturing done by the
Korean subsidiary, the Company has subcontracting agreements for the
purchase of finished assemblies from certain manufacturers in China and
Thailand. Total purchases under these agreements were approximately
$29,944,000, $20,525,000, and $15,340,000 for the fiscal years ended May
28, 2000, May 30, 1999, and May 31, 1998, respectively.
34
<PAGE>
AULT INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 28, 2000 AND MAY 30, 1999
--------------------------------------------------------------------------------
10. MAJOR CUSTOMER
The Company had no customers with revenues and accounts receivable of more
than 10% of the total during the fiscal year ended May 28, 2000.
The Company had a major customer during the fiscal years ended May 30, 1999
and May 31, 1998, as follows:
MAY 30, MAY 31,
1999 1998
Customer A:
Sales percentage 13.3% 2.3%
Accounts receivable percentage 9.2 8.3
35
<PAGE>
ITEM 8(b). SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
FISCAL QUARTERS
1ST 2ND 3RD 4TH
2000
Net Sales $ 13,535 $ 14,386 $ 17,570 $ 20,632
Gross Profit 3,576 3,703 4,416 4,741
Income Before Income Taxes 294 417 694 1,519
Net Income 212 311 514 826
Earnings Per Share
Basic $ 0.05 $ 0.07 $ 0.12 $ 0.19
Diluted 0.05 0.07 0.11 0.17
1999
Net Sales $ 11,337 $ 11,046 $ 13,965 $ 14,590
Gross Profit 3,062 3,051 3,806 4,099
Income Before Income Taxes 718 656 942 532
Net Income 475 463 606 444
Net Income Per Share:
Basic $ 0.11 $ 0.11 $ 0.14 $ 0.10
Diluted 0.11 0.11 0.14 0.10
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported on form 8-K current report dated February 10, 2000, the
company dismissed McGladrey & Pullen, LLP as our independent public accountants
and engaged Deloitte Touche LLP as our new independent public accountants. The
company hereby incorporates by reference the information contained under item 4
of the February 10, 2000 8-K as filed on March 20, 2000 and as amended by an
amendment to the 8-K filed March 31, 2000.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 405 under Registration S-K with respect to the
Company's executive officers is contained under Item 1, Narrative Description of
The Business -- Executive Officers of the Registrant. The information required
by this item with respect to directors will be presented under the caption
"Election of Directors" in the Company's definitive proxy statement for its
Annual Meeting to be held on September 26, 2000 and is expressly incorporated
herein by reference. Such proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days from the end of the Company's 2000
fiscal year.
Information called for by item 405 under Regulation S-K with respect to the
information relating to compliance with 16(a) of the Exchange Act is presented
under the caption "Compliance with Section 16(a) of the Securities Exchange Act
1934" in the Company's definitive proxy statement for its Annual Meeting to be
held on September 26, 2000 and is expressly incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 403 under Regulation S-K, to the extent
applicable, will be set forth under the caption "Executive Compensation and
Other Information" under "General" in the Company's definitive proxy materials
for its September 26, 2000 Annual Meeting to be filed within 120 days from the
end of the Company's fiscal 2000 which information is expressly incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 403 under Regulation S-K, to the extent
applicable, will be set forth under the caption "Security Ownership of Principal
Shareholders and Management" in the Company's definitive proxy statement for its
September 26, 2000 Annual Meeting to be filed within 120 days from the end of
the Company's fiscal year 2000, which information is expressly incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
37
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS
(1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN PART II, ITEM 8: PAGE
Independent Auditors' Reports 18
Consolidated Financial Statements
-- Balance Sheets, May 28, 2000 and May 30, 1999. 20
-- Consolidated Statements of Income for the Years 22
Ended May 28, 2000, May 30, 1999 and May 31, 1998.
-- Consolidated Statements of Stockholders' Equity for 23
the Years Ended May 28, 2000, May 30, 1999 and May 31, 1998.
-- Consolidated Statements of Cash Flows for the Years 24
Ended May 28, 2000, May 30, 1999 and May 31, 1998.
-- Notes to Consolidated Financial Statements 25
(2) THE FOLLOWING FINANCIAL STATEMENTS SCHEDULE FOR THE YEARS ENDED MAY 28,
2000, MAY 30, 1999 AND MAY 31, 1998 ARE SUBMITTED HEREIN FOLLOWING THE
SIGNATURE PAGE OF THIS REPORT.
-- Independent Auditors' Report on the Supplementary Information 41
Schedule for 1999 and 1998
-- Schedule II - Valuation and Qualifying Accounts 42
All other Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) EXHIBITS
(a) The Exhibits required to be filed with this report or incorporated by
reference are listed in the Exhibit Index, which follows the Financial
Statements Schedules.
(b) Reports on Form 8-K during 3 months ended May 28, 2000 - None
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Ault Incorporated has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AULT INCORPORATED
/s/ Frederick M. Green August 28, 2000
Frederick M. Green
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints FREDERICK M.
GREEN and DONALD HENRY as his true and lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Signature Title Date
/s/ Frederick M. Green President, Chief Executive Officer August 28, 2000
----------------------- and Director
Frederick M. Green
/s/ Donald Henry Vice President, Treasurer, Chief August 28, 2000
----------------------- Financial Officer, Assistant
Donald Henry Secretary and Controller*
/s/ Matthew A. Sutton Director August 28, 2000
-----------------------
Matthew A. Sutton
/s/ Frank L. Sims Director August 28, 2000
-----------------------
Frank L. Sims
/s/ Delbert W. Johnson Director August 28, 2000
-----------------------
Delbert W. Johnson
/s/ John G. Kassakian Director August 28, 2000
-----------------------
John G. Kassakian
/s/ David J. Larkin Director August 28, 2000
-----------------------
David J. Larkin
/s/ James M. Duddleston Director August 28, 2000
-----------------------
James M. Duddleston
*Principal Financial Officer and Principal Accounting Officer
39
<PAGE>
*******************************************************************
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
AULT INCORPORATED
FOR
YEAR ENDED MAY 28, 2000
*******************************************************************
FINANCIAL STATEMENT SCHEDULES
*******************************************************************
40
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON THE SUPPLEMENTARY INFORMATION
To the Board of Directors
Ault Incorporated and Subsidiary
Minneapolis, Minnesota
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the 1999 and 1998 basic
consolidated financial statements and, in our opinion, the 1999 and 1998
confirmation is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
July 9, 1999
41
<PAGE>
SCHEDULE II
AULT INCORPORATED AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 28, 2000, MAY 30, 1999, AND MAY 31, 1998
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended May 28, 2000:
Allowance for doubtful accounts $ 30,000 $ 35,000 $ (29,000)(a) $ 94,000
Reserve for warranties 74,000 130,000 126,000 78,000
Year ended May 30, 1999:
Allowance for doubtful accounts 31,000 47,000 48,000 (a) 30,000
Reserve for warranties 83,000 32,000 41,000 74,000
Year ended May 31, 1998:
Allowance for doubtful accounts 120,000 95,000 184,000 (a) 31,000
Reserve for warranties 81,000 97,000 95,000 83,000
</TABLE>
(a) Represents charge-off of accounts receivable, net of recoveries.
42
<PAGE>
*******************************************************************
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
AULT INCORPORATED
FOR
YEAR ENDED MAY 28, 2000
*******************************************************************
EXHIBITS
*******************************************************************
43
<PAGE>
AULT INCORPORATED
EXHIBIT INDEX TO
FORM 10-K FOR THE YEAR ENDED
MAY 28, 2000
Required Registration S-K
Exhibit Items
SK Reference
Title of Documents Location
3(a) Restated Articles of Filed as Exhibit 3(a) to Form 10-K for
Incorporation, as amended fiscal 1988 and incorporated herein by
reference
3(b) Bylaws, as amended Filed as Exhibit 3(b) to Registration
Statement No. 2-85224 and incorporated
herein by reference
3(c) Amendment to Articles of Filed herewith as Exhibit 3(c) Fiscal 1999
Incorporation and incorporated herein by reference.
4.1 Rights Agreement Filed electronically on Form 8-K for March
1996 and herein incorporated by reference
10.1 Management Incentive Filed as Exhibit 10(b) to Registration
Compensation Plan Statement 2-85224 and incorporated herein
by reference
10.2 1986 Employee Stock Option Filed as Exhibit 10(c) to Form 10-K for
Plan fiscal 1987 and incorporated herein by
reference
10.3 Financing Agreement on Filed as Exhibit 10(f) to Form 10-K for
Credit Facility fiscal 1995 and incorporated herein by
reference
10.4 First and Second Amendments Filed electronically as Exhibit 10(g) to
to Financing Agreement on Form 10-K for fiscal 1996 and herein
Credit Facility incorporated by reference
10.5 Employee Stock Purchase Plan Filed electronically Commission File
#333-4609 and herein incorporated by
reference
10.6 1986 Employee stock Filed electronically. Commission File
Option plan, Amended #333-4609 and herein incorporated by
reference
10.7 1996 Employee stock Filed electronically. Commission File
Option plan #333-4609 and herein incorporated by
reference
21 Subsidiary of Registrant Filed as Exhibit 21 to Form 10-K for
fiscal 1997 and incorporated herein by
reference
23 Consent of Independent Filed herewith at page 45
Auditors
27 Financial Data Schedule Filed electronically
Pursuant to provisions of Item 601(b)(A)(iii)(a) of Regulation S-K, copies of
instruments defining the rights of holders of long-term debt of the Company are
not being filed and in lieu thereof, Company agrees to furnish copies thereof to
the Securities and Exchange Commission upon request.
44
