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 30, 2004

Commission File Number 0-12611

AULT INCORPORATED
(Exact name of registrant as specified in its charter)

|                                                     | 
|---------------------------------------------------- | 
|MINNESOTA                                            | 
|(State or other jurisdiction of                      | 
|incorporation or organization)                       | 
|7105 Northland Terrace, Brooklyn Park, MN 55428-1028
|Address of principal executive offices              

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 S-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. [   ]

Indicate by check mark whether the registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2). YES [   ]      NO [X]

The aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $14,037,000 based upon the closing price of the Companys common
stock on the NASDAQ National Market on August 2, 2004, 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 2, 2004, there were outstanding 4,765,291
shares of the Registrants common stock.

The Form 10-K consists of 57 pages. The Exhibit Index is
located on page 52.

Documents Incorporated by Reference: Portions of the
definitive Proxy Statement to be delivered to shareholders for the Annual Meeting of Shareholders to be held September
28, 2004 are incorporated by reference into Part III.

1

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AULT INCORPORATED

FORM 10-KFOR THE FISCAL YEAR ENDED MAY 30, 2004

PART I

ITEM 1.   BUSINESS

(a)   General Development of Business

Ault Incorporated (herein Ault or the Company) was incorporated
under the laws of the State of Minnesota in 1961. The Company designs, manufactures, and markets 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 devices and equipment as well as scanning and
printing equipment and industrial equipment.

On July 16, 2002, the Company purchased a portion of the operating
assets of the Power General division of Nidec America Corporation. The Power General division developed, manufactured,
and sold high-efficiency DC/DC converters and custom power supplies at various power levels up to 1200 watts under the
Power General brand name. Pursuant to the Purchase Agreement, the Company paid the Seller $366,000 in cash and issued
$2,074,000 face amount of the Companys newly created Series B 7% Convertible Preferred Stock, no par value (the
Preferred Stock). Further information regarding this acquisition is contained in Note 14 of the Notes to Financial
Statements under Item 8 herein. Since the acquisition of the Power General division significant time and resources have
been expended integrating the Massachusetts engineering group and internal power supply line into Aults existing
processes and team structure. As planned, production of Power Generals open-frame AC-DC power supplies and the
DC/DC converters was transferred from Massachusetts to Aults existing facilities in Asia. In addition, through
training provided to Aults field sales organization worldwide, Aults customers and prospects are familiar
with the additional products and design engineering capabilities provided by this acquisition.

On July 17, 2003, the Company announced the consolidation of its
manufacturing operations. The consolidation includes the closing of its Minneapolis production operations, eliminating
approximately 40 jobs in assembly, equipment maintenance, procurement and administrative support and the integration of
production into Aults other manufacturing plants. Aults engineering, documentation, safety
certification/reliability, sales, marketing and administrative services will remain at the Minneapolis headquarters
facility. The consolidation was implemented to reduce expenses, improve cash flow and return the Company to
profitability. Aults management estimates that the consolidation will reduce expenses by approximately $1.3
million annually.

The Company maintains a website at www.aultinc.com. The
annual reports on Form 10-K, quarterly reports on Form 10-Q and periodic reports on Form 8-K (and any amendments to
these reports) are available free of charge on the website as soon as reasonably practical after the reports are filed
with the SEC. To obtain copies of these reports, go to www. http://www.aultinc.com.

(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 more than one kilowatt of continuous power for a wide
variety of electronic equipment. A significant amount of the Companys products are located outside the equipment
they power as a wall plug-in or as in-line components. Both of these styles are generally referred to as external power
conversion products. A smaller percentage of the Companys products are located inside the equipment they power and
are generally known as internal power conversion devices. Each product configuration, external and internal, offers
distinct advantages to the OEM buyer. Internal power

2

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products are more generally accepted among design engineers across
all segments of the electronic original equipment market (EOEM). Internal power has traditionally been the norm in
product design and, in terms of range, it provides greater latitude especially in applications beyond 100 watts.
External power still ranks as a high growth area in the power supply industry due to the 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, diverse design engineering expertise and
customized customer services.

|(1) |  | Products
|--- |  | --------

| | Aults product line includes internal AC/DC and
DC/DC switching power supplies, DC/DC converters, DC mobile adapters and four major categories of external power
conversion products: switching power supplies, linear power supplies, transformers and battery chargers. The
Companys broad range of power conversion products  ranging from 1 watt to more than 1 kilowatt  are
capable of providing power at most output levels that OEMs require. The Companys design and application engineers
work closely with customers to ensure that these products are customized to meet each OEM customers unique power
conversion needs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table summarizes the proportion of sales
of each of the Companys five major product categories for its last three fiscal years ended May 30, 2004:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

# Sale of Products by Category
as a Percentage of Total Sales

|                         | Years Ended
|------------------------ | -----------
|Product Type             |            
|                         |            
|                         |            
|Switching Power Supplies |            
|Linear Power Supplies    |            
|Transformers             |            
|Battery Chargers         |            
|DC/DC Converters         |            
|Total                    |            

| | Power Supplies.   The
Companys traditional power supplies provide all power conversion elements for electronic equipment in power
outputs ranging from 1 to 1200 watts. The majority of the Companys 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | Internal and External Switching Power
Supplies.   The Company believes the market for switching power supplies in the 1-500 watt range
is generally the fastest growing segment of the overall power supply industry. For internals, switching power supplies
are efficient and easily modified to meet an OEMs specific footprint and power requirements. In externals,
switching power supplies use switching transistors to convert power from AC to DC and are more energy efficient, smaller
and lighter in weight than linear units with comparable power outputs. The applications in which these internal and
external products are currently used include telecommunications (wireless, wire line, cellular), data communications
(networking, broadband modem, Power over Ethernet, routers, hubs, switches), computer and related peripherals, medical
equipment, microprocessor controlled systems, printing and scanning equipment, security systems, automatic teller
terminals, test equipment, multiplexers, digital cameras and point of sale equipment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Most of the Companys internal and external
switching power supplies incorporate a universal input ranging from 90 to 265 volts AC. This universal input means that
the power supplies can be used in virtually any country for applications such as local area networks (LANs), printers
and fiber optic links. The Company has also designed medical grade switching power supplies with similar universal input
ranges.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

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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 12 watts of
regulated power and 25 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 voltages 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 newer 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 these 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | High-Efficiency
and High-Density DC/DC Converters.   The addition of DC/DC
converters to the Companys product offering was in response to customer requests
for on-the-board power solutions and Aults strategy to fulfill the
total solution approach as a preferred supplier to valued OEM customers. In
fiscal 2003, as part of the Power General product offering, Ault acquired a line of DC/DC
converters and seasoned engineers who have developed new, innovative high-density
quarter-brick and eighth-brick designs. These products provide Ault with a wide range of
converter options to meet the needs of OEMs using distributed power architecture in their
next generation and new electronic product designs. In fiscal 2002, Ault signed a private
label agreement with a third party manufacturer for distribution of high-efficiency DC/DC
converters. The terms of this agreement are subject to an annual review by each party.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

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| | * |  | Mobile
Products.   In late 2002, the Company expanded its product
offering to include a line of mobile products for powering laptop computers in a broad
range of field and service applications. The product focus is on mobile adapters in a
single and dual output with a primary sales focus on laptop OEMs and value-added
resellers (VARs). The Company anticipates nearly 65% of the market to be field and
service applications in the business travel, insurance, trucking and delivery industries.
The remainder of the applications is in emergency fire, police and medical services
(20%); military and government (10%); and a small percentage in miscellaneous uses (5%).
The product family, known as Transport, was introduced in fiscal 2003. The TR75 (75watts)
is a single output mobile adapter that has generated approximately $300,000 in revenue.
The next models in the product family are the TR100 (up to 100 watts) and the TR120 (up
to 120 watts) in a same footprint as the TR75. These products will power the next
generation of laptop computers that require 90, 100 or 120 watts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Markets and Customers
|--- |  | ---------------------

| | The
Companys marketing efforts are directed primarily toward OEMs producing
non-consumer electronic equipment for broadband modems, wireless and wire line
telecommunications product, networking, Power over Ethernet, as well as industrial and
retail data acquisition. 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 to tailor 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 (broadband modems, wireless and wire
line); in fiscal 2004 sales in this market represented approximately 40% 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 computer generated data), Wi-Fi and Power over Ethernet applications
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).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
fiscal 2004, the telecommunications industry overall began to rebound as OEMs began
launching new projects/designs and had the need to replenish existing product inventory
that had been slow-moving over the past two years. A couple of telecommunication segments
have been particularly strong: wireless and networking. There are new applications such
as broadband wireless routers and wireless Ethernet devices that require cost-effective
switching power supplies in the 12-32 watt range. The Company introduced a family of
single-port Power-over-Ethernet power supplies that combine power through integrated RJ45
jacks as well as data over a single CAT 5 Ethernet cable. Two versions of the product are
available: one that is 100% compliant to the Institute of Electrical and Electronics
Engineers (IEEE) 802.3af standard that addresses Power over Ethernet requirements. A
second version in the PW130 family is available to power OEM devices that are not
compliant to the standard. Both versions can be sold as a standard product or be modified
to suit specific requirements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Approximately
26% of net sales in fiscal 2004 were to OEMs of portable medical equipment such as
infusion pumps, patient monitoring systems, apnea monitors, and portable terminals for
patient history input diagnostics.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
fiscal 2004 approximately 19% of the Companys net sales were to OEMs in the
industrial market segment that includes digital cameras, load survey equipment,
industrial lighting, outdoor and specialty lighting as well as power tools, metal
detectors and GPS equipment. The remaining 15% of the Companys net sales were to
OEMs of computers and computer peripherals such as digitizers, printers, plotters,
portable terminals, point of sale scanners and optical character readers, LAN hardware
and multimedia speakers for computer applications.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has worked diligently to support the growth of sales through our network of
regional, national and international distributors. In fiscal 2004, approximately 32% of
the Companys net sales were to our distributors
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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| | and
their broad base of customers. While the specific percentages per market segment are not
available, the Companys distributors target the same market segments as those
outlined above. (i.e. the data communications/telecommunications segment ranks at the top
of their market mix as well).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Design Engineering and Product Development
|--- |  | ------------------------------------------

| | Design
engineering teams at the Companys facilities in the United States, People 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 power conversion products.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Sales and Distribution
|--- |  | ----------------------

| | The
Company markets its products primarily in the U.S. and Canada through a network of 18
manufacturer representatives employing approximately 125 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, and 14 regional
distributors, which employ over 100 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company focuses its selling efforts primarily on OEMs in the U.S. and Canada. However,
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. The Companys sales in the Pacific Rim are primarily to customers in South
Korea and China.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company markets its products in Europe through a network of distributors who are managed
through the Companys customer team located in Norwood, Massachusetts. In the
Pacific Rim, the Company markets its products through direct sales teams located in
Seoul, South Korea and Shanghai, Peoples Republic of China.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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|(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 that is 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 Ministry of International Trade and Industry (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 Minneapolis headquarters. This procedure reduces the time required to obtain
safety certifications.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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., Friwo, and EMC, Inc. for linear power
supplies; GlobTek, Inc., Condor and Phihong Enterprise Co., Ltd. for switching power
supplies; and Friwo, Phihong and Anam 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, and 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 internal and external power conversion devices, which OEMs consider
in designing their electronic product.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company provides a total solution approach to the OEMs entire power conversion
product needs (under 1 kilowatt) through its commitment to reliable partnerships and its
delivery of high quality products supported by solution-oriented design engineering. The
manufacturing facilities in Korea and China, and arrangements with subcontract
manufacturers in China and Thailand enable the Company 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 OEMs and independent suppliers
offering internal products. 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 response to this issue, the Company is now well positioned to
service the power requirements of its customers, whether internal or external, as a
result of the Power General acquisition. This acquisition not only provided the
engineering expertise to design internal power supplies, but also has expanded the Companys
product offering significantly to include a line of AC/DC and DC/DC switching power
supplies and DC/DC converters. The
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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| | Company
competes with a number of manufacturers of internal AC/DC power supplies, including
Astec, Power-One, GlobTek, Condor and Delta Electronics.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company competes with a broad range of manufacturers in the DC/DC converter market. The
industry is fragmented, with manufacturers concentrating their sales and marketing on
specific customer requirements in specific markets. The Companys primary
competitors are Synqor, Power-One, Ericsson, Artesyn, and Galaxy. In the past 12 months,
almost all of the key players in the DC/DC market have introduced models in the isolated,
high-efficiency eighth-brick, quarter-brick, and half-brick models. The largest single
market segment for the sale of these high-efficiency models is telecommunications and
since this segment has suffered severely in the down economy, there has been limited
demand for these products. To date, no single competitor dominates the DC/DC market in
terms of market share.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
estimated size of the mobile products market in North America is $55-$65 million. The
major competitors, Targus, Lind and Mobility, specialize in this market segment. These
three companies dominate the market with combined revenues of approximately $47 million.
The rest of the market includes smaller companies with limited sales to a handful of key
customers.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | 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
facilities in Seoul, South Korea, and Xianghe, China, and by subcontract manufacturers at
four locations in China and Thailand.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
discussed above, the Company discontinued its Minneapolis manufacturing operations
beginning in the first quarter of fiscal 2004, moving this production to its other
manufacturing plants, primarily China. The consolidation included the closing of its
Minneapolis production operations, with the headquarters location continuing to provide
engineering, safety certification, reliability testing, sales, marketing and
administrative services for its global customers. Aults headquarters will continue
to provide prototypes and engineering builds as part of its engineering support services.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Electronic
components and raw materials used in the Companys products are 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, its South Korea facility in 1996 and its China facility in
1998. The Company tests 100% of its finished products against its own and the customers specifications,
and then ships the products in custom-engineered protective packaging to minimize any
damage during shipment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has subcontract manufacturing arrangements with two business partners in Thailand
and two in China. The Company does not have long-term commitments with its 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | 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 to avoid, where practicable, dependence upon a
single customer. In fiscal 2004, 2003, and 2002, no customers accounted for more than 10%
of sales.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys order backlog at May 30, 2004 totaled $10,027,000 compared to $13,850,000
at June 1, 2003. The order backlog represents sales for approximately 10 weeks.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | 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
facilities in Minneapolis and South Korea. The Companys warranty expenses have not
been significant.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Patents
|---- |  | -------

| | The Company holds no significant patents.
| | -----------------------------------------

|(11) |  | Seasonality
|---- |  | -----------

| | In
the past three years, sales of the Company have not reflected seasonality.
| | -----------------------------------------------------------------------------

|(12) |  | Employees
|---- |  | ---------

| | As of June 29, 2004, the Company employed approximately
685 full-time employees at its facilities as follows:
| | -------------------------------------------------------------------------------------------------------------

|                           | SouthKorea |  | China |     | US |  | Total
|-------------------------- | ---------- |  | ----- | --- | -- |  | -----
|Manufacturing              |            |  |       | 85  |    |  | 389  
|Engineering                |            |  |       | 14  |    |  | 48   
|Marketing                  |            |  |       | 9   |    |  | 8    
|General and Administrative |            |  |       | 9   |    |  | 57   
|                           |            |  |       |     |    |  |      
|Total                      |            |  |       | 117 |    |  | 502  

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Executive
Officers of the Registrant
|---- |  | ------------------------------------

| | Certain
information with respect to the executive officers of the Company is set forth:
| | ---------------------------------------------------------------------------------------

|Name               | Age | Position | Officer Since
|------------------ | --- | -------- | -------------
|Frederick M. Green |     |          |              
|Donald L. Henry    |     |          |              
|                   |     |          |              
|Xiaodong Wang      |     |          |              
|                   |     |          |              
|                   |     |          |              
|                   |     |          |              
|Gregory L. Harris  |     |          |              

9

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|(14) |  | Risk
Factors
|---- |  | ------------

| | The following risk factors are relevant to an
understanding of the Companys business:
| | --------------------------------------------------------------------------------------

| | * |  | 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | The
Companys financial results are influenced by a number of factors.   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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | The Companys reliance on outside contractors
reduces its control over quality and delivery schedules.   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. 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | 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 of its employees. In addition, the Companys future success will depend on the ability of its
officers and key employees to successfully manage the Company for growth and profitability and to attract, retain,
motivate and effectively utilize the team approach to manage its employees.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | While the Company actively trains and technically
assists the individual sales representatives representing its products, a reduction in the sales efforts by the current
manufacturer representatives and distributors or termination of their relationships with Ault could adversely affect the
sales and operations. The Company markets and sells products primarily through independent manufacturer
representatives and distributors that are not under its direct control. The Company employs a limited number of internal
sales personnel.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | To satisfy customer demand and to obtain greater
purchasing discounts, the Company carries increased inventory levels of certain items.   The
Companys financial results may be adversely affected when inventory exceeds anticipated demand. Gross margin can
be adversely affected by increases in costs of raw materials. There can be no assurance that raw material cost increases
or the cost of carrying increased finished goods inventory will not have a material adverse effect on the financial
results.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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| | * |  | A prolonged reduction in demand for the
Companys products will continue to impact the financial success.   In fiscal year 2002,
sales declined in large part due to a substantial downturn in sales to the telecommunications and data communications
markets. Sales to these markets stabilized in fiscal 2003 and fiscal 2004. A decline of the telecommunications and data
communications markets would adversely affect the Companys results.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | The financing agreements contain covenants with
which the Company may not be able to comply.   The Company has entered into a financing agreement
that contains financial covenants. These covenants require, that the Company, among other things, maintain a minimum
working capital base, and also impose certain limitations on additional capital expenditures and the payment of
dividends. The Company believes the covenants are achievable based on the expected operating results. Its ability to
comply with financial covenants depends upon future operating performance. And, future operating performance depends, in
part, on general industry conditions and other factors beyond the Companys control.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | Civil unrest, labor disruptions, or acts of
aggression could impede the Companys ability to operate in foreign locations and would have a material adverse
effect on future business and consequently, the operating results.   Manufacturing is conducted
at the Companys facilities in South Korea and China and through manufacturing relationships in the Peoples
Republic of China (China) and Thailand. While this Pacific Rim manufacturing strategy enables the Company to compete
worldwide against other suppliers of external power conversion products, it also involves risks. While, its
manufacturing operations in South Korea, China and Thailand have not been affected by labor disruptions, civil unrest or
political instability, the risk of civil unrest and political instability is present in each of these countries.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | Financial
Information About Foreign and Domestic Operations and Export Sales
|--- |  | ----------------------------------------------------------------------------

Export sales in fiscal year 2004 represented 12.6% of the
Companys gross sales, most of which were to OEMs in Europe and Canada. 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 13  Segment Information and Foreign Operations under notes to consolidated financial statements.

# ITEM 2.   PROPERTIES

The Company owns and occupies its headquarters facility in Brooklyn
Park, a suburb of Minneapolis, Minnesota, which is approximately 65,000 square feet in size.

The Company leases a 10,500-square-foot office in Norwood,
Massachusetts.

Ault Korea Corporation owns and occupies a 54,000-square-foot
facility in Suwon City in the province of Kyungki-Do, Korea.

Ault China Corporation owns and occupies a 40,000 square foot
facility in the Province of Xianghe in China. The land use rights expire in 2050.

Ault Shanghai Corporation leases a 9,000-square-foot facility in
Shanghai, China.

Management considers all of the Companys properties to be
well maintained, and together with subcontract arrangements in China and Thailand, adequate for all Company functions,
including 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.

11

---

# 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 2004 and 2003.

|        | Fiscal 2004 |       | Fiscal 2003
|------- | ----------- | ----- | -----------
|Quarter |             | $High |            
|1st     |             |       |            
|2nd     |             |       |            
|3rd     |             |       |            
|4th     |             |       |            

(b)   Holders

As of August 2, 2004 there were 281
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 the present policy of its Board of Directors is to retain any
earnings for use in the business. The Board of Directors does not anticipate paying cash
dividends on its common shares in the foreseeable future. The Company is obligated to pay
dividends on its outstanding 7% Convertible Preferred Stock. See Note 8 of the Notes to
Financial Statements under Item 8 herein.

(d) Other Information Regarding Equity Compensation Plans

|                                                               
|---------------------------------------------------------------
|Plan Category                                                  
|Equity compensation plans approved by security holders:        
|1986 Stock Plan                                                
|1996 Stock Plan                                                
|Employee Stock Purchase Plan                                   
|Equity compensation plans not approved by security holders:None

|(1) | The Company does not have individual compensation arrangements involving the
granting of options warrants and rights.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(e) | During
the past three fiscal years, the Company has not sold its securities           except
pursuant to registration statements under the Securities Act of 1933.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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# ITEM 6.   SELECTED FINANCIAL SUMMARY

(Amounts in Thousands, Except Per Share Data)

|                                       
|---------------------------------------
|May 30,2004(1)                         
|Net sales                              
|Gross profit                           
|Operating expenses                     
|                                       
|Operating income (loss)                
|                                       
|Nonoperating income (expense)          
|                                       
|Income (loss) before income taxes      
|                                       
|Income tax expense (benefit)           
|Cumulative effect of accounting        
|change, net of tax                     
|Redeemable convertible preferred stock 
|dividends                              
|Net income (loss) applicable to common 
|stockholders                           
|Net income (loss) per share:           
|Basic                                  
|Diluted                                
|                                       
|Total assets                           
|Property, plant and equipment, net     
|Working capital                        
|Long-term debt, less current maturities
|Stockholders equity                   

|(1) | The 2004 results include exit costs of $2,064.                                                                                                                                                                                                   
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The 2003 results include a goodwill impairment charge of $1,153.                                                                                                                                                                                 
|(3) | The 2001 results include a noncash, pretax
cumulative effect of accounting change related to the adoption of Staff Accounting Bulletin No. 101 of $77 expense ($50
after tax, or $0.01 per share). The 2001 results include 53 weeks of activity.
|(4) | The 2000 results include a gain on the
disposition of the Korean facility of $1,525                                                                                                                                                              

13

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# ITEM 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

# Critical Accounting Policies

The discussion and analysis of our
financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets
and liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities at the date of our financial statements. Actual results may differ from these
estimates under different assumptions or conditions.

Critical accounting policies are
defined as those that involve significant judgments and uncertainties and potentially
result in materially different results under different assumptions and conditions.
Application of these policies is particularly important to the portrayal of our financial
condition and results of operations. We believe the accounting policies described below
meet these characteristics. Our significant accounting policies are more fully described
in the notes to the consolidated financial statements included in this annual report on
Form 10-K.

Revenue Recognition The
Companys policy is to recognize revenue for product sales when title transfers and
risk of loss has passed to the customer, which is generally upon acceptance of the
product by the overseas freight carrier. The Companys policies comply with the
guidance provided by Staff Accounting Bulletin No. 104, Revenue Recognition, issued by
the Securities and Exchange Commission. Judgments are required in evaluating the credit
worthiness of our customers. Credit is not extended to customers and revenue is not
recognized until the Company has determined that the risk of uncollectibility is minimal.

Inventory Valuation Inventory
is written down for estimated surplus and discontinued inventory items. The amount of the
write-down is determined by analyzing historical and projected sales information, plans
for discontinued products and other factors. Changes in sales volumes due to unexpected
economic or competitive conditions are among the factors that would result in materially
different amounts for this item.

Allowance for Doubtful Accounts An allowance is established for estimated uncollectible accounts receivable.
The required allowance is determined by reviewing customer accounts and making estimates
of amounts that may be uncollectible. Factors considered in determining the amount of the
reserve include the age of the receivable, the financial condition of the customer,
general business, economic and political conditions, and other relevant facts and
circumstances. Unexpected changes in the aforementioned factors would result in
materially different amounts for this item.

Product Warranties The
Companys products are sold with warranty provisions that require it to remedy
deficiencies in quality or performance over a specified period of time, 36 months, at no
cost to the Companys customers. The Companys policy is to establish warranty
reserves at levels that represent its estimate of the costs that will be incurred to
fulfill those warranty requirements at the time that revenue is recognized. The Company
believes that its recorded liabilities are adequate to cover its future cost of
materials, and overhead for the servicing of its products sold through that date. If
there is an actual product failure, or material or service delivery costs differ from the
Companys estimates, its warranty liability would need to be revised accordingly.

Deferred Taxes Deferred
tax assets and liabilities are recognized using enacted tax rates for the effect of
temporary differences between the book and tax basis of recorded assets and liabilities.
Deferred tax assets are reduced by a valuation allowance if it is likely that some
portion or the entire deferred tax asset will not be realized. Based upon prior taxable
income and estimates of future taxable income, the Company has determined that it is
likely that the net deferred tax asset will not be realized in the future. Thus a full
valuation allowance has been established. If actual taxable income varies from these
estimates, the Company may be required to change the valuation allowance against the
deferred tax assets resulting in a change in income tax benefit, which will be recorded
in the consolidated statement of operations.

14

---

# LIQUIDITY AND CAPITAL RESOURCES

The financial statements have been
prepared on a going-concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company sustained net
losses applicable to common stockholders of $4,952,667 in 2004 and $7,692,073 in 2003 and
at May 30, 2004 had an accumulated deficit of $7,728,065. The Company utilized $913,911
of cash for operating activities in 2004. Future operations require the Company to borrow
additional funds. The Company has a financing agreement, which includes a $7,000,000
line-of-credit agreement through December 4, 2006. The Company took steps to reduce
expenses, improve cash flow and return to profitability, including the consolidation of
its manufacturing operations. This consolidation included the closing of its Minneapolis
production operations, eliminating approximately 40 jobs in assembly, equipment
maintenance, procurement and administrative support and the integration of production
into Aults other manufacturing plants. Aults engineering, documentation,
safety certification/reliability, sales, marketing and administrative services will
remain at the Minneapolis headquarters facility.

Based on available funds, current
plans and business conditions, management believes the Companys available cash,
borrowings and amounts generated from operations, will be sufficient to meet the Companys
cash requirements for the next 12 months. The assumptions underlying this belief include,
among other things, that there will be no material adverse developments in the business
or market in general. There can be no assurances however that those assumed events will
occur. If managements plans are not achieved, there may be further negative effects
on the results of operations and cash flows, which could have a material adverse effect
on the Company.

The following table summarizes the
Companys working capital position at May 30, 2004 and at June 1, 2003:

|                                 
|---------------------------------
|                                 
|($000)                           
|Working capital                  
|Cash and cash equivalents        
|Unutilized bank credit facilities
|Cash used in operations          

# Current Working Capital Position

At May 30, 2004, the Company had
current assets of $19,578,000 and current liabilities of $13,308,000 representing working
capital of $6,270,000 and a current ratio of 1.5. This represents a decrease in working
capital from $8,431,000 at June 1, 2003. The Company relies on its credit facilities as
sources of working capital to support normal growth in revenue, capital expenditures and
attainment of profit goals. The Company has not committed to any material capital
expenditures as of May 30, 2004.

Cash and Investments: At May
30, 2004, the Company had cash and securities totaling $1,058,000, down from $1,100,000
at June 1, 2003. This decrease in cash was principally due to the net loss from
operations.

Credit Facilities:The
Company maintains credit facilities with Wells Fargo Bank N.A. and with Korea Exchange
Bank. See Note 4, under notes to consolidated financial statements.

The credit arrangement with Wells
Fargo is an asset-based credit facility of $7 million, secured by company assets. At May
30, 2004 there were borrowings of $1,965,000 compared to no borrowings at June 1, 2003.
The financing agreement contains financial covenants. These covenants require the
Company, among other things, to maintain a minimum capital base, and also impose certain
limitations on additional capital expenditures and the payment of dividends. At the end
of fiscal 2004, the Companys actual net book worth and income before taxes did not
meet the minimum of the credit agreement. The Company has received a waiver and amendment
for this covenant. Following the July 21, 2004 waiver, the Company believes the
provisions imposed by this credit agreement are achievable based on the Companys
expected operating results for the next year.

15

---

The South Korean credit facility is
approximately $3.37 million of which borrowings at May 30, 2004 totaled $2,685,003.

# CASH FLOWS FOR FISCAL 2004

Operations:   Operations used
$914,000 of cash during fiscal 2004 due principally to the following activities:

| | (a) |  | The
loss net of non-cash charges of depreciation of $1,191,000, and asset impairment of
$1,742,000 used cash of $1,874,000.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Increases
in trade receivables due to the increased net sales used $925,000.
| | --- |  | ----------------------------------------------------------------------------

| | (c) |  | Decreases
in inventories net of non-cash obsolescence write-downs provided $1,231,000. The
decreases are due in part to the consolidation of the manufacturing facilities.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) |  | Increases
in accrued expenses and accounts payable provided $805,000.
| | --- |  | ---------------------------------------------------------------------

Investing Activities:Investing activities
used net cash of $322,000 mainly relating to the purchase of tooling and test equipment.

Financing Activities:   Financing activities
provided net cash of $1,189,000, is primarily comprised of:

| | (a) |  | Net bank borrowing provided $1,458,000 to fund
operations.
| | --- |  | ----------------------------------------------------------

| | (b) |  | Payments of long-term debt used $270,000.
| | --- |  | -----------------------------------------

Effect of Foreign Currency Exchange Rate Fluctuations: The
effect of translating the Korean financial statements, which were prepared in South Korean Won (Won), to U.S. Dollars,
increased cash by approximately $6,000 during the year. The effect of translating the Chinese financial statements,
which were prepared in Chinese Yuan (Yuan) to U.S. Dollars, had minimal effect on cash for the year.

# RESULTS OF OPERATIONS

# Fiscal Year Ended May 30, 2004

|($000)         | Fiscal2004 |  | Fiscal2003 |        | Increase / (Decrease)
|-------------- | ---------- |  | ---------- | ------ | ---------------------
|               | Amount     |  | Percent   
|Net Sales      |            |  | $          | 45,109 |                      
|Operating Loss |            |  |            | (4,170 | )                    

Net sales were $45,109,000 for
fiscal 2004, up 9% from $41,479,000 for fiscal 2003. The increase is due to an increase
in sales into the Asia Pacific area of $2,255,000, and an increase in sales to North
America and Europe of $1,375,000. Both are a result of the continued economic expansion,
with an increase in sales to existing customers and new customers.

The gross margin for fiscal 2004 was
24.0%, compared to 20.3% for fiscal 2003. Current year margin increased $797,000 from
cost reductions related to the exiting of manufacturing in Minneapolis, $311,000 from
increased volume in North America, and $292,000 from an increase in sales in Korea,
offset by $545,000 for inventory writedown due to the exiting of manufacturing in
Minneapolis, and prior year margin was adversely affected by $740,000 from the
acquisition of Power General.

Operating expenses decreased to
$15,011,000 for fiscal 2004 compared to $15,930,000 in fiscal 2003 primarily due to the
following factors: First, expenses of $1,626,000 resulting from the April 2003 layoff did
not repeat in 2004. Second, impairment of $1,153,000 in goodwill related to the LZR
acquisition did not repeat in fiscal year 2004. Finally these non-recurring costs were
offset by the closing of the Minneapolis manufacturing plant in 2004 resulted in
increased costs of $2,064,000, related to severance for the employees and an asset
impairment charge.

The Companys order backlog at
May 30, 2004 totaled $10,027,000 compared to $13,850,000 at June 1, 2003. The backlog has
decreased in the US due to an increasing expectation by our customers to ordering on a
just in time basis.

16

---

Net nonoperating expense is $591,000 for fiscal 2004 compared to
$393,000 in fiscal 2003. The increase is primarily from higher interest expense of $607,000 in fiscal 2004 compared with
$435,000 in fiscal 2003. The increase is due to the increased bank debt.

The effective tax rate was an expense of 1.0% for fiscal year 2004
compared to a benefit of 4.3% for fiscal year 2003. The expense in 2004 is the result of state tax expenses in the U.S.
and tax expenses in Korea. The benefit in 2003 reflects the utilization of the remaining U.S. loss carrybacks. No
benefit has been recognized for the U.S. loss carryforwards from 2003, or any foreign loss carryforwards generated in
fiscal year 2003 or 2004, as a full valuation allowance has been established. This reflects the determination that the
realization of the deferred tax asset is not more likely than not as of May 30, 2004.

# CASH FLOWS FOR FISCAL 2003

Operations:   Operations used $3,179,000 of
cash during fiscal 2003 due principally to the following activities:

| | (a) |  | The loss net of depreciation of $1,029,000, goodwill
impairment of $1,153,000, and bad debt reserve of $230,000, in total used cash of $5,152,000.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Decreases in trade receivables due to the
decreased net sales provided $210,000.
| | --- |  | --------------------------------------------------------------------------------

| | (c) |  | Increases in inventories net of obsolescence
write-downs used $20,000. The increases are due to the increased sales by our Asian subsidiaries.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

| | (d) |  | Increases in accrued expenses and accounts payable
provided $1,443,000.
| | --- |  | -----------------------------------------------------------------------

Investing Activities:Investing
activities used net cash of $639,000 mainly relating to the acquisition of Power General
of $366,000 and the purchase of equipment of $273,000.

Financing Activities: Financing
activities used net cash of $123,000 comprising:

| | (a) |  | Bank
borrowing by our China subsidiary provided $290,000.
| | --- |  | ---------------------------------------------------------

| | (b) |  | Proceeds
from stock options exercised provided $60,000.
| | --- |  | -------------------------------------------------------

| | (c) |  | Payments
of long-term debt used $282,000.
| | --- |  | -----------------------------------------

Effect of Foreign Currency
Exchange Rate Fluctuations: The effect of translating the Korean financial
statements, which were prepared in Won, to U.S. Dollars, increased cash by approximately
$20,000 during the year. The effect of translating the Chinese financial statements,
which were prepared in Yuan to U.S. Dollars, had minimal effect on cash for the year.

# Fiscal Year Ended June 1, 2003

|($000)                  | Fiscal2003 |  | Fiscal2002 |        | Increase / (Decrease)
|----------------------- | ---------- |  | ---------- | ------ | ---------------------
|                        | Amount     |  | Percent   
|Net Sales               |            |  | $          | 41,479 |                      
|Operating Income (Loss) |            |  |            | (7,511 | )                    

Net sales were $41,479,000 for
fiscal 2003, up 1% from $41,032,000 for fiscal 2002. The increase is due to $2,360,000 in
sales resulting from the acquisition of certain assets and certain liabilities of Power
General and an increase in sales into the Asia Pacific area of $4,249,000, offset by a
decrease in sales to North America and Europe of $6,162,000.

The gross margin for fiscal 2003 was
20.3%, compared to 19.4% for fiscal 2002. Margins increased primarily due to a fiscal
2002 inventory write-down of $999,000 and offset by lower margin on the products sold
from the acquisition of Power General of $500,000.

17

---

Operating expenses increased to
$15,930,000 for fiscal 2003 compared to $11,968,000 in fiscal 2002 primarily due to the
following factors: First, the July 2002 acquisition of certain assets and certain
liabilities of Power General increased costs from fiscal 2002 by $2,654,000 principally
due to hiring engineering and sales staff formerly employed at Power General. Second,
transition costs of $404,000 for temporary operations in the current Power General
location. The transition for the manufacturing of these products is complete and these
costs will not continue. Third, recognition of impairment of $1,153,000 in goodwill
related to the LZR acquisition. During the fourth quarter of fiscal 2003, the annual
goodwill impairment test was performed and the fair value of the Company was assessed to
determine whether goodwill carried was impaired and the extent of such impairment. After
performing this evaluation it was evident that impairment of goodwill had occurred
because of a decline in revenues for the fourth quarter compared to forecasted revenues,
as well as a significant increase in the fourth quarter loss compared to forecast. The
Company did not perform an impairment test prior to the fourth quarter as there was not
an event that had occurred or circumstances had changed in such a manner to warrant an
impairment test prior to the fourth quarter. Fourth, these items were offset by a
decrease in bad debt expense for fiscal 2003 when compared to fiscal 2002. In fiscal 2002
the Company recognized $1,186,000 of additional bad debt expense for accounts that were
uncollectible.

The Companys order backlog at
June 1, 2003 totaled $13,850,000 compared to $9,310,000 at June 2, 2002. The backlog has
increased in Asia by $1,400,000 due to increased order activity, and domestic backlog has
increased by $3,000,000 due to a purchase order from a customer covering a one-year
period.

Nonoperating expense is $393,000 for
fiscal 2003 compared to $234,000 in fiscal 2002. The increase is primarily from (1) lower
interest income in fiscal year 2003 compared to fiscal year 2002 of $68,000, and (2)
currency exchange rate gains by the Korean subsidiary of $123,000 less in fiscal 2003 as
compared to fiscal 2002. The Company incurred interest expense of $435,000 in fiscal 2003
and $495,000 in fiscal 2002. The decrease is due to the decrease in bank debt in Korea.

The effective tax rate was a benefit
of 4.3% for fiscal year 2003 compared to a benefit of 16.3% for fiscal year 2002, and
expense of 37.6% for fiscal year 2001. The benefit in 2003 reflects the utilization of
the remaining U.S. loss carrybacks but no benefit for the $3,600,000 U.S. loss
carryforwards from 2003, or any foreign loss carryforwards generated in fiscal year 2003,
because a full valuation allowance has been set up for the loss carryforwards due to the
determination that currently the realization of the deferred tax asset is not more likely
than not.

# Information About Revenue by Geography

Revenue from the U.S., from each
foreign country that is the source of significant revenue, and from all other foreign
countries as a group are as follows:

|             
|-------------
|             
|U.S          
|Korea        
|China        
|Canada       
|Ireland      
|Belgium      
|Other Foreign
|             
|Total        
|             

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.

18

---

# Impact of Foreign Operations and Currency Changes

Products manufactured by the Companys Korean subsidiary
comprised a large portion of total sales. The Company will experience normal valuation changes as the Korean and Chinese
currencies fluctuate. The effect of translating the Korean and Chinese financial statements resulted in a net asset
value increase of $35,000 during the year, the majority relating to the Korean currency fluctuations.

# Forward Looking Statements

From time to time, in reports filed with the Securities and
Exchange Commission (SEC), 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 that 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, medical and
other 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; dependence on outside
contractors; reliance on third-party distribution; unanticipated expenses related to integration of manufacturing and
personnel from acquisitions, such as the acquisition of the Power General assets; dependence on foreign manufacturing
and other operations; and other risks affecting the Companys target markets generally.

# CONTRACTUAL OBLIGATIONS

The following table summarizes the Companys contractual
obligations and commercial commitments as of May 30, 2004 (in thousands):

|                        
|------------------------
|                        
|Contractual Obligations:
|Long-term debt          
|Operating leases        
|Total contractual       
|obligations             

# Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB)
approved for issuance SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that upon
adoption, amortization of goodwill will cease and instead, the carrying value of goodwill will be evaluated for
impairment on an annual basis. In fiscal 2002 the amortization expense was $100,000. On June 3, 2002, the Company
adopted SFAS No. 142, and the initial impairment test was performed and it was determined that there was no goodwill
impairment on June 3, 2002. During the fourth quarter of fiscal 2003, the annual goodwill impairment test was performed
and the fair value of the Company was assessed to determine whether goodwill carried was impaired and the extent of such
impairment. After performing this evaluation it was evident that impairment of goodwill had occurred because of a
decline in revenues for the fourth quarter compared to forecasted revenues, as well as a significant increase in the
fourth quarter loss compared to forecast. The Company did not perform an impairment test prior to the fourth quarter as
there wasnt an event that had occurred or circumstances had changed in such a manner to warrant an impairment test
prior to the fourth quarter. Accordingly, an impairment charge of $1,153,153 was recorded in the fourth quarter of
fiscal 2003.

19

---

# 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 Company anticipates that it will continue to have exchange
gains or losses in the future. The Company realized an exchange loss of $30,000 for
fiscal 2004, and an exchange loss $23,000 for fiscal 2003, and a $100,000 gain for fiscal
2002.

As of May 30, 2004, the Company had
variable rate debt outstanding. Thus, an interest rate increase would negatively impact
interest expense and cash flows. For every $1,000,000 of bank debt, a rate increase of 1%
would result in $10,000 of additional expense.

20

---

# ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

(a)    Financial Statements

|Index to Consolidated Financial Statements
|------------------------------------------
|                                          
|*                                         
|*                                         
|                                          
|*                                         
|*                                         
|*                                         
|                                          
|*                                         
|                                          
|*                                         
|                                          
|*                                         

(b)    Supplemental Financial Information

|* |  |  | Quarterly Financial Data |  |  |  | 44 | 
|- |  |  | ------------------------ |  |  |  | -- | 

21

---

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
Ault Incorporated and Subsidiaries

We have audited the consolidated balance sheet of Ault Incorporated
and subsidiaries (a Minnesota corporation) as of May 30, 2004, and the related consolidated statements of operations,
stockholders equity, and cash flows for the year then ended.  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 audit. We did not audit the financial statements of the Ault Korea Corporation, a wholly-owned
subsidiary, which statements reflect total assets and revenues constituting 46 percent and 22 percent, respectively, of
the related consolidated totals as of and for the year ended May 30, 2004. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the
Ault Korea Corporation is based solely on the report of the other auditors.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement presentation. We believe our audit and
the report of other auditors provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other
auditors, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Ault Incorporated and subsidiaries as of May 30, 2004, 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.

We have also audited Schedule II for the year ended May 30, 2004.
In our opinion, based on our audit and the report of other auditors, this schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material respects, the information therein.

Grant Thornton LLP

Minneapolis, Minnesota

July  16, 2004 (except for Note 4, as to which the
    date is July 21, 2004)

22

---

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of
Ault Korea Corporation

We have audited the balance sheet of Ault Korea Corporation (the
Company) as of April 30, 2004, and the related statements of income, stockholders equity and cash
flows for the year then ended (all expressed in Korean won, none of which are presented herein). 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 audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 that our audit provides a reasonable basis for our
opinion.

In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company as of April 30, 2004, and the results of its operations, and
its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States
of America.

As described in Note 6 to the financial statements, the Company
sells a substantial portion of its finished goods to and purchases raw materials from related parties. For the year
ended April 30, 2004, sales to related parties totaled W7,438 million and purchases from related
parties totaled W993 million. As of April 30 2004, the related accounts receivable were
W2,398 million and the related accounts payable, including long-term accounts payable, were
W5,215 million. In addition, as of April 30, 2004, loans provided to related parties were
W163 million.

Deloitte & Touche LLC (Hana)

Seoul, Republic of Korea
June 1, 2004

23

---

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
Ault Incorporated and Subsidiaries
Minneapolis, Minnesota

We have audited the accompanying
consolidated balance sheet of Ault Incorporated and Subsidiaries (the Company)
as of June 1, 2003 and the related consolidated statements of operations,
stockholders equity, and cash flows for the fiscal years ended June 1, 2003
and June 2, 2002. Our audits also included the information for the fiscal years
ended June 1, 2003 and June 2, 2002 in the financial statement schedule listed
in the index as Item 15.(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 the consolidated financial statements and
financial statement schedule based on our audits.

We conducted our audits in
accordance with standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation. We believe
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of
Ault Incorporated and Subsidiaries as of June 1, 2003 and the results of their
operations and their cash flows for the fiscal years ended June 1, 2003 and June 2,
2002, 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 for the fiscal years ended June 1,
2003 and June 2, 2002.

As discussed in Note 1 to the
consolidated financial statements, the Company changed its method of accounting for
goodwill in fiscal 2003.

Deloitte & Touche LLP

Minneapolis, Minnesota
August 18, 2003 (August 29, 2003 as to Note 4)

24

---

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 30, 2004 AND JUNE 1, 2003

---

|ASSETS                                                     | May 30,2004 | June 1,2003
|---------------------------------------------------------- | ----------- | -----------
|CURRENT ASSETS:                                            |             |            
|Cash and cash equivalents                                  |             |            
|Trade receivables, less allowance for doubtful accounts of |             |            
|$476,000 in 2004; $500,000 in 2003                         |             |            
|Inventories                                                |             |            
|Prepaid and other expenses                                 |             |            
|                                                           |             |            
|Total current assets                                       |             |            
|OTHER ASSETS:                                              |             |            
|PROPERTY, PLANT AND EQUIPMENT:                             |             |            
|Land                                                       |             |            
|Building and leasehold improvements                        |             |            
|Machinery and equipment                                    |             |            
|Office furniture and equipment                             |             |            
|Data processing equipment                                  |             |            
|                                                           |             |            
|                                                           |             |            
|Less accumulated depreciation                              |             |            
|                                                           |             |            
|                                                           |             |            
|                                                           |             |            
|                                                           |             |            
|                                                           |             |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

25

---

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 30, 2004 AND JUNE 1, 2003

---

|LIABILITIES AND STOCKHOLDERS EQUITY                        | May 30,2004 | June 1,2003
|----------------------------------------------------------- | ----------- | -----------
|CURRENT LIABILITIES:                                        |             |            
|Notes payable to bank                                       |             |            
|Current maturities of long-term debt                        |             |            
|Accounts payable                                            |             |            
|Accrued compensation                                        |             |            
|Accrued commissions                                         |             |            
|Other                                                       |             |            
|                                                            |             |            
|Total current liabilities                                   |             |            
|LONG-TERM DEBT, less current maturities                     |             |            
|DEFERRED TAX LIABILITY                                      |             |            
|RETIREMENT AND SEVERANCE BENEFITS                           |             |            
|COMMITMENTS AND CONTINGENCIES                               |             |            
|REDEEMABLE CONVERTIBLE PREFERRED STOCK                      |             |            
|No par value, 2,074 shares issued and outstanding           |             |            
|STOCKHOLDERS EQUITY:                                       |             |            
|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 4,705,083 shares in 2004;            |             |            
|4,648,499 shares in 2003                                    |             |            
|Notes receivable arising from the sale of common stock      |             |            
|Accumulated other comprehensive loss                        |             |            
|Accumulated deficit                                         |             |            
|                                                            |             |            
|Total stockholders equity                                  |             |            
|                                                            |             |            
|                                                            |             |            
|                                                            |             |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

26

---

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|                                                 | May 30,2004 | June 1,2003 | June 2,2002
|------------------------------------------------ | ----------- | ----------- | -----------
|NET SALES                                        |             |             | $          
|COST OF GOODS SOLD                               |             |             |            
|                                                 |             |             |            
|Gross profit                                     |             |             |            
|OPERATING EXPENSES:                              |             |            
|Marketing                                        |             |             |            
|Design engineering                               |             |             |            
|General and administrative                       |             |             |            
|Exit Costs                                       |             |             |            
|Goodwill impairment                              |             |             |            
|                                                 |             |             |            
|                                                 |             |             |            
|                                                 |             |             |            
|OPERATING LOSS                                   |             |             |            
|OTHER INCOME (EXPENSE):                          |             |            
|Interest expense                                 |             |             |            
|Interest income                                  |             |             |            
|Other                                            |             |             |            
|                                                 |             |             |            
|                                                 |             |             |            
|                                                 |             |             |            
|LOSS BEFORE INCOME TAXES                         |             |             |            
|INCOME TAX EXPENSE (BENEFIT)                     |             |             |            
|                                                 |             |             |            
|NET LOSS                                         |             |             |            
|REDEEMABLE CONVERTIBLE PREFERRED STOCK DIVIDENDS |             |             |            
|                                                 |             |             |            
|NET LOSS APPLICABLE TO COMMON STOCKHOLDERS       |             |             | $          
|                                                 |             |             |            
|NET LOSS PER SHARE:                              |             |            
|Basic                                            |             |             | $          
|Diluted                                          |             |             | $          
|Weighted average common shares outstanding:      |             |            
|Basic                                            |             |             |            
|Diluted                                          |             |             |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

27

---

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|                                    | Common Stock |  | NotesReceivableFrom Saleof CommonStock |           | RetainedEarnings/AccumulatedDeficit |   | AccumulatedOtherComprehensiveIncome(Loss) |  | TotalStockholdersEquity
|----------------------------------- | ------------ |  | -------------------------------------- | --------- | ----------------------------------- | - | ----------------------------------------- |  | ------------------------
|
|BALANCE AT JUNE 3, 2001             |              |  |                                        | 4,528,522 |                                     | $ | 20,683,920                                |  | $                       
|Comprehensive loss:                 |              | 
|Net loss                            |              |  |                                        |           |                                     |   |                                           |  |                         
|Net change in foreign currency      |              | 
|translation adjustment              |              |  |                                        |           |                                     |   |                                           |  |                         
|                                    |              |  |                                        |           |                                     |   |                                          
|Total comprehensive loss            |              |  |                                        |           |                                     |   |                                           |  |                         
|Issuance of 35,088 shares of common |              | 
|stock in accordance with stock      |              | 
|purchase plan and stock option plan |              |  |                                        | 35,088    |                                     |   | 121,981                                   |  |                         
|Income tax benefit from stock       |              | 
|options exercised                   |              |  |                                        |           |                                     |   | 51,728                                    |  |                         
|                                    |              |  |                                        |           |                                     |   |                                           |  |                         
|BALANCE AT JUNE 2, 2002             |              |  |                                        | 4,563,610 |                                     |   | 20,857,629                                |  |                         
|Comprehensive loss:                 |              | 
|Net loss                            |              |  |                                        |           |                                     |   |                                           |  |                         
|Net change in foreign currency      |              | 
|translation adjustment              |              |  |                                        |           |                                     |   |                                           |  |                         
|                                    |              |  |                                        |           |                                     |   |                                          
|Total comprehensive loss            |              |  |                                        |           |                                     |   |                                           |  |                         
|Issuance of 33,712 shares of common |              | 
|stock in accordance with stock      |              | 
|purchase plan and stock option plan |              |  |                                        | 33,712    |                                     |   | 59,648                                    |  |                         
|Write-off of stock receivable       |              |  |                                        |           |                                     |   |                                           |  |                         
|Issuance of 51,177 shares of common |              | 
|stock in accordance with            |              | 
|redeemable preferred stock          |              |  |                                        | 51,177    |                                     |   | 108,885                                   |  |                         
|                                    |              |  |                                        |           |                                     |   |                                           |  |                         
|BALANCE AT JUNE 1, 2003             |              |  |                                        | 4,648,499 |                                     |   | 21,026,162                                |  |                         
|                                    |              |  |                                        |           |                                     |  
|Comprehensive loss:                 |              | 
|Net loss                            |              |  |                                        |           |                                     |   |                                           |  |                         
|Net change in foreign currency      |              | 
|translation adjustment              |              |  |                                        |           |                                     |   |                                           |  |                         
|                                    |              |  |                                        |           |                                     |   |                                          
|Total comprehensive loss            |              |  |                                        |           |                                     |   |                                           |  |                         
|Issuance of 1,000 shares of common  |              | 
|stock in accordance with stock      |              | 
|purchase plan and stock option plan |              |  |                                        | 1,000     |                                     |   | 1,375                                     |  |                         
|Issuance of 55,584 shares of common |              | 
|stock in accordance with redeemable |              | 
|preferred stock                     |              |  |                                        | 55,584    |                                     |   | 145,180                                   |  |                         
|                                    |              |  |                                        |           |                                     |   |                                           |  |                         
|BALANCE AT May 30, 2004             |              |  |                                        | 4,705,083 |                                     | $ | 21,172,717                                |  | $                       
|                                    |              |  |                                        |           |                                     |   |                                           |  |                         

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

28

---

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|                                                                    | May 30,2004 |  | June 1,2003 |            | June 2,2002
|------------------------------------------------------------------- | ----------- |  | ----------- | ---------- | -----------
|CASH FLOWS FROM OPERATING ACTIVITIES:                               |             |  |             |            |            
|Net loss                                                            |             |  | $           | (4,807,487 | )          
|Adjustments to reconcile net loss to net cash                       |             | 
|provided by (used in) operating activities:                         |             | 
|Depreciation                                                        |             |  |             | 1,190,657  |            
|Asset impairment                                                    |             |  |             | 1,742,470  |            
|Amortization of goodwill                                            |             |  |             |            |            
|Allowance for doubtful accounts                                     |             |  |             | 17,000     |            
|Goodwill impairment                                                 |             |  |             |            |            
|Deferred taxes                                                      |             |  |             |            |            
|Change in assets and liabilities, net of effect of acquisition:     |             | 
|(Increase) decrease in:                                             |             | 
|Trade receivables                                                   |             |  |             | (925,023   | )          
|Inventories                                                         |             |  |             | 1,230,613  |            
|Prepaid and other expenses                                          |             |  |             | (167,400   | )          
|Increase (decrease) in:                                             |             | 
|Accounts payable                                                    |             |  |             | 514,924    |            
|Accrued expenses                                                    |             |  |             | 313,999    |            
|Income taxes                                                        |             |  |             | (23,664    | )          
|                                                                    |             |  |             |            |            
|Net cash provided by (used in) operating activities                 |             |  |             | (913,911   | )          
|                                                                    |             |  |             |            |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                               |             | 
|Purchase of property and equipment                                  |             |  |             | (322,362   | )          
|Power General acquisition, net of cash acquired                     |             |  |             |            |            
|                                                                    |             |  |             |            |            
|Net cash used in investing activities                               |             |  |             | (322,362   | )          
|                                                                    |             |  |             |            |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                               |             | 
|Net borrowings (payments) on revolving credit agreement             |             |  |             | 1,458,036  |            
|Write-off of notes receivable arising from the sale of common stock |             |  |             |            |            
|Proceeds from issuance of common stock                              |             |  |             | 1,375      |            
|Principal payments on long-term borrowings                          |             |  |             | (270,493   | )          
|                                                                    |             |  |             |            |            
|Net cash provided by (used in) financing activities                 |             |  |             | 1,188,918  |            
|EFFECT OF FOREIGN CURRENCY EXCHANGE RATE                            |             | 
|CHANGES ON CASH                                                     |             |  |             | 5,919      |            
|                                                                    |             |  |             |            |            
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    |             |  |             | (41,436    | )          
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                      |             |  |             | 1,099,602  |            
|                                                                    |             |  |             |            |            
|CASH AND CASH EQUIVALENTS AT END OF YEAR                            |             |  | $           | 1,058,166  |            
|                                                                    |             |  |             |            |            
|NON-CASH TRANSACTION:                                               |             | 
|Issuance of redeemable convertible preferred stock to acquire       |             | 
|Power General                                                       |             |  | $           |           |            
|Issuance of common stock to pay preferred stock dividends           |             |  |             | 145,180    |            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                   |             | 
|Cash payments for:                                                  |             | 
|Interest                                                            |             |  |             | 606,516    |            
|Taxes                                                               |             |  |             | 46,862     |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

29

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|1. |  | NATURE OF BUSINESS, LIQUIDITY, AND SIGNIFICANT
ACCOUNTING POLICIES
|-- |  | ------------------------------------------------------------------

| | Nature of Business Ault Incorporated and
Subsidiaries (Ault or the Company) 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Liquidity The financial statements have
been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. The Company sustained net losses applicable to common stockholders of $4,952,667 in 2004
and $7,692,073 in 2003 and at May 30, 2004 had an accumulated deficit of $7,728,065. The Company utilized $913,911 and
$3,179,410 of cash for operating activities in 2004 and 2003. Future operations require the Company to borrow additional
funds. On December 4, 2003, the Company entered into a new financing agreement, which includes a $7,000,000
line-of-credit agreement through December 2006. The availability of the line is based on the outstanding receivables of
the Company; the amount available at May 30, 2004 was $3,394,000. There was $1,965,464 outstanding on this
line-of-credit at May 30, 2004. The Company took steps to reduce expenses, improve cash flow and return to
profitability, including the consolidation of its manufacturing operations. This consolidation includes the closing of
its Minneapolis production operations, eliminating approximately 40 jobs in assembly, equipment maintenance, procurement
and administrative support and the integration of production into Aults other manufacturing plants. Aults
engineering, documentation, safety certification/reliability, sales, marketing and administrative services will remain
at the Minneapolis headquarters facility.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based on available funds, current plans and business
conditions management believes that the Companys available cash, borrowings and amounts generated from operations,
will be sufficient to meet the Companys cash requirements for the next 12 months. The assumptions underlying this
belief include, among other things, that there will be no material adverse developments in the business or market in
general. There can be no assurances however that those assumed events will occur. If managements plans are not
achieved, there may be further negative effects on the results of operations and cash flows, which could have a material
adverse effect on the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A summary of the Companys significant accounting
policies follows:
| | -------------------------------------------------------------------

| | Principles of Consolidation  The
consolidated financial statements include the accounts of Ault Incorporated and its wholly owned subsidiaries. All
intercompany transactions have been eliminated. The foreign currency translation adjustment represents the translation
into United States dollars of the Companys investment in the net assets of its foreign subsidiaries.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fiscal Year The Company operates on a 52 to
53-week fiscal year. The fiscal years for the financial statements presented end on May 30, 2004, June 1, 2003, and June
2, 2002. All years presented contain 52 weeks. The Companys foreign subsidiaries have an April 30 fiscal year-end,
and the Company consolidates the subsidiaries for financial reporting purposes on a one-month lag basis to facilitate
timely and accurate consolidation and in order to meet financial reporting deadlines of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 financial instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of short-term
commercial paper. The Company maintained cash at various financial institutions located in countries in the Far East
totaling $775,146 and $775,874 at May 30, 2004 and June 1, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | Accounts Receivable  The Company grants
credit to customers in the normal course of business, but generally does not require collateral or any other security to
support amounts due. Management performs on- going credit evaluations of customers based on financial position, past
history, the customers current ability to pay its obligation to the Company, and the condition of the general
economy and the industry as a whole. The Company maintains allowances for potential credit losses which, when realized,
have generally been within management expectations. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful
accounts.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventories Inventories are stated at the
lower of cost (first-in, first-out) or market. Inventories include material, labor, and manufacturing overhead.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill  The Company adopted Financial
Accounting Standards (SFAS) No. 142, Goodwill and OtherIntangible Assets on June 2, 2002. SFAS No. 142
requires that upon adoption, amortization of goodwill will cease and instead, the carrying value of goodwill will be
evaluated for impairment on an annual basis. In fiscal 2002 the amortization expense was $100,000. On June 3, 2002, the
initial impairment test was performed and it was determined that there was no goodwill impairment on June 3, 2002.
During the fourth quarter of fiscal 2003, the annual goodwill impairment test was performed and the fair value of the
Company was assessed to determine whether goodwill carried was impaired and the extent of such impairment. After
performing this evaluation it was evident that impairment of goodwill had occurred because of a decline in revenues for
the fourth quarter compared to forecasted revenues, as well as a significant increase in the fourth quarter loss
compared to forecast. The Company did not perform an impairment test prior to the fourth quarter as there was not an
event that had occurred or circumstances had changed in such a manner to warrant an impairment test prior to the fourth
quarter. Accordingly, an impairment charge of $1,153,153 was recorded in the fourth quarter of fiscal 2003 to write off
all remaining goodwill.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table adjusts net loss for goodwill
amortization expense recognized for the year ended June 2,2002:
| | -----------------------------------------------------------------------------------------------------------------

| | Amounts in thousands, except per share amounts
| | ----------------------------------------------

|                                           | Year Ended 
|------------------------------------------ | -----------
|                                           | May 30,2004
|Reported loss                              |            
|Add back goodwill amortization, net of tax |            
|                                           |            
|Pro forma adjusted net loss                |            
|                                           |            
|Basic net loss per share:                  |            
|Reported net loss                          |            
|Goodwill amortization, net of tax          |            
|                                           |            
|Pro forma adjusted basic net loss          |            
|per share                                  |            
|                                           |            
|Diluted net loss per share:                |            
|Reported net loss                          |            
|Goodwill amortization, net of tax          |            
|                                           |            
|Pro forma adjusted diluted net loss        |            
|per share                                  |            
|                                           |            
|Common and equivalent shares outstanding:  |            
|Basic                                      |            
|Diluted                                    |            

31

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | The Company has no goodwill as of May 30, 2004 and June
1, 2003.
| | ----------------------------------------------------------------

| | Depreciation  Depreciation is based on the
estimated useful lives of the individual assets and is calculated on the straight-line method for financial reporting
and accelerated methods for tax purposes. The estimated useful lives are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              
|------------------------------
|Building                      
|Machinery and equipment       
|Office furniture and equipment
|Data processing equipment     
|Leasehold improvement         

| | Financial Instruments  The fair value of
the long-term debt is estimated based on the use of discounted cash flow analysis using interest rates for the same or
similar debt offered to the Company having the same or similar remaining maturities and collateral requirements.
Management estimates the carrying value of the long-term debt approximates fair value. All other financial instruments
approximate fair value because of the short-term nature of these instruments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Retirement and Severance Benefits
 Retirement and severance benefits represents the accrual of compensation expense, net of deposits, for Korean
employees payable upon termination of employment under provisions of Korean law.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 deposit a certain portion of the retirement
allowances of employees to the National Pension Fund. The deposits reduce the retirement and severance benefit liability
recorded in the consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue Recognition  The Company recognizes
revenue at the shipping point for sales to customers located within the Companys or subsidiaries country of
domicile. For sales to customers outside of the Companys or subsidiaries country of domicile, the Company
recognizes revenue at the time risk of ownership passes. All of the Companys product held by distributors are
stocked for OEMs and the sales terms are noncancelable, and nonreturnable. Payment terms for distributors are no
different than other customers, 0.5% 10 net 30.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Freight Customer billings for freight are included in sales, and the freight costs are
included in costs of sales.
| | -------------------------------------------------------------------------------------------------------------------

| | 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 as incurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | Advertising Expense  The Company expenses
advertising costs as incurred. Advertising expenses of approximately $129,000, $76,000, and $45,000 were charged to
operations during the years ended May 30, 2004, June 1, 2003, and June 2, 2002, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock Compensation  The Companys 1986
and 1996 stock option plans have reserved 600,000 and 1,200,000 common shares, for issuance under qualified and
nonqualified stock options for its key employees and directors. Option prices are determined by the market value of the
stock at the time the option was granted. Options become exercisable as determined at the date of grant by a committee
of the Board of Directors. Options expire ten years after the date of grant unless an earlier expiration date is set at
the time of grant.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The intrinsic value method is used to value the stock
option grants to employees and directors. No compensation cost has been recognized for the stock option plans, as all
options have been issued with exercised prices at or above fair value. Had compensation cost for the Companys
stock option plans been determined based on the fair value at the grant date for awards in 2004, 2003, and 2002, the
Companys net loss and net loss per share would have changed to the pro forma amounts indicated below:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | May 30,2004 |  | June 1,2003 |            | June 2,2002
|------------------------------------------- | ----------- |  | ----------- | ---------- | -----------
|Net loss applicable to common stockholders: |             |  |             |            |            
|As reported                                 |             |  | $           | (4,952,667 | )          
|Pro forma                                   |             |  |             | (5,213,685 | )          
|Per share, basic, as reported               |             |  |             | (1.06      | )          
|Per share, diluted, as reported             |             |  |             | (1.06      | )          
|Per share, basic, pro forma                 |             |  |             | (1.11      | )          
|Per share, diluted, pro forma               |             |  |             | (1.11      | )          

| | 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 2004, 2003, and 2002:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | May 30,2004 |  | June 1,2003 |            | June 2,2002
|------------------------------- | ----------- |  | ----------- | ---------- | -----------
|Expected dividend yields        |             |  | $           |           |            
|Expected stock price volatility |             |  |             | 71.01%     |            
|Risk-free interest rate         |             |  |             | 2.77%      |            
|Expected life of options        |             |  |             | 7.48 years |            

33

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | Long-Lived Assets The Company reviews its
long-lived assets annually to determine potential impairment by comparing the carrying value of the long-lived assets
outstanding with estimated future undiscounted cash flows expected to result from the use of the assets, including cash
flows from disposition. Should the sum of the expected future undiscounted 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net Loss per Share  Basic net loss per
share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.
Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding
during the period adjusted by common share equivalents related to stock options, warrants. Options to purchase
1,187,826, 1,093,426, and 978,926 shares of common stock were outstanding at the fiscal years ended May 30, 2004, June
1, 2003, and June 2, 2002, but were excluded from the computation of common stock equivalents because they were
anti-dilutive.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The following table reflects the calculation of basic
and diluted net loss per share:
| | -------------------------------------------------------------------------------------

|                                                      | May 30,2004 |  | June 1,2003 |            | June 2,2002
|----------------------------------------------------- | ----------- |  | ----------- | ---------- | -----------
|Numerator                                            |             |  |             |            |            
|Net loss applicable to common stockholders            |             |  | $           | (4,952,667 | )          
|                                                      |             |  |             |            |            
|Denominator:                                          |             | 
|Basic  weighted-average shares outstanding           |             |  |             | 4,679,570  |            
|Effect of dilutive shares:                            |             | 
|Stock options outstanding and employee stock purchase |             | 
|plan                                                  |             | 
|Diluted  weighted-average shares outstanding         |             |  |             | 4,679,570  |            
|                                                      |             |  |             |            |            
|Basic net loss per share                              |             |  | $           | (1.06      | )          
|                                                      |             |  |             |            |            
|Diluted net loss per share                            |             |  | $           | (1.06      | )          
|                                                      |             |  |             |            |            

| | Use of Estimates  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 Loss  The Companys
fiscal 2004 comprehensive loss consists of net loss and foreign currency translation adjustments.
| | ------------------------------------------------------------------------------------------------------------------------------------

| | Foreign Currency Translation  The
Companys international subsidiaries have United States dollars as their functional currency. Specific transactions
that are denominated in the foreign currency are translated at the current exchange rate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|2. |  | INVENTORIES
|-- |  | -----------

| | The components of inventory are as follows:
| | -------------------------------------------

|                | May 30,2004 |  | June 1,2003
|--------------- | ----------- |  | -----------
|Raw materials   |             |  | $          
|Work-in-process |             |  |            
|Finished goods  |             |  |            
|                |             |  |            
|                |             |  | $          
|                |             |  |            

|3. |  | WARRANTY
|-- |  | --------

| | The Company offers its customers a three-year warranty
on products. Warranty expense is estimated at the time revenue is recognized and is determined by calculating the
historical relationship between sales and warranty costs and applying the calculation to the current periods
sales. Based on warranty repair costs and the rate of return, the Company periodically reviews and adjusts its warranty
accrual. The Company exercises judgment in determining its accrued warranty liability. Actual repair costs are offset
against the reserve. The following table shows the activity for the Companys warranty accrual (in thousands):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | May 30,2004 |  | June 1,2003
|-------------------------- | ----------- |  | -----------
|Beginning Balance          |             |  | $          
|                           |             | 
|Charges and Costs Accrued  |             |  |            
|Less Repair Costs Incurred |             |  |            
|                           |             |  |            
|Ending Balance             |             |  | $          
|                           |             |  |            

|4. |  | FINANCING ARRANGEMENT AND LONG-TERM DEBT
|-- |  | ----------------------------------------

| | Financing Arrangement  The Company has a
financing agreement, which includes a $7,000,000 revolving line-of-credit agreement through December 6, 2006. Interest
on advances is at the prime rate plus 2% (prime plus 5% default rate) for fiscal year 2004 and prime plus 7% (default
rate) for fiscal year 2003. The rate at May 30, 2004 was 6.00% and on June 1, 2003 the rate was 11.00%. All advances are
due on demand and are collateralized by all assets of the Company. The availability of the line is based on the
outstanding receivables of the Company; the amount available at May 30, 2004 was $3,394,000. There was $1,965,464
outstanding on this line-of-credit at May 30, 2004. The Companys financing agreement contains financial covenants.
These covenants require the Company, among other things, to maintain a minimum capital base, and also impose certain
limitations on additional capital expenditures and the payment of dividends. At the end of fiscal 2003, the
Companys actual capital base did not meet the minimum capital base of the credit agreement. The
Company received a waiver on August 29, 2003 and amendment for this covenant. At the end of fiscal 2004, the
Companys actual net book worth and income before taxes did not meet the minimum of the credit agreement. The
Company received a waiver and amendment for these covenants. Following the July 2004 waiver, the Company believes the
provisions imposed by this credit agreement are achievable based on the Companys expected operating results for
the next year. Also, the Companys Korean subsidiary maintains an unsecured $3,370,000 credit facility agreement to
cover bank overdrafts, short-term financing, and export financing at a rate of 8.15% on May 30, 2004 and 6.25% on June
1, 2003. Advances outstanding relating to the Korean facility were $2,685,003 and $3,103,594 at May 30, 2004 and June 1,
2003, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | Long-Term Debt 
| | ----------------

|                                                                        | May 30,2004 |  | June 1,2003
|----------------------------------------------------------------------- | ----------- |  | -----------
|8.05% term loan, due in monthly installments of $28,756, including      |             |  |            
|interest to February 2015, collateralized by the Companys headquarters |             | 
|building in Minneapolis                                                 |             |  | $          
|5.3% uncollateralized term loan, due in January 2005                    |             |  |            
|7.94% term loan, due in monthly installments of $6,144, including       |             | 
|interest to September 2004, secured by furniture                        |             |  |            
|7.2% term loan, paid in full in December 2003                           |             |  |            
|                                                                        |             |  |            
|Total                                                                   |             |  |            
|Less current maturities                                                 |             |  |            
|                                                                        |             |  |            
|                                                                        |             |  | $          
|                                                                        |             |  |            

| | Maturities of long-term debt for years subsequent to May
30, 2004 are as follows:
| | ---------------------------------------------------------------------------------

|2005       |  |  | $ | 459,969   | 
|---------- |  |  | - | --------- | 
|2006       |  |  |   | 164,882   | 
|2007       |  |  |   | 178,656   | 
|2008       |  |  |   | 193,581   | 
|2009       |  |  |   | 209,752   | 
|Thereafter |  |  |   | 1,566,021 | 
|           |  | 
|           |  |  | $ | 2,772,861 | 
|           |  | 

|5. |  | PLANT CLOSING
|-- |  | -------------

| | On July 17, 2003, the Company announced the
consolidation of its manufacturing operations. The consolidation included the closing of its Minneapolis production
operations, eliminating approximately 40 jobs in assembly, equipment maintenance, procurement and administrative support
and the integration of production into Aults other manufacturing plants. Aults engineering, documentation,
safety certification/reliability, sales, marketing and administrative services will remain at the Minneapolis
headquarters facility. The consolidation was complete at the end of February 2004. The consolidation was implemented to
reduce expenses, improve cash flow and help return the Company to profitability. Aults management estimates that
the consolidation will reduce expenses by approximately $1.3 million annually.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As a result of these decisions, the Company recorded
charges of $301,000, for severance related to workforce reductions of approximately 40 employees, $1,743,000 for asset
impairment write down, $545,000 for obsolete inventory, and $20,000 related to other costs associated with the
consolidation restructuring. Cash of $286,000 was used in connection with severance charges, which began to be paid in
the second quarter and will be completely paid by the end of August 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | A summary of the restructuring activity during the year
ending May 30, 2004 is as follows:
| | ------------------------------------------------------------------------------------------

|                           | Balance atJune 2, 2003 |  | Current PeriodRestructuringCharges |   | Paid/Expensed |   | RestructuringLiabilities atMay 30, 2004
|-------------------------- | ---------------------- |  | ---------------------------------- | - | ------------- | - | ---------------------------------------
|Employee termination costs |                        |  | $                                  |  |               | $ | 301,000                                
|Obsolete Inventory         |                        |  |                                    |  |               |   | 545,000                                
|Asset impairment           |                        |  |                                    |  |               |   | 1,743,000                              
|Miscellaneous costs        |                        |  |                                    |  |               |   | 20,000                                 
|                           |                        |  |                                    |   |               |   |                                        
|Total                      |                        |  | $                                  |  |               | $ | 2,609,000                              
|                           |                        |  |                                    |   |               |   |                                        

| | The current period restructuring charges were recorded
in the accompanying statement of operations as follows:
| | --------------------------------------------------------------------------------------------------------------

|Cost of Goods Sold              |  |  | $ | 545,000   | 
|------------------------------- |  |  | - | --------- | 
|Operating Expenses  Exit Costs |  |  |   | 2,064,000 | 
|                                |  | 
|                                |  |  | $ | 2,609,000 | 
|                                |  | 

|6. |  | INCOME TAXES
|-- |  | ------------

| | Pretax income (loss) for domestic and foreign operations
was as follows:
| | ------------------------------------------------------------------------

|         | May 30,2004 |  | June 1,2003 |            | June 2,2002
|-------- | ----------- |  | ----------- | ---------- | -----------
|Domestic |             |  | $           | (4,607,298 | )          
|Foreign  |             |  |             | (153,327   | )          
|         |             |  |             |            |            
|Total    |             |  | $           | (4,760,625 | )          
|         |             |  |             |            |            

| | The components of the provision (benefit) for income
taxes are as follows:
| | --------------------------------------------------------------------------

|         | May 30,2004 |  | June 1,2003 |         | June 2,2002
|-------- | ----------- |  | ----------- | ------- | -----------
|Current: |             |  |             |         |            
|Domestic |             |  | $           |        |            
|Foreign  |             |  |             | (13,127 | )          
|State    |             |  |             | 59,989  |            
|Deferred |             |  |             |         |            
|         |             |  |             |         |            
|         |             |  | $           | 46,862  |            
|         |             |  |             |         |            

37

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | The income tax provision (benefit) 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 30, 2004, June 1, 2003, and June 2, 2002, due to the following:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | May 30,2004 |  | June 1,2003 |            | June 2,2002
|--------------------------------------------------- | ----------- |  | ----------- | ---------- | -----------
|Computed expected tax provision (benefit)           |             |  | $           | (1,671,000 | )          
|Increase (decrease) in income taxes resulting from: |             | 
|Nondeductible expenses                              |             |  |             | 5,000      |            
|State income taxes, net of federal benefit          |             |  |             | 60,000     |            
|Foreign taxes                                       |             |  |             | (13,127    | )          
|Current year R&D tax credits                        |             |  |             |            |            
|Change in valuation allowance                       |             |  |             | 1,665,989  |            
|Other                                               |             |  |             |            |            
|                                                    |             |  |             |            |            
|                                                    |             |  | $           | 46,862     |            
|                                                    |             |  |             |            |            

| | Net deferred taxes consist of the following components:
| | -------------------------------------------------------

|                                     | May 30,2004 |  | June 1,2003
|------------------------------------ | ----------- |  | -----------
|Deferred tax assets (liabilities):   |             |  |            
|Current deferred taxes               |             | 
|Allowance for doubtful accounts      |             |  | $          
|Inventory reserve                    |             |  |            
|Accrued vacation                     |             |  |            
|Accrued warranty                     |             |  |            
|Valuation allowance                  |             |  |            
|                                     |             |  |            
|Total current deferred taxes         |             |  |            
|                                     |             |  |            
|Long-term deferred taxes             |             | 
|Goodwill deductible for tax          |             |  |            
|Equipment and leasehold improvements |             |  |            
|Tax credit carryforwards and other   |             |  |            
|Federal NOL carryforwards            |             |  |            
|Foreign deferred tax asset           |             |  |            
|Foreign deferred liability           |             |  |            
|Valuation allowance                  |             |  |            
|                                     |             |  |            
|Total long-term deferred taxes       |             |  | $          
|                                     |             |  |            

| | The Company has net operating loss carryforwards of
approximately $8,529,000 as of May 30, 2004, with various expiration dates through 2023. Based on prior taxable income
and estimates of future taxable income, the Company has determined that it is likely that the net deferred tax asset
will not be fully realized in the future. Thus a full valuation allowance has been established.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|7. |  | EMPLOYEE BENEFIT PLANS
|-- |  | ----------------------

| | 401(k) Employer Match Plan  The Company has
a 401(k) plan covering substantially all U.S. employees. The Company is required to match 25% of the employees
first 6% 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 30, 2004, June 1,
2003, and June 2, 2002 approximated $55,000, $58,000, and $72,000, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock Purchase Plan  The Company maintains
a stock purchase plan in which up to 200,000 shares of common stock may be purchased by employees. The purchase price is
equal to the lesser of 85% of the fair market value of the shares on the date the phase commences or 85% 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 23,212, and 13,588 shares purchased under this plan during the fiscal year ended June 1, 2003,
and June 2, 2002, respectively. No shares were purchased under the plan during the year ended May 30, 2004 due to the
phase ending on May 31, 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. |  | REDEEMABLE CONVERTIBLE PREFERRED STOCK
|-- |  | --------------------------------------

| | In July 2002, in connection with the purchase of certain
assets and liabilities of Power General, the Company issued 2,074 shares of redeemable 7% convertible preferred stock at
$1,000 face value. The preferred stock is convertible into common stock at the holders option at a conversion
price of $4.25 principal amount of preferred stock for each share and has a mandatory redemption of one-third of the
outstanding shares of unconverted preferred stock on July 16, 2006, one-half of the remaining outstanding shares on July
16, 2007, and the remaining outstanding shares on July 16, 2008. The dividends on the preferred stock are cumulative and
payable quarterly beginning October 15, 2002, and can be paid in cash; however, during the first three years the Company
can pay dividends in shares of common stock in lieu of cash based on the fair market value of the common stock at the
time the dividends are declared. In fiscal 2004 the Company declared dividends of $145,180, which have been paid with
55,584 shares of common stock. In fiscal 2003 the Company declared dividends of $128,242, of which $108,885 have been
paid with 51,177 shares of common stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. |  | STOCK OPTION PLAN
|-- |  | -----------------

| | Information relating to all outstanding options as of
May 30, 2004, June 1, 2003, and June 2, 2002 is as follows:
| | -----------------------------------------------------------------------------------------------------------------

|                                         | May 30,2004 |  | June 1,2003 |           | June 2,2002
|---------------------------------------- | ----------- |  | ----------- | --------- | -----------
|                                        
|
|Options outstanding at beginning of year |             |  |             | 1,093,426 |            
|Options exercised                        |             |  |             | (1,000    | )          
|Options expired                          |             |  |             | (1,000    | )          
|Options granted                          |             |  |             | 96,400    |            
|                                         |             |  |             |           |            
|Options outstanding at end of year       |             |  |             | 1,187,826 |            
|                                         |             |  |             |           |            
|Options exercisable at end of year       |             |  |             | 1,030,526 |            
|                                         |             |  |             |           |            
|Weighted-average fair value of           |             | 
|options granted during the year          |             |  |             |           |            

39

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | The following table summarizes information about stock
options outstanding at May 30, 2004:
| | -------------------------------------------------------------------------------------------

|              |  | Options Outstanding |  | Options Exercisable
|------------- |  | ------------------- |  | -------------------
|
|$1.19  $1.72 |  |                     |  | 22,000             
|1.73   2.58  |  |                     |  | 143,400            
|2.59   3.45  |  |                     |  | 135,000            
|3.46   4.31  |  |                     |  | 218,124            
|4.32   5.17  |  |                     |  | 10,000             
|5.18   6.03  |  |                     |  | 278,800            
|6.04   6.90  |  |                     |  | 62,918             
|6.91   7.76  |  |                     |  | 197,000            
|7.77   8.63  |  |                     |  | 120,584            
|              |  |                     |  |                    
|$1.19  $8.63 |  |                     |  | 1,187,826          
|              |  |                     |  |                    

|10. |  | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company has a shareholders rights plan 
under which, 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 30, 2004, June 1, 2003, and June 2, 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. During 2003,
the Company wrote off $55,000 as compensation expense.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|11. |  | COMMITMENT AND CONTINGENCIES
|--- |  | ----------------------------

| | Operating Leases  The Company leases
certain facilities under operating leases through December 2008. 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 30, 2004 are as follows:
| | -----------------------------------------------------------------------------

|     | 
|---- | 
|
|2005 | 
|2006 | 
|2007 | 
|2008 | 
|     | 
|     | 
|     | 

| | Total rental expense for the fiscal years ended May 30,
2004, June 1, 2003, and June 2, 2002 was approximately $227,000, $393,000, and $44,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. |  | SEGMENT INFORMATION AND FOREIGN OPERATIONS
|--- |  | ------------------------------------------

| | The Company conducts its business within one reportable
segment: the power conversion product industry. Manufacturing of the Companys products are performed at the
Companys Korean subsidiary, the Chinese subsidiaries, and certain nonaffiliated companies in China and Thailand. A
summary of the Companys revenues, net income, and identifiable assets by geographic area is presented below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | May 30,2004 |  | June 1,2003 |             | June 2,2002
|--------------------------------------------------- | ----------- |  | ----------- | ----------- | -----------
|Revenues:                                           |             |  |             |             |            
|Domestic operations                                 |             |  | $           | 32,385,149  |            
|Asian operations - customers                        |             |  |             | 12,723,928  |            
|Asian operations - parent                           |             |  |             | 13,643,103  |            
|Eliminations                                        |             |  |             | (13,643,103 | )          
|                                                    |             |  |             |             |            
|Consolidated                                        |             |  | $           | 45,109,077  |            
|                                                    |             |  |             |             |            
|Net income (loss) applicable to common stockholder: |             | 
|Domestic operations                                 |             |  | $           | (4,812,467  | )          
|Asian operations                                    |             |  |             | (142,400    | )          
|Eliminations                                        |             |  |             | 2,200       |            
|                                                    |             |  |             |             |            
|Consolidated                                        |             |  | $           | (4,952,667  | )          
|                                                    |             |  |             |             |            
|Identifiable assets:                                |             | 
|Domestic operations                                 |             |  | $           | 23,547,646  |            
|Asian operations                                    |             |  |             | 23,598,263  |            
|Eliminations                                        |             |  |             | (16,717,639 | )          
|                                                    |             |  |             |             |            
|Consolidated                                        |             |  | $           | 30,428,270  |            
|                                                    |             |  |             |             |            

41

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AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|May 30,2004                   |  | June 1,2003 |   | June 2,2002
|----------------------------- |  | ----------- | - | -----------
|Domestic operations           |  |             | $ | 4,176,751  
|Korean and Chinese operations |  |             |   | 6,495,791  
|                              |  |             |   |            
|Consolidated                  |  |             | $ | 10,672,542 
|                              |  |             |   |            

| | 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 12.6%, 11.2%, and 17.3% of total sales for the fiscal years ended May 30, 2004, June 1, 2003,
and June 2, 2002, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other Foreign Production  In addition to the
manufacturing done by the Asian subsidiaries, 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
$5,243,000, $5,918,000, and $10,388,000 for the fiscal years ended May 30, 2004, June 1, 2003, and June 2, 2002,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. |  | MAJOR CUSTOMER
|--- |  | --------------

| | The Company had no customers with revenues or accounts
receivable of more than 10% of the total during the fiscal years ended May 30, 2004 and June 1, 2003. During the fiscal
year ended June 2, 2002, the Company had a major customer with 2.8% of total sales and 10.1% of total accounts
receivable.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. |  | ACQUISITION
|--- |  | -----------

| | On July 16, 2002, the Company purchased a portion of the
operating assets of the Power General division of Nidec America Corporation. The Power General division developed,
manufactured, and sold high-efficiency DC/DC converters and custom power supplies at various power levels up to 1200
watts under the Power General brand name. Pursuant to the Purchase Agreement, the Company paid the seller $366,000 in
cash and issued $2,074,000 face amount of the Companys newly created Series B 7% Convertible Preferred Stock, no
par value (the Preferred Stock). The Preferred Stock issued to seller is convertible into 488,000 shares of the
Companys common stock. The Company has filed a registration statement covering the shares of common stock issuable
upon conversion of the Preferred Stock with the Securities and Exchange Commission. Diluted EPS reflects the potential
dilution that could occur if the Preferred Stock was converted into common stock of the Company during reported periods.
The Preferred Stock was excluded from Diluted EPS in the current year as the effect of its inclusion would be
antidilutive. The Company has maintained Power Generals engineering group in Massachusetts and has moved Power
Generals manufacturing operations and related functions to The Companys other facilities in Asia.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

| | The total cost of the acquisition was $2,559,278 and was
accounted for under the purchase method of accounting. Accordingly, the acquired assets and liabilities assumed have
been recorded at their respective fair values as of the date of acquisition. The results of operations of the acquired
business is included in the financial statements since the date of the acquisition. The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed from Nidec on the date of the acquisition:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Inventories            |  |  | $ | 1,048,675 | 
|---------------------- |  |  | - | --------- | 
|Property and equipment |  |  |   | 1,634,971 | 
|                       |  | 
|Total assets acquired  |  |  |   | 2,683,646 | 
|                       |  | 
|Current liabilities    |  |  |   | 124,368   | 
|                       |  | 
|Net assets acquired    |  |  | $ | 2,559,278 | 
|                       |  | 

| | Pro-forma results of the Company, assuming the
acquisition had been made at the beginning of each period presented, are:
| | ------------------------------------------------------------------------------------------------------------------------

| | Amounts in thousands, except per share amounts
| | ----------------------------------------------

|                                           | Year Ended
|------------------------------------------ | ----------
|
|Revenue                                    |           
|Net (Loss) Income                          |           
|Preferred Stock Dividends                  |           
|                                           |           
|Net Loss Applicable to Common Stockholders |           
|                                           |           
|Basic (Loss) Income Per Share              |           
|Diluted (Loss) Income Per Share            |           
|Common and equivalent shares outstanding:  |           
|Basic                                      |           
|Diluted                                    |           

43

---

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 2004, JUNE 1, 2003, AND JUNE 2, 2002

---

|15. |  | QUARTERLY FINANCIAL INFORMATION
|--- |  | -------------------------------

---

QUARTERLY FINANCIAL DATA
(Unaudited)
(Amounts in Thousands, Except Per Share Data)

---

|                              | FISCAL QUARTERS
|----------------------------- | ---------------
|
|Fiscal Year 2004:             |                
|Net Sales                     |                
|Gross Profit                  |                
|Loss Before Income Taxes      |                
|Net Loss Applicable to Common |                
|Stockholders                  |                
|Loss Per Share:               |                
|Basic                         |                
|Diluted                       |                
|Fiscal Year 2003:             |                
|Net Sales                     |                
|Gross Profit                  |                
|Loss Before Income Taxes      |                
|Net Loss Applicable to Common |                
|Stockholders                  |                
|Loss Per Share:               |                
|Basic                         |                
|Diluted                       |                

44

---

# ITEM 8 (b).   SUPPLEMENTARY FINANCIAL INFORMATION

Not Applicable.

# ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On February 5, 2004, the Board of
Directors of the Corporation, upon the recommendation of its Audit Committee, dismissed
Deloitte Touche LLP as the Corporations independent accountants and engaged Grant
Thornton LLP to serve as the Corporations independent accountants. Information
regarding the change in the Corporations principal accountants was provided in the
Corporations Current Report on Form 8-K, filed February 5, 2004. The letter from
Deloitte & Touche LLP stating the firms conclusions regarding the information
provided in the Current Report on Form 8-K was filed as an exhibit thereto.

# ITEM 9A.   CONTROLS AND PROCEDURES.

| | (a) |  | Evaluation of Disclosure Controls and Procedures
| | --- |  | ------------------------------------------------

| | Management, with the participation of the principal
executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of the
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this annual report. Based on this evaluation, the principal
executive officer and principal financial officer concluded that these disclosure controls and procedures are effective
and designed to ensure that the information required to be disclosed in the reports filed or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the requisite time periods.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with its audit of the Companys
consolidated financial statements for the year ended May 30, 2004, Grant Thornton LLP (Grant Thornton), the
Companys independent accountants, advised the Audit Committee and management of internal control matters with
respect to certain inventory transactions that they considered to be a material weakness as that term is defined under
standards established by the American Institute of Certified Public Accountants. The Company considered these matters in
connection with the year-end closing process and the preparation of the May 30, 2004 consolidated financial statements
included in this Form 10-K. In response to the observations made by Grant Thornton, the Company will implement certain
enhancements to its internal controls and procedures, which it believes address the matters raised by Grant Thornton.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Changes in Internal Control Over Financial Reporting
| | --- |  | ----------------------------------------------------

| | There was no change in the internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)
identified in connection with the evaluation of the internal control performed during the fourth quarter that has
materially affected, or is reasonable likely to materially affect, the internal control over financial reporting.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 9B.   OTHER INFORMATION

Not Applicable.

45

---

# 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 28, 2004 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 2004 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
General  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 28, 2004 and is expressly incorporated herein
by reference.

# ITEM 11.   EXECUTIVE COMPENSATION

The information called for by Item 402 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 28, 2004 Annual Meeting to be
filed within 120 days from the end of the Companys fiscal 2004, which information is expressly incorporated herein
by reference.

# ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by Item 201(d) and 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 28, 2004 Annual
Meeting to be filed within 120 days from the end of the Companys fiscal year 2004, which information is expressly
incorporated herein by reference.

# ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not Applicable.

# ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by Item 9(E) of schedule 14A under the
Security Exchange Act of 1934, to the extent applicable, will be set forth under the caption The Companys
Auditors in the Companys definitive proxy statement for its September 28, 2004 Annual Meeting to be filed
within 120 days from the end of the Companys fiscal year 2004, which information is expressly incorporated herein
by reference.

46

---

# PART IV.

# ITEM 15.   EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON 8-K

|(1) |  | The following financial statements are included in Part
II, Item 8:
|--- |  | -------------------------------------------------------------------

|                                                                                       | Page
|-------------------------------------------------------------------------------------- | ----
|                                                                                      
|Report of Independent Registered Public Accounting Firm  Grant Thornton LLP           |     
|                                                                                      
|Report of Independent Registered Public Accounting Firm  Deloitte & Touche LLC (Hana) |     
|                                                                                      
|Report of Independent Registered Public Accounting Firm  Deloitte & Touche LLP        |     
|                                                                                      
|Consolidated Financial Statements                                                      |     
|                                                                                      
| Balance Sheets, May 30, 2004 and June 1, 2003                                        |     
|                                                                                      
| Consolidated Statements of Operations for the Years                                  |     
|Ended May 30, 2004, June 1, 2003 and June 2, 2002                                      |     
|                                                                                      
| Consolidated Statements of Stockholders Equity for                                  |     
|the Years Ended May 30, 2004, June 1, 2003 and June 2, 2002                            |     
|                                                                                      
| Consolidated Statements of Cash Flows for the Years                                  |     
|Ended May 30, 2004, June 1, 2003 and June 2, 2002                                      |     
|                                                                                      
| Notes to Consolidated Financial Statements                                           |     

|(2) |  | The
Following financial statement schedule for the years ended May 30, 2004, June 1, 2003 and
June 2, 2002 is Submitted herein following the signature page of this report.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Schedule II  Valuation and Qualifying Accounts |  | 50 | 
|----------------------------------------------- |  | -- | 

| | 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 pursuant to Item 601 of Regulation
S-K to be filed with this report or incorporated by reference are listed in the Exhibit Index, which follows the
Financial Statement Schedules.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Reports on Form 8-K during three months ended May 30,
2004  The Company filed Form 8-K on March 23, 2004 reporting under Item 12 results for the quarter ended February
29, 2004.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47

---

# 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
|Date:   August 23, 2004 |                                                                   | By:               |  | /s/   Frederick M. Green | 
|                        |                                                                  
|                        | Frederick M. GreenPresident, 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 L. 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.

*Principal Financial Officer and Principal Accounting Officer

|Signature                     |  | Title                                      |  | Date           
|----------------------------- |  | ------------------------------------------ |  | ---------------
|                             
|/s/   Frederick M. Green      |  | President, Chief Executive                 |  | August 23, 2004
|                              |  | Officer and Director                       | 
|Frederick M. Green            |  |                                            | 
|                             
|/s/   Donald L. Henry         |  | Vice President, Treasurer, Chief Financial |  | August 23, 2004
|                              |  | Officer, Secretary and Controller*         | 
|Donald L. Henry               |  |                                            | 
|                             
|/s/   Marvonia Pearson Walker |  | Director                                   |  | August 23, 2004
|                              |  |                                            | 
|Marvonia Pearson Walker       |  |                                            | 
|                             
|/s/   Brian T. Chang          |  | Director                                   |  | August 23, 2004
|                              |  |                                            | 
|Brian T. Chang                |  |                                            | 
|                             
|/s/   John G. Kassakian       |  | Director                                   |  | August 23, 2004
|                              |  |                                            | 
|John G. Kassakian             |  |                                            | 
|                             
|/s/   David J. Larkin         |  | Director                                   |  | August 23, 2004
|                              |  |                                            | 
|David J. Larkin               |  |                                            | 
|                             
|/s/   Carol A. Barnett        |  | Director                                   |  | August 23, 2004
|                              |  |                                            | 
|Carol A. Barnett              |  |                                            | 
|                             
|/s/   John Colwell, Jr.       |  | Director                                   |  | August 23, 2004
|                              |  |                                            | 
|John Colwell, Jr.             |  |                                            | 
|                             
|                             

48

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*******************************************************************



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 30, 2004

*******************************************************************

# FINANCIAL STATEMENT
SCHEDULES

*******************************************************************

49

---

# SCHEDULE II
AULT INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

# Years Ended May 30, 2004, June 1, 2003, and June 2, 2002

|                                | Balance atBeginningof Period |  | Charged toCosts andExpenses |         | Deductions |   | Balance atEnd ofPeriod
|------------------------------- | ---------------------------- |  | --------------------------- | ------- | ---------- | - | ----------------------
|                               
|Year ended May 30, 2004:        |                              |  |                             |         |            |   |                       
|Allowance for doubtful accounts |                              |  | $                           | 500,000 |            | $ | 17,000                
|Reserve for warranties          |                              |  |                             | 134,000 |            |   | 14,000                
|Year ended June 1, 2003:        |                              | 
|Allowance for doubtful accounts |                              |  |                             | 320,000 |            |   | 230,000               
|Reserve for warranties          |                              |  |                             | 113,000 |            |   | 193,000               
|Year ended June 2, 2002:        |                              | 
|Allowance for doubtful accounts |                              |  |                             | 676,000 |            |   | 1,416,000             
|Reserve for warranties          |                              |  |                             | 133,000 |            |   | 133,000               

(a)    Represents charge-off of
accounts receivable, net of recoveries.

50

---

*******************************************************************

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 30, 2004

*******************************************************************

# EXHIBITS

*******************************************************************

51

---

# AULT INCORPORATED

# EXHIBIT INDEX TO
FORM 10-K FOR THE YEAR ENDED
May 30, 2004

Required Registration S-K
Exhibit Items

|SK Item |  | Title of Documents                       |  | Location                                                            | 
|------- |  | ---------------------------------------- |  | ------------------------------------------------------------------- | 
|       
|3(a)    |  | Restated Articles of Incorporation, as   |  | Filed as Exhibit 3(a) to Form 10-K for fiscal 1988 and incorporated | 
|        |  | amended                                  |  | 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 Incorporation   |  | Filed herewith as Exhibit 3(c) Fiscal 1999                          | 
|       
|4.1     |  | Rights Agreement                         |  | Filed electronically on Form 8-K for March 1996 and incorporated    | 
|        |  | herein by reference                      | 
|       
|10.1    |  | Management Incentive Compensation Plan   |  | Filed as Exhibit 10(b) to Registration Statement 2-85224 and        | 
|        |  |                                          |  | incorporated herein by reference                                    | 
|       
|10.2    |  | 1986 Employee Stock Option Plan          |  | Filed as Exhibit 10(c) to Form 10-K for fiscal 1987 and             | 
|        |  |                                          |  | incorporated herein by reference                                    | 
|       
|10.3    |  | Employee Stock Purchase Plan             |  | Filed electronically. Commission File #333-4609 and herein          | 
|        |  |                                          |  | incorporated by reference                                           | 
|       
|10.4    |  | 1986 Employee Stock                      |  | Filed electronically. Commission File #333-4609 and herein          | 
|        |  | Option Plan, Amended                     |  | incorporated by reference                                           | 
|       
|10.5    |  | 1996 Employee Stock                      |  | Filed electronically. Commission File #333-4609 and herein          | 
|        |  | Option Plan                              |  | incorporated by reference                                           | 
|       
|21      |  | Subsidiary of Registrant                 |  | Filed as Exhibit 21 to Form 10-K for fiscal 1997 and incorporated   | 
|        |  |                                          |  | herein by reference                                                 | 
|       
|23.1    |  | Consent of Independent Auditors          |  | Filed herewith at page 53                                           | 
|       
|23.2    |  | Consent of Independent Auditors          |  | Filed herewith at page 54                                           | 
|       
|31.1    |  | Certification of the Chief Executive     |  | Filed herewith at page 55                                           | 
|        |  | Officer pursuant to Section 302 of the   | 
|        |  | Sarbanes-Oxley Act of 2002 (Rules 13a-14 | 
|        |  | and 15d-14 of the Exchange Act).         | 
|       
|31.2    |  | Certification of the Chief Financial     |  | Filed herewith at page 56                                           | 
|        |  | Officer pursuant to Section 302 of the   | 
|        |  | Sarbanes-Oxley Act of 2002 (Rules 13a-14 | 
|        |  | and 15d-14 of the Exchange Act).         | 
|       
|32      |  | Certifications pursuant Section 906 of   |  | Filed herewith at page 57                                           | 
|        |  | the Sarbanes-Oxley Act of 2002 (18       | 
|        |  | U.S.C.ss.1350).                          | 

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.

52

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