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 JUNE 1, 2003

                         Commission File Number 0-12611

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

           MINNESOTA                                41-0842932
(State or other jurisdiction of                   (IRS Employer
incorporation or organization)                Identification Number)

              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 8-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [_]

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 $9,749,000 based upon the closing price of the
Company's common stock on the NASDAQ National Market on September 4, 2003,
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 September 4, 2003, there were outstanding 4,665,774 shares of the
Registrant's common stock.

The Form 10-K consists of 56 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 October 16, 2003 are incorporated by reference into Part III.


                                       1

<PAGE>


                                AULT INCORPORATED

                                    FORM 10-K
                     FOR THE FISCAL YEAR ENDED JUNE 1, 2003

                                     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 have been familiarized with the
additional products and seasoned 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 is anticipated to take up to four months to complete to ensure
continuing service to Ault's global customer base. The consolidation was
implemented to reduce expenses, improve cash flow and return the Company to
profitability. Ault's management estimates that the consolidation will reduce
expenses by approximately $1.3 million annually.

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.corporate-ir.net/ireye/ir_site.zhtml?ticker=AULT&script=1901.

(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


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<PAGE>

devices. Both product configurations, external and internal, offer distinct
advantages to the OEM buyer. Internal power 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 to meet their requirements. 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 June 1, 2003:

                               SALE OF PRODUCTS BY CATEGORY
                              AS A PERCENTAGE OF TOTAL SALES

                                                     Years Ended

            Product Type                  June 1,       June 2,     June 3,
                                           2003          2002        2001

            Switching Power Supplies        54%           48%         39%
            Linear Power Supplies           30            32          41
            Transformers                     6            11          12
            Battery Chargers                 7             9           8
            DC/DC Converters                 3
            Total                          100%          100%        100%

         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, switchers), 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


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<PAGE>

                  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.

         *        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,
                  coupled with the high-efficiency DC/DC converters manufactured
                  by Magnetek under private label arrangements that the Company
                  introduced in fiscal 2002, 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.

         *        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


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<PAGE>

                  miscellaneous uses (5%). The first product, the TR75 single
                  output mobile adapter (75 watts) was introduced in March.

(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, personal information
         appliances, computer peripherals, medical applications, 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 in customizing a broad range of products to meet
         customer requirements, the Company believes it is well positioned to
         serve the needs of its OEM customers as they respond to these trends
         and competitive factors.

         Historically, the most significant market for the Company's products
         has been OEMs of telecommunications/data communications equipment
         (broadband modems, wireless and wire line); in fiscal 2003 sales in
         this market represented approximately 43% of net sales. The Company's
         products include 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), 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 2003, the telecommunications industry overall remained
         sluggish as OEMs in this market segment continued to downsize,
         restructure and move inventory. While the Company did not lose any OEM
         customers, all of them experienced severe cutbacks in revenue
         generation, employee resources and the execution of new
         designs/projects. A couple of telecommunication segments, however, did
         remain 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 has plans to formally introduce a single-port
         Power-over-Ethernet power supply in the first quarter that combines
         power through integrated RJ45 jacks as well as data over a single CAT 5
         Ethernet cable. Custom versions of this 20-watt product have already
         been shipped in late fiscal 2003 to several leading OEMs in the
         wireless and networking industries.

         Approximately 14% of net sales in fiscal 2003 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 2003 approximately 2% 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 2003, approximately 16% of the Company's net
         sales were to our distributors 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 outlined here.

         The balance of approximately 25% of the Company's net sales in fiscal
         2003 was to OEMs of various kinds of industrial equipment, including
         digital cameras, flat panel displays and mine safety devices, as well
         as military/aerospace applications such as secure-line telephones.

(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


                                       5
<PAGE>

         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 125 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.

(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)      INNOVATIVE TEAM APPROACH

         The Company uses a team-based organizational structure consisting of
         six teams. The Company's customer base is divided into five
         geographical regions with a specific Ault team assigned to manage the
         needs of customers in each


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         region. A sixth team, Ault New Business, manages the requirements of
         customers who have orders below $60,000 annually as well as qualifying
         new business opportunities in the United States. A coordinator that is
         selected by the Company's President leads each customer team. The teams
         consist of people from all areas of the business, including
         salespersons from manufacturer representative organizations and
         national distributors as well as the Company's own production
         personnel, engineers, technicians, administrative personnel and others.
         Guided by a written statement of corporate values, these teams are
         charged with responsibility for all aspects of the customer
         relationship, including sales, manufacturing, design engineering and
         other support functions with a view to achieving continuous
         improvements in customer service. The Company believes that its
         innovative implementation of this team-based organizational structure
         provides competitive advantages by increasing communication with
         customers as well as facilitating responsiveness to the needs of the
         Company's diverse worldwide customer base.

(7)      COMPETITION

         The Company competes primarily with various manufacturers of external
         power conversion products. The industry is highly fragmented, with
         manufacturers generally focusing their marketing on specific segments.
         The Company has experienced strong competition from Taiwanese-based
         manufacturers principally on price. Many of these competitors have a
         smaller presence in the external conversion market than the Company,
         although several are engaged in more than one business and have
         significantly greater financial resources.

         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 Engineering Design Sales,
         Inc. and Xenotronics Company for battery chargers.

         The Company competes on the basis of the quality and performance of its
         products, the breadth of its product line, customer service, 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
         presence of Ault Korea, Ault China and the arrangements with
         subcontract manufacturers in China and Thailand allow 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 Company has seen a variety of
         competitors for internal AC/DC power supplies including 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


                                       7
<PAGE>

         these high-efficiency models is the telecommunication industry and
         since this segment has suffered severely in the down economy, there has
         been little business generated 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.

(8)      MANUFACTURING AND SOURCES OF SUPPLY

         The Company's manufacturing operations consist of assembly and
         integration of electronic components to meet product specifications and
         design requirements for a variety of power conversion applications.
         Manufacturing is currently conducted at the Company's facilities in
         Seoul, South Korea; Xianghe, China; Shanghai, China and at four
         locations in China and Thailand using subcontract manufacturers. Ault
         has typically manufactured prototypes and low-volume products at its
         facility in Minneapolis, Minnesota.

         As mentioned earlier, the Company announced the consolidation of its
         manufacturing operations on July 17, 2003. The consolidation includes
         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. The plan integrates production into
         Ault's other manufacturing plants. Ault headquarters will continue to
         provide prototypes and engineering builds as part of its engineering
         support services. The consolidation is anticipated to take up to four
         months to complete in order to ensure continuing service to Ault's
         global customer base.

         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.

(9)      SIGNIFICANT CUSTOMERS: BACKLOG

         The Company sells its products to over 400 customers, and it is the
         Company's objective to maintain a diversified customer base to avoid,
         where practicable, dependence upon a single customer. In fiscal 2003,
         2002, and 2001, no customers accounted for more than 10% of sales.

         The Company's order backlog at June 1, 2003 totaled $13,850,000
         compared to $9,310,000 at June 2, 2002. The order backlog represents
         sales for approximately 16 weeks.

         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.


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<PAGE>

(10)     WARRANTIES

         The Company provides up to a three-year parts and labor warranty
         against defects in materials or workmanship on all of its products.
         Servicing and repairs are conducted at the Company's manufacturing
         facilities in Minneapolis and South Korea. The Company's warranty
         expenses have not been significant.

(11)     PATENTS

         The Company holds no significant patents.

(12)     SEASONALITY

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


(13)     EMPLOYEES

         As of July 7, 2003, the Company employed approximately 504 full-time
         employees at its facilities as follows:

                                       South
                                        Korea    China      US      Total

         Manufacturing                    71      237       33       341
         Engineering                      11       10       29        50
         Marketing                         9       10       11        30
         General and Administrative        8       50       25        83
                                        ----     ----     ----     -----

         Total                            99      307       98       504

         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.


(14)     EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
                  Name                     Age     Position                                                      Officer Since
                  <S>                      <C>     <C>                                                               <C>
                  Frederick M. Green       60      President and Chief Executive Officer and Director                1980
                  Donald L. Henry          47      Vice President, Treasurer, Chief Financial Officer                1999
                                                   and Assistant Secretary (Previously 11 years with Abbott
                                                   Laboratories, most recently: Controller Fermentation
                                                   Operations, Controller Corporate Plant engineering,
                                                   Financial Planning and Analysis Manager)
                  Xiaodong Wang            45      Vice President - Asia Pacific (Previously 2 years with            2000
                                                   XD Company as CEO and President and 7 years with Simplot
                                                   Company most recently:  General Manager of China
                                                   Operations, International Project Manager)
                  Gregory L. Harris        50      Vice President - Business Development                             1988
</TABLE>




                                       9
<PAGE>

(15)     RISK FACTORS

         The following risk factors are relevant to an understanding of the
         business matters discussed herein:

         *        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 SUCH 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."


                                       10
<PAGE>

         *        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 WE ACTIVELY TRAIN AND TECHNICALLY ASSIST THE INDIVIDUAL
                  SALES REPRESENTATIVES REPRESENTING OUR PRODUCTS, A REDUCTION
                  IN THE SALES EFFORTS BY OUR CURRENT MANUFACTURER
                  REPRESENTATIVES AND DISTRIBUTORS OR TERMINATION OF THEIR
                  RELATIONSHIPS WITH US COULD ADVERSELY AFFECT OUR SALES AND
                  OPERATIONS. The Company markets and sells products primarily
                  through independent manufacturer representatives and
                  distributors that are not under our direct control. We employ
                  a limited number of internal sales personnel.

         *        TO SATISFY CUSTOMER DEMAND AND TO OBTAIN GREATER PURCHASING
                  DISCOUNTS, WE CARRY INCREASED INVENTORY LEVELS OF CERTAIN
                  PRODUCTS. Our financial results may be adversely affected when
                  our inventory exceeds the demand for those products. Our 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 our
                  financial results.

         *        A PROLONGED REDUCTION IN DEMAND FOR OUR PRODUCTS WILL CONTINUE
                  TO IMPACT OUR FINANCIAL SUCCESS. In fiscal year 2002, our
                  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. A
                  further decline in the telecommunications and data
                  communications markets may have the effect of further reducing
                  our revenue.

         *        OUR FINANCING AGREEMENTS CONTAIN RESTRICTIVE COVENANTS WITH
                  WHICH WE MAY NOT BE ABLE TO COMPLY. We have entered into a
                  financing agreement that contains restrictive financial
                  covenants. These covenants require us, 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, our actual capital
                  base did not meet the minimum capital base of the covenant.
                  The Company has received a waiver and amendment for this
                  covenant. We believe the covenants with the amendment are
                  achievable based on our expected operating results. Our
                  ability to comply with restrictive financial covenants depends
                  upon our future operating performance. Our future operating
                  performance depends, in part, on general industry conditions
                  and other factors beyond our control.

         *        CIVIL UNREST, LABOR DISRUPTIONS, OR ACTS OF AGGRESSION COULD
                  IMPEDE OUR ABILITY TO OPERATE IN OUR FOREIGN LOCATIONS AND
                  WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE BUSINESS
                  AND CONSEQUENTLY, OUR OPERATING RESULTS. Manufacturing occurs
                  at our 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 us to compete worldwide against other
                  suppliers of external power conversion products, it also
                  involves risks. While, our 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.


                                       11
<PAGE>

(d)      FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
         AND EXPORT SALES

Export sales by Ault's U.S. operations in fiscal year 2003 represented 15.2% of
the Company's gross sales, most of which were to OEMs in Europe and Canada. All
other revenues were derived from sales in the U.S. For other financial
information about foreign and domestic operations and export sales including the
amount of export sales for the last 3 years, refer to "Note 9 - Segment
Information and Foreign Operations" under NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.

ITEM 2.  PROPERTIES

The Company owns and occupies its headquarters and U.S. manufacturing 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 occupies a 9,000-square-foot leased facility in
Shanghai, China.

Management considers all of the Company's properties to be well maintained, and
current manufacturing arrangements, including subcontract arrangements in China
and Thailand, are believed to be adequate for manufacturing requirements.

ITEM 3.  LEGAL PROCEEDINGS

No material litigation or other claims are presently pending against the
Company.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


                                       12
<PAGE>

                                    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 2003 and 2002.


                              Fiscal 2003                  Fiscal 2002
                              -----------                  -----------
                             $           $                $           $
          Quarter          High         Low              High        Low

            1st            4.840       3.000            6.110       5.050
            2nd            3.010       1.610            5.338       3.500
            3rd            2.550       1.700            4.700       3.660
            4th            2.080       1.660            5.050       4.000

(b)      Holders

As of September 4, 2003 there were 287 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.



                                       13
<PAGE>

ITEM 6.  SELECTED FINANCIAL SUMMARY

(Amounts in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                     YEARS ENDED
                                                June 1,     June 2,    June 3,     May 28,     May 30,
                                                 2003        2002        2001       2000        1999
                                                  (1)                    (2)         (3)
<S>                                            <C>         <C>         <C>        <C>         <C>
Net sales                                      $ 41,479    $ 41,032    $ 85,692   $ 67,913    $ 52,013
Gross profit                                      8,419       7,944      18,657     16,236      14,018
Operating expenses                               15,930      11,968      15,228     13,001      11,426

   Operating income (loss)                       (7,511)     (4,024)      3,429      3,235       2,592

Nonoperating income (expense)                      (393)       (234)        172       (311)        256

Income (loss) before income taxes                (7,904)     (4,258)      3,601      2,924       2,848

  Income tax expense (benefit)                     (340)       (694)      1,355      1,061         860
  Cumulative effect of accounting
      change, net of tax                                                    (50)
  Preferred stock dividends                        (128)
Net income (loss) applicable to
    common stock                               $ (7,692)   $ (3,564)   $  2,196   $  1,863    $  1,988
Net income (loss) per share:
   Basic                                       $  (1.67)   $  (0.78)   $   0.49   $   0.42    $   0.47
   Diluted                                        (1.67)      (0.78)       0.47       0.40        0.45

Total assets                                   $ 33,065    $ 36,697    $ 43,457   $ 46,256    $ 33,303
Property, plant and equipment, net               13,283      12,442      12,576     10,537       6,808
Working capital                                   8,431      14,084      17,840     17,708      16,364
Long-term debt, less current maturities           2,483       2,754       3,035      3,657       1,187
Stockholders' equity                             17,319      24,753      28,129     25,805      23,442

</TABLE>

         (1)      The 2003 results include a goodwill impairment charge of
                  $1,153.
         (2)      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).
         (3)      The 2000 results include a gain on the disposition of the
                  Korean facility of $1,525.


                                       14
<PAGE>

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.

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.

DEFERRED TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, which requires that deferred tax assets and liabilities be
recognized using enacted tax rates for the effect of temporary differences
between book and tax basis of recorded assets and liabilities. SFAS No. 109 also
requires that deferred tax assets be 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.


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
stock of $7,692,073 in 2003 and $3,563,726 in 2002 and at June 1, 2003 had an
accumulated deficit of $2,775,398. The Company utilized $3,179,410 of cash for
operating activities in 2003. Future operations require the Company to borrow
additional funds. The Company has a financing agreement, which includes a
$1,250,000 line-of-credit agreement through April 30, 2005. There was not an
outstanding balance on this line-of-credit at June 1, 2003, however, during
fiscal 2003 the Company violated the financing agreements covenants and
subsequent to year-end received a waiver and an amended agreement with less
restrictive covenants. The Company believes they can remain in compliance with
the agreement, as amended, throughout fiscal 2004. The Company is taking 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


                                       15
<PAGE>

maintenance, procurement and administrative support and the integration of
production into Ault's other manufacturing plants. Ault's engineering,
documentation, safety certification/reliability, sales, marketing and
administrative services will remain at the Minneapolis headquarters facility.
The consolidation is anticipated to take up to four months to complete to ensure
continuing service to Ault's global customer base.

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

The following table summarizes the Company's working capital position at June 1,
2003 and at June 2, 2002:

                                                   June 1,         June 2,
                                                    2003            2002
                                                  --------        --------
                                                   ($000)          ($000)
Working capital                                     8,431          14,084
Cash and cash equivalents                           1,100           4,775
Unutilized bank credit facilities                   2,297           4,975
Cash provided by (used in) operations             (3,179)           3,559

CURRENT WORKING CAPITAL POSITION

At June 1, 2003, the Company had current assets of $19,448,000 and current
liabilities of $11,017,000 representing working capital of $8,431,000 and a
current ratio of 1.8. This represents a decrease in working capital from
$14,084,000 at June 2, 2002. 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 June 1, 2003.

CASH AND INVESTMENTS: At June 1, 2003, the Company had cash and securities
totaling $1,100,000, down from $4,775,000 at June 2, 2002. This decrease in cash
was principally due to the net loss from operations.

CREDIT FACILITIES: The Company maintains credit facilities with Associated Bank
and with Korea Exchange Bank. See Note 5, under NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.

The credit arrangement with Associated Bank is an asset-based credit facility of
$1.25 million, secured by company assets. At June 1, 2003, there were no
borrowings against this facility. The financing agreement contains restrictive
financial covenants. These covenants require the Company, among other things, to
maintain a minimum capital base, and also impose certain limitations on
additional capital expenditures and the payment of dividends. At the end of
fiscal 2003, the Company's actual capital base did not meet the minimum capital
base of the credit agreement. The Company has received a waiver and amendment
for this covenant. Following the August 29, 2003 amendment, the Company believes
the provisions imposed by this credit agreement are achievable based on the
Company's expected operating results for the next year.

The South Korean credit facility is approximately $4.15 million of which
borrowings at June 1, 2003 totaled $3,103,594.

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.


                                       16
<PAGE>

         (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 provided 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.

CASH FLOWS FOR FISCAL 2002

OPERATIONS: Operations provided $3,559,000 of cash during fiscal 2002 due
principally to the following activities:

         (a)      The loss net of depreciation of $972,000, amortization of
                  $100,000, inventory write-off of $999,000, and bad debt
                  reserve of $1,416,000, in total used cash of $77,000.
         (b)      Decreases in trade receivables due to the decreased net sales
                  provided $3,322,000.
         (c)      Decreases in inventories net of obsolescence write-downs
                  provided $3,227,000. The decreases are due to the decreased
                  net sales.
         (d)      Decreases in accrued expenses and accounts payable used
                  $3,087,000 of cash from liabilities associated with purchases
                  of material to support customer orders.

INVESTING ACTIVITIES: Investing activities used net cash of $839,000 mainly
relating to the completion of the new manufacturing/office facility in Korea.

FINANCING ACTIVITIES: Financing activities used net cash of $1,674,000,
comprising:

         (a)      Payments of the Korean line of credit used $1,211,000.
         (b)      Payments of long-term debt used $585,000.
         (c)      Proceeds from stock options exercised provided $122,000.

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 $6,000 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.


RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 1, 2003

                                                      Increase  /  (Decrease)
                            Fiscal       Fiscal       -----------------------
         ($000)             2003         2002         Amount      Percent
                            -------------------------------------------------
         Net Sales          $41,479      $41,032        $447        1%
         Operating Loss      (7,511)      (4,024)     (3,487)     (87)

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.


                                       17
<PAGE>

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.

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. The Company
expects approximately $1,732,000 of this expense will continue in fiscal 2004.
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
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. 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 US loss
carrybacks but no benefit for the $3,600,000 US 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.

FISCAL YEAR ENDED JUNE 2, 2002

                                                      Increase  /  (Decrease)
                            Fiscal       Fiscal       -----------------------
         ($000)             2002         2001         Amount      Percent
                            -------------------------------------------------
         Net Sales          $41,032      $85,692    $(44,660)     (52)%
         Operating Income
           (Loss)            (4,024)       3,429      (7,453)    (217)

Net sales were $41,032,000 for fiscal 2002, down 52% from $85,692,000 for fiscal
2001. The decrease was due to significantly lower power supply shipments to
major OEMs of telecommunication/data communication equipment of $40,071,000 and
computer and computer peripheral equipment of $9,752,000 primarily due to the
economic slowdown. The decrease was partially offset by an increase in shipments
to the medical markets of $2,099,000 and the industrial markets of $3,064,000.

The gross margin for fiscal 2002 was 19.4%, compared to 21.8% for fiscal 2001.
Margins were decreased primarily due to an inventory write-down of $999,000 due
to the identification of obsolete inventory caused by the continued economic
slowdown.


                                       18
<PAGE>

Operating expenses decreased in fiscal 2002 to $11,968,000 compared to
$15,228,000 in fiscal 2001 primarily due to the following factors: First, the
decreased sales decreased the commission expense of the Company by $1,120,000.
Second, the Company has been decreasing expenses and increasing efficiencies
during fiscal 2002, which decreased the operating expenses by $2,993,000. Third,
these items were offset by increased bad debt expense of $818,000.

The Company's order backlog at June 2, 2002 totaled $9,310,000 compared to
$10,792,000 at June 3, 2001.

Nonoperating expense is $234,000 for fiscal 2002 compared to nonoperating income
of $172,000 for the same period in fiscal 2001. The decrease in income is
primarily from (1) the gain on the sale of securities in fiscal 2001 of $56,000,
and (2) currency exchange rate gains by the Korean subsidiary of $400,000 less
in fiscal 2002 as compared to fiscal 2001. The Company incurred interest
expenses of $495,000 in fiscal 2002 and $537,000 in fiscal 2001. The decrease is
due to the decrease in bank debt in Korea.

The effective tax rate was a benefit of 16.3% for fiscal year 2002 compared to
an expense of 37.6% for fiscal year 2001, and expense of 36.3% for fiscal year
2000. The benefit in 2002 reflects the utilization of the US loss carrybacks but
no benefit for any foreign losses due to a full valuation allowance has been set
up for the loss carryforwards due to the determination that currently the
realization is not more likely than not.

INFORMATION ABOUT PRODUCTS AND SERVICES: The Company's business operations are
composed of principally one activity--the design, manufacture and sale of
equipment for converting electric power to a level used by OEMs principally in
computer peripherals, data communications/telecommunications and medical markets
to charge batteries and/or power equipment. The Company supports these power
requirements by making available to the OEM products that have various technical
features. These products are managed as one product segment under the Company's
internal organizational structure, and the Company does not consider any
financial distinctive measures, including net profitability and segmentation of
assets, to be meaningful to performance assessment.

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 the Seller is convertible into 488,000
shares of the Company's common stock. In addition, in lieu of paying a cash
dividend, the Company may issue shares of its common stock to pay the quarterly
dividend payable on outstanding shares of Preferred Stock. During fiscal 2003,
the Company issued 51,177 shares of its common stock in lieu of paying cash
dividends to the holder of the Preferred 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.
The Company maintains Power General's engineering group in Massachusetts and
moved Power General's manufacturing operations and related functions to Ault's
other facilities in North America and Asia.

INFORMATION ABOUT REVENUE BY GEOGRAPHY

Distribution of 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:


                                       19
<PAGE>

                                                        Fiscal Year Ended
                                                   June 1,           June 2,
                                                      2003              2002
                                                    ($000)            ($000)
                                                    ------            ------

         U.S.                                      $26,352           $27,693
         Canada                                        819             1,041
         Ireland                                        89               632
         Korea                                       5,483             4,952
         Belgium                                         5               215
         China                                       5,302             2,686
         Other Foreign                               3,429             3,813
                                                   -------           -------
         Total                                     $41,479           $41,032
                                                   =======           =======

The Company considers a country to be the geographic source of revenue if it has
contractual obligations, including obligation to pay for trade receivable
invoices.

IMPACT OF FOREIGN OPERATIONS AND CURRENCY CHANGES

Products manufactured by the Korean subsidiary 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 June 1, 2003 (in thousands):

                             Payments due by Period

                                     Less than     1-3        4-5       After
                              Total    1 year      years     years     5 years
Contractual Obligations:
Long-term debt               $3,043     $560       $335       $372     $1,776
Operating leases                949      229        379        340
        Total contractual
           obligations       $3,992     $789       $714       $712     $1,776


                                       20
<PAGE>

ACCOUNTING PRONOUNCEMENTS

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS. SAB No. 101 summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
selected revenue recognition issues. As a result, the Company changed the method
of accounting for certain sales transactions. Historically, the Company
recognized revenue upon shipment of products to certain international customers
because, even though some products were shipped FOB destination, we used a
common carrier and thus gave up substantially all the risks of ownership. Under
the new accounting method adopted retroactive to May 29, 2000, the Company now
recognizes revenue at the time risk of ownership passes. The cumulative effect
of the change on prior years resulted in a charge to income of $50,000 (net of
taxes of $27,000) for the year ended June 3, 2001.

In June 2001, the Financial Accounting Standards Board (FASB) approved for
issuance SFAS No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 and that the
use of the pooling-of-interest method is no longer allowed. The adoption of SFAS
141 did not have an impact on the Company's statements of consolidated
operations, financial position or cash flows. 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,
2001 and 2000 the amortization expense was $100,000 each year. On June 3, 2002,
we 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.

In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO
BE DISPOSED OF, and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS--REPORTING
THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS AND EXTRAORDINARY, UNUSUAL
AND INFREQUENTLY OCCURRING TRANSACTIONS. SFAS No. 144 requires that long-lived
assets to be disposed of be measured at the lower of carrying amount or fair
value less cost to sell. The Company adopted SFAS No. 144 on June 3, 2002 and it
did not have an effect on its financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES, which nullifies EITF Issue No. 94-3. SFAS No. 146
is effective for exit and disposal activities that are initiated after December
31, 2002 and requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, in contrast to
the date of an entity's commitment to an exit plan, as required by EITF Issue
94-3. The Company adopted SFAS No. 146 effective January 1, 2003 and it did not
have an impact on its financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION - TRANSITION AND DISCLOSURE, which amends SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require more prominent and more
frequent disclosures in financial statements of the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
No. 148 are effective for fiscal years ending after December 15, 2002. The
interim disclosure provisions are effective for financial reports containing
condensed financial statements for interim periods beginning after December 15,
2002. The adoption of SFAS No. 148 did not have an impact on the Company's
consolidated balance sheet or results of operations.

In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS No. 150
establishes standards for issuer classification and measurement of certain
financial instruments with characteristics of both liabilities and equity.
Instruments that fall within the scope of SFAS


                                       21
<PAGE>

No. 150 must be classified as a liability. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003. For financial
instruments issued prior to June 1, 2003 SFAS No. 150 is effective for the
Company in the second quarter of fiscal year 2004. Management is assessing the
impact that SFAS No. 150 may have on the Company's financial statements.

In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN 45 elaborates on the disclosures to be
made by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The recognition and measurement provisions
of this Interpretation are effective for all guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company has made the additional required disclosures in this report;
see Note 3 regarding product warranty liability. The Company has no guarantees
of others which require disclosure.

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 $23,000 for fiscal 2003, and an
exchange gain $100,000 for fiscal 2002, and a $500,000 gain for fiscal 2001.

As of June 1, 2003, the Company only had fixed rate debt outstanding. Thus,
interest rate fluctuations would not impact interest expense or cash flows. If
the Company were to undertake additional debt, interest rate changes could
impact earnings and cash flows.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

(a)      Financial Statements
           Index to Consolidated Financial Statements
                                                                            Page

         *    Independent Auditors' Report                                   23

         *    Consolidated Balance Sheets, June 1, 2003 and June 2, 2002     24

         *    Consolidated Statements of Operations for the Years Ended
              June 1, 2003, June 2, 2002, and June 3, 2001                   26

         *    Consolidated Statements of Stockholders' Equity for the
              Years Ended June 1, 2003, June 2, 2002, and June 3, 2001       27

         *    Consolidated Statements of Cash Flows for the Years Ended
              June 1, 2003, June 2, 2002, and June 3, 2001                   28

         *    Notes to Consolidated Financial Statements                     29

(b)      Supplemental Financial Information

         *    Quarterly Financial Data                                       44








                                       22
<PAGE>











                          INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Ault
Incorporated and Subsidiaries (the Company) as of June 1, 2003 and June 2, 2002
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended June 1, 2003.
Our audits also included 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 the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
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 June 2, 2002 and the results of their operations and
their cash flows for each of the three fiscal years in the period ended June 1,
2003, 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.

As discussed in Note 4 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 5)




                                       23
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 1, 2003 AND JUNE 2, 2002

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS                                                          JUNE 1,      JUNE 2,
                                                                 2003         2002
<S>                                                          <C>           <C>
CURRENT ASSETS:
     Cash and cash equivalents                               $ 1,099,602   $ 4,775,190
     Trade receivables, less allowance for doubtful
         accounts of $500,000 in 2003; $320,000 in
         2002 (Note 13)                                        7,417,098     7,012,451
     Inventories (Note 2)                                      9,867,943     8,501,505
     Prepaid and other expenses                                1,064,065     2,299,333
     Deferred tax asset (Note 6)                                               251,800
                                                             -----------   -----------
          Total current assets                                19,448,708    22,840,279

OTHER ASSETS:
     Goodwill (Note 4)                                                       1,153,153
     Other                                                       332,902       261,309
                                                             -----------   -----------
                                                                 332,902     1,414,462

PROPERTY, PLANT AND EQUIPMENT:
     Land                                                      1,734,674     1,704,285
     Building and leasehold improvements                       7,845,238     7,780,394
     Machinery and equipment                                   8,961,099     7,586,102
     Office furniture and equipment                            1,887,099     1,479,416
     Data processing equipment                                 2,226,545     2,234,154
                                                             -----------   -----------
                                                              22,654,655    20,784,351

         Less accumulated depreciation                         9,371,348     8,342,105
                                                             -----------   -----------
                                                              13,283,307    12,442,246
                                                             -----------   -----------
                                                             $33,064,917   $36,696,987
                                                             ===========   ===========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       24
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 1, 2003 AND JUNE 2, 2002

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY                                 JUNE 1,          JUNE 2,
                                                                      2003             2002
<S>                                                               <C>             <C>
CURRENT LIABILITIES:
    Note payable to bank (Note 5)                                 $  3,103,594    $  2,889,636
    Current maturities of long-term debt (Note 5)                      560,110         281,507
    Accounts payable                                                 5,695,507       4,717,356
    Accrued compensation                                             1,162,348         434,799
    Accrued commissions                                                300,203         285,578
    Other                                                              195,537         147,864
                                                                  ------------    ------------
                 Total current liabilities                          11,017,299       8,756,740

LONG-TERM DEBT, less current maturities (Note 5)                     2,483,254       2,753,747
DEFERRED TAX LIABILITY(Note 6)                                          23,242         273,639
RETIREMENT AND SEVERANCE BENEFITS (Note 1)                             147,808         160,129

COMMITMENTS AND CONTINGENCIES (Note 11)

REDEEMABLE CONVERTIBLE PREFERRED STOCK
     No par value, 2,074 shares issued and outstanding (Note 8)      2,074,000

STOCKHOLDERS' EQUITY (Notes 7, 9, and 10):
    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 4,648,499 shares in 2003;
        4,563,610 shares in 2002                                    21,026,162      20,857,629
    Notes receivable arising from the sale of common stock             (45,000)       (100,000)
    Accumulated other comprehensive loss                              (886,450)       (921,572)
    (Accumulated deficit)/retained earnings                         (2,775,398)      4,916,675
                                                                  ------------    ------------
                 Total stockholders equity                          17,319,314      24,752,732
                                                                  ------------    ------------
                                                                  $ 33,064,917    $ 36,696,987
                                                                  ============    ============
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       25
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                         JUNE 1,        JUNE 2,           JUNE 3,
                                                          2003           2002              2001
<S>                                                   <C>             <C>             <C>
NET SALES                                             $ 41,479,010    $ 41,031,854    $ 85,691,580

COST OF GOODS SOLD                                      33,060,018      33,087,745      67,034,317
                                                      ------------    ------------    ------------
              Gross profit                               8,418,992       7,944,109      18,657,263

OPERATING EXPENSES:
     Marketing                                           4,933,895       3,548,104       6,016,358
     Design engineering                                  4,225,627       2,393,899       2,881,898
     General and administrative                          5,617,704       6,025,791       6,329,300
     Goodwill impairment                                 1,153,153
                                                      ------------    ------------    ------------
                                                        15,930,379      11,967,794      15,227,556
                                                      ------------    ------------    ------------
OPERATING (LOSS) INCOME                                 (7,511,387)     (4,023,685)      3,429,707

NONOPERATING INCOME (EXPENSE):
     Interest expense                                     (434,714)       (495,356)       (536,890)
     Interest income                                        24,894          93,482         162,126
     Other                                                  17,176         167,707         546,432
                                                      ------------    ------------    ------------
                                                          (392,644)       (234,167)        171,668
                                                      ------------    ------------    ------------
INCOME (LOSS) BEFORE INCOME TAXES                       (7,904,031)     (4,257,852)      3,601,375

INCOME TAX EXPENSE (BENEFIT) (Note 6)                     (340,200)       (694,126)      1,355,191
                                                      ------------    ------------    ------------
NET INCOME (LOSS) BEFORE ACCOUNTING CHANGE              (7,563,831)     (3,563,726)      2,246,184

CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
   NET OF TAX                                                                              (49,995)
                                                      ------------    ------------    ------------
NET INCOME (LOSS)                                       (7,563,831)     (3,563,726)      2,196,189

PREFERRED STOCK DIVIDENDS                                 (128,242)
                                                      ------------    ------------    ------------

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK          $ (7,692,073)   $ (3,563,726)   $  2,196,189
                                                      ============    ============    ============

EARNINGS (LOSS) PER SHARE (Note 1):
     Basic:
         Net income (loss) before accounting change   $      (1.67)   $      (0.78)   $       0.50
         Cumulative effect of accounting change                                              (0.01)
                                                      ------------    ------------    ------------
         Basic earnings (loss) per share              $      (1.67)   $      (0.78)   $       0.49
                                                      ============    ============    ============
     Diluted:
         Net income (loss) before accounting change   $      (1.67)   $      (0.78)   $       0.48
         Cumulative effect of accounting change                                              (0.01)
                                                      ------------    ------------    ------------
         Diluted earnings (loss) per share            $      (1.67)   $      (0.78)   $       0.47
                                                      ============    ============    ============

     Weighted average common shares outstanding:
         Basic                                           4,596,882       4,541,322       4,493,120
         Diluted                                         4,596,882       4,541,322       4,691,290
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       26
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               NOTES                    ACCUMULATED
                                                                             RECEIVABLE                   OTHER
                                                        COMMON STOCK         FROM SALE                 COMPREHENSIVE     TOTAL
                                                 -------------------------   OF COMMON     RETAINED        INCOME     STOCKHOLDERS'
                                                  SHARES        AMOUNT         STOCK       EARNINGS        (LOSS)        EQUITY
<S>                                              <C>          <C>            <C>          <C>            <C>          <C>
BALANCE AT MAY 28, 2000                          4,445,432    $20,275,483    $(145,000)   $ 6,222,873    $(548,074)   $25,805,282

Comprehensive income:
     Net income                                                                             2,196,189                   2,196,189
     Net change in foreign currency
         translation adjustment                                                                           (387,186)      (387,186)
                                                                                                                      -----------
              Total comprehensive income                                                                                1,809,003
Issuance of 90,945 shares of common
     stock in accordance with stock purchase
     plan and stock option plan (Notes 7 and 9)     90,945        285,230                                                 285,230
Adjust retained earnings for the change in
     subsidiary fiscal year end                                                                61,339                      61,339
7,855 shares of common stock acquired and
     retired for payment of receivables             (7,855)       (57,927)      45,000                                    (12,927)
Income tax benefit from stock options
     exercised                                                    131,000                                                 131,000
Stock compensation                                                 50,134                                                  50,134
                                                 ---------    -----------    ---------    -----------    ---------    -----------

BALANCE AT JUNE 3, 2001                          4,528,522     20,683,920     (100,000)     8,480,401     (935,260)    28,129,061

Comprehensive loss:
     Net loss                                                                              (3,563,726)                 (3,563,726)
     Net change in foreign currency
         translation adjustment                                                                             13,688         13,688
                                                                                                                      -----------
              Total comprehensive loss                                                                                 (3,550,038)
Issuance of 35,088 shares of common
     stock in accordance with stock purchase
     plan and stock option plan (Notes 7 and 9)     35,088        121,981                                                 121,981
Income tax benefit from stock options
     exercised                                                     51,728                                                  51,728
                                                 ---------    -----------    ---------    -----------    ---------    -----------
BALANCE AT JUNE 2, 2002                          4,563,610     20,857,629     (100,000)     4,916,675     (921,572)    24,752,732

Comprehensive loss:
     Net loss                                                                              (7,692,073)                 (7,692,073)
     Net change in foreign currency
         translation adjustment                                                                             35,122         35,122
                                                                                                                      -----------
              Total comprehensive loss                                                                                 (7,656,951)
Issuance of 33,712 shares of common
     stock in accordance with stock purchase
     plan and stock option plan (Notes 7 and 9)     33,712         59,648                                                  59,648
Write-off of stock receivable                                                   55,000                                     55,000
Issuance of 51,177 shares of common
     stock in accordance with redeemable
     preferred stock                                51,177        108,885                                                 108,885
                                                 ---------    -----------    ---------    -----------    ---------    -----------

BALANCE AT JUNE 1, 2003                          4,648,499    $21,026,162    $ (45,000)   $(2,775,398)   $(886,450)   $17,319,314
                                                 =========    ===========    =========    ===========    =========    ===========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       27
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                JUNE 1,        JUNE 2,        JUNE 3,
                                                                                 2003           2002           2001
<S>                                                                          <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                       $(7,563,831)   $(3,563,726)   $ 2,196,189
     Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
         Depreciation                                                          1,029,287        972,230        991,031
         Amortization                                                                           100,274        100,275
         Allowance for doubtful accounts                                         230,000      1,416,000        598,000
         Adjustment related to change in subsidiary year-end                                                    61,339
         Goodwill impairment                                                   1,153,153
         Stock compensation                                                                                     50,134
         Realized gain from the sale of securities available for sale                                          (56,060)
         Deferred taxes                                                           (1,242)       172,283        132,000
         Change in assets and liabilities, net of effect of acquisition:
              (Increase) decrease in:
                  Trade receivables                                              209,723      3,321,769      2,924,698
                  Inventories                                                    (20,264)     4,226,425        817,715
                  Prepaid and other expenses                                    (241,717)    (1,061,044)       (40,167)
              Increase (decrease) in:
                  Accounts payable                                               825,932       (795,834)    (6,127,775)
                  Accrued expenses                                               617,099       (864,905)       261,680
                  Income tax payable/receivable                                  582,450       (364,895)        43,850
                                                                             -----------    -----------    -----------
                       Net cash provided by (used in) operating activities    (3,179,410)     3,558,577      1,952,909
                                                                             -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment                                         (272,867)      (838,703)    (3,161,004)
     Power General acquisition, net of cash acquired                            (366,000)
     Proceeds from the sale of securities                                                                      553,521
                                                                             -----------    -----------    -----------
                       Net cash used in investing activities                    (638,867)      (838,703)    (2,607,483)
                                                                             -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings (payments) on revolving credit agreement                     289,607     (1,211,131)     2,511,318
     Write-off of notes receivable arising from sale of common stock              55,000
     Proceeds from issuance of common stock                                       59,648        121,981        227,303
     Payments received from notes receivable arising from sale of
         common stock                                                                                           45,000
     Principal payments on long-term borrowings                                 (281,507)      (584,905)      (750,826)
                                                                             -----------    -----------    -----------
                       Net cash provided by (used in) financing activities       122,748     (1,674,055)     2,032,795
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
     CHANGES ON CASH                                                              19,941          5,990        (73,511)
                                                                             -----------    -----------    -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              (3,675,588)     1,051,809      1,304,710

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                 4,775,190      3,723,381      2,418,671
                                                                             -----------    -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                     $ 1,099,602      4,775,190      3,723,381
                                                                             ===========    ===========    ===========

NON-CASH TRANSACTION:
         Issuance of redeemable convertible preferred stock to acquire
              Power General                                                  $ 2,074,000
         Issuance of common stock to pay preferred stock dividends               108,885
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash payments for:
         Interest (net of capitalized interest of  $55,010 in 2001)          $   434,714    $   495,356    $   536,890
         Taxes                                                                                  171,819      1,446,117
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       28
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

1.       NATURE OF BUSINESS, MANAGEMENT PLANS, AND SIGNIFICANT ACCOUNTING
         POLICIES

         NATURE OF BUSINESS - Ault Incorporated and Subsidiaries (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.

         MANAGEMENT PLANS - The financial statements have been prepared on a
         going-concern basis, which contemplates the realization of assets and
         satisfaction of liabilities in the normal course of business. The
         Company sustained net losses applicable to common stock of $7,692,073
         in 2003 and $3,563,726 in 2002 and at June 1, 2003 had an accumulated
         deficit of $2,775,398. The Company utilized $3,179,410 of cash for
         operating activities in 2003. Future operations require the Company to
         borrow additional funds. The Company has a financing agreement, which
         includes a $1,250,000 line-of-credit agreement through April 30, 2005.
         There was not an outstanding balance on this line-of-credit at June 1,
         2003, however, during fiscal 2003 the Company violated the financing
         agreements covenants and subsequent to year-end received a waiver and
         an amended agreement with less restrictive covenants. The Company
         believes they can remain in compliance with the agreement, as amended,
         throughout fiscal 2004. The Company is taking 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. The consolidation is anticipated to take up to four months to
         complete to ensure continuing service to Ault's global customer base.

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

         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, Ault Shanghai, Ault Xianghe Co. Ltd., and Ault Korea
         Corporation. All intercompany transactions have been eliminated. The
         foreign currency translation adjustment represents the translation into
         United States dollars of the Company's investment in the net assets of
         its foreign subsidiary in accordance with the provisions of Statement
         of Financial Accounting Standards (SFAS) No. 52.

         FISCAL YEAR - The Company operates on a 52 to 53-week fiscal year. The
         fiscal years for the financial statements presented end on June 1,
         2003, June 2, 2002, and June 3, 2001. The years ended June 1, 2003 and
         June 2, 2002 contain 52 weeks while the year-ended June 3, 2001
         contains 53 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.


                                       29
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         The Company considers all highly liquid debt instruments purchased with
         a maturity of three months or less to be cash equivalents. Cash
         equivalents consist primarily of short-term commercial paper.

         INVENTORIES - Inventories are stated at the lower of cost (first-in,
         first-out) or market.

         GOODWILL - In June 2001, the Financial Accounting Standards Board
         (FASB) issued Statement of Financial Accounting Standards (SFAS) No.
         141, BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER
         INTANGIBLE ASSETS. The Company adopted these standards on June 2, 2002.
         Under the new rules, goodwill is no longer amortized but will be
         reviewed annually for impairment. Refer to Note 4 for details about the
         adoption of this standard and the results of initial and annual
         impairment tests.

         DEPRECIATION - Depreciation is based on the estimated useful lives of
         the individual assets. The method and estimated useful lives are as
         follows:

                                              Method                     Years

         Building                             Straight-line                 36
         Machinery and equipment              Straight-line               3-10
         Office furniture and equipment       Straight-line               5-15
         Data processing equipment            Straight-line                3-5
         Leasehold improvement                Straight-line         Lease term

         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
         the Korean operations' employees that is payable upon termination of
         employment.

         The Company does not fund the retirement and severance benefits
         accrued, but rather provides for the estimated accrued liability under
         the plans as of the balance sheet date. Under the National Pension
         Scheme of Korea, the Company is required to transfer a certain portion
         of the retirement allowances of employees to the National Pension Fund.
         The amount transferred reduces the retirement and severance benefit
         liability recorded in the consolidated financial statements.

         REVENUE RECOGNITION - The Company recognizes revenue for all domestic
         shipments at the shipping point. The terms for the domestic shipments
         are FOB shipping point. For international shipments 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 are
         noncancelable, and nonreturnable. Payment from distributors are no
         different than other customers, 0.5% 10 net 30.

         FREIGHT BILLING/EXPENSE - Customer billings for freight are included in
         sales, and the freight costs are included in costs of sales in
         accordance with Emerging Issues Task Force (EITF) No. 00-10, ACCOUNTING
         FOR SHIPPING AND HANDLING FEES AND COSTS.

         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.


                                       30
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         ADVERTISING EXPENSE - The Company expenses advertising costs as
         incurred. Advertising expenses of approximately $76,000, $45,000, and
         $106,000 were charged to operations during the years ended June 1,
         2003, June 2, 2002, and June 3, 2001, respectively.

         INCOME TAXES - Deferred taxes are provided on a liability method
         whereby deferred tax assets are recognized for deductible temporary
         differences and operating loss and tax credit carryforwards, and
         deferred tax liabilities are recognized for taxable temporary
         differences. Temporary differences are the differences between the
         reported amounts of assets and liabilities and their tax bases.
         Deferred tax assets are reduced by a valuation allowance when, in the
         opinion of management, it is more likely than not that some portion or
         all of the deferred tax assets will not be realized. As a result of the
         cumulative losses over the past two years, and the full utilization of
         the loss carryback potential, the Company concluded that a full
         valuation allowance against the net deferred tax assets was
         appropriate. Deferred tax assets and liabilities are adjusted for the
         effects of changes in tax laws and rates on the date of enactment.

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

         The Company has adopted the disclosure-only provisions of SFAS No. 123,
         ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no compensation
         cost has been recognized for the stock option plan, as all options were
         issued with exercised prices at or above fair value. Had compensation
         cost for the Company's stock option plans been determined based on the
         fair value at the grant date for awards in 2003, 2002, and 2001
         consistent with the provisions of SFAS No. 123, the Company's net
         income and net income per share would have changed to the pro forma
         amounts indicated below:

<TABLE>
<CAPTION>
                                                                JUNE 1,            JUNE 2,            JUNE 3,
                                                                 2003               2002                2001
<S>                                                          <C>               <C>                  <C>
         Net income (loss), as reported                      $(7,692,073)      $(3,563,726)         $2,196,189
         Net income (loss), pro forma                         (8,092,340)       (4,237,331)          1,709,021
         Net income (loss), per share, basic, as reported          (1.67)            (0.78)               0.49
         Net income (loss), per share, diluted, as reported        (1.67)            (0.78)               0.47
         Net income (loss), per share, basic, pro forma            (1.76)            (0.93)               0.38
         Net income (loss), per share, diluted, pro forma          (1.76)            (0.93)               0.36
</TABLE>

         The fair value of each option grant is estimated on the date of grant
         using the Black-Scholes option-pricing model with the following
         weighted-average assumptions used for grants in 2003, 2002, and 2001:

<TABLE>
<CAPTION>
                                             JUNE 1,         JUNE 2,         JUNE 3,
                                              2003            2002            2001
<S>                                        <C>            <C>             <C>
         Expected dividend yields          $       --     $       --      $        --
         Expected stock price volatility        73.63%          59.38%          76.58%
         Risk-free interest rate                 2.01%           4.81%           6.63%
         Expected life of options           7.55 years      7.74 years      7.41 years
</TABLE>





                                       31
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         LONG-LIVED ASSETS - In accordance with SFAS No. 144, ACCOUNTING FOR THE
         IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, the Company reviews its
         long-lived assets periodically 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.

         EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per share is computed
         by dividing net income (loss) by the weighted-average number of common
         shares outstanding during the period. Diluted earnings per share is
         computed by dividing net income (loss) by the weighted-average number
         of common shares outstanding during the period adjusted by common share
         equivalents related to stock options, warrants, and the employee stock
         purchase plan. Options to purchase 1,093,426, 978,926, and 299,527
         shares of common stock were outstanding at the fiscal years ended June
         1, 2003, June 2, 2002, and June 3, 2001, respectively, 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
         earnings per share:

<TABLE>
<CAPTION>
                                                               JUNE 1,           JUNE 2,          JUNE 3,
                                                                2003              2002              2001
<S>                                                         <C>                <C>               <C>
         Numerator -
            Income (loss)                                   $(7,692,073)       $(3,563,726)      $2,196,189
                                                            ------------       ------------      ----------
         Denominator:
            Basic - weighted-average shares outstanding        4,596,882          4,541,322       4,493,120
            Effect of dilutive shares:
                 Stock options outstanding and employee
                   stock purchase plan                                                              198,170
                                                            ------------       ------------      ----------
            Diluted - weighted-average shares outstanding      4,596,882          4,541,322       4,691,290
                                                            ------------       ------------      ----------

         Basic earnings (loss) per share                    $     (1.67)       $     (0.78)      $     0.49
                                                            ============       ============      ==========

         Diluted earnings (loss) per share                  $     (1.67)       $     (0.78)      $     0.47
                                                            ============       ============      ==========
</TABLE>

         USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
         preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities and disclosures of contingent assets
         and liabilities at the date of the financial statements and the
         reported amounts of revenues and expenses during the reporting period.
         Actual results could differ from those estimates.

         COMPREHENSIVE LOSS - The Company's fiscal 2003 comprehensive income
         consists of net loss and foreign currency translation adjustments.


                                       32
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and
         Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No.
         101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. SAB No. 101
         summarizes certain of the SEC staff's views in applying generally
         accepted accounting principles to selected revenue recognition issues.
         As a result, the Company changed the method of accounting for certain
         sales transactions. Historically, the Company recognized revenue upon
         shipment of products to certain international customers because, even
         though some products were shipped FOB destination, the Company and
         customers used a common carrier and thus gave up substantially all the
         risks of ownership. Under the new accounting method adopted retroactive
         to May 29, 2000, the Company now recognizes revenue at the time risk of
         ownership passes. The cumulative effect of the change on prior years
         resulted in a minor noncash charge to income of $50,000 (net of taxes
         of $27,000) for the year ended June 3, 2001.

         In June 2001, the FASB approved for issuance SFAS No. 141, BUSINESS
         COMBINATIONS, and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS
         No. 141 requires that the purchase method of accounting be used for all
         business combinations initiated after June 30, 2001 and that the use of
         the pooling-of-interest method is no longer allowed. The adoption of
         SFAS 141 did not have an impact on the Company's statements of
         consolidated operations, financial position or cash flows. 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, 2001 and 2000, the
         amortization expense was $100,000 each year. On June 3, 2002, we
         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.

         In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
         IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 addresses
         financial accounting and reporting for the impairment or disposal of
         long-lived assets and supersedes SFAS No. 121, ACCOUNTING FOR THE
         IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO BE DISPOSED OF, and the
         accounting and reporting provisions of Accounting Principles Board
         Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS--REPORTING THE
         EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS AND EXTRAORDINARY,
         UNUSUAL AND INFREQUENTLY OCCURRING TRANSACTIONS. SFAS No. 144 requires
         that long-lived assets to be disposed of be measured at the lower of
         carrying amount or fair value less cost to sell. The Company adopted
         SFAS No. 144 on June 3, 2002, and it did not have an effect on its
         financial position or results of operations.

         In June 2002, the FASB issued SFAS No. 146,ACCOUNTING FOR COSTS
         ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, which nullifies EITF Issue
         No. 94-3. SFAS No. 146 is effective for exit and disposal activities
         that are initiated after December 31, 2002 and requires that a
         liability for a cost associated with an exit or disposal activity be
         recognized when the liability is incurred, in contrast to the date of
         an entity's commitment to an exit plan, as required by EITF Issue No.
         94-3. The Company adopted SFAS No. 146 effective January 1, 2003 and it
         did not have an impact on its financial position or results of
         operations.


                                       33
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR
         STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE, which amends SFAS
         No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 148 provides
         alternative methods of transition for a voluntary change to the fair
         value based method of accounting for stock-based employee compensation.
         In addition, SFAS No. 148 amends the disclosure requirements of SFAS
         No. 123 to require more prominent and more frequent disclosures in
         financial statements of the effects of stock-based compensation. The
         transition guidance and annual disclosure provisions of SFAS No. 148
         are effective for fiscal years ending after December 15, 2002. The
         interim disclosure provisions are effective for financial reports
         containing condensed financial statements for interim periods beginning
         after December 15, 2002. The adoption of SFAS No. 148 did not have an
         impact on the Company's consolidated balance sheet or results of
         operations.

         In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
         FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
         EQUITY. SFAS No. 150 establishes standards for issuer classification
         and measurement of certain financial instruments with characteristics
         of both liabilities and equity. Instruments that fall within the scope
         of SFAS No. 150 must be classified as a liability. SFAS No. 150 is
         effective for financial instruments entered into or modified after May
         31, 2003. For financial instruments issued prior to June 1, 2003, SFAS
         No. 150 is effective for the Company in the second quarter of fiscal
         year 2004. Management is assessing the impact that SFAS No. 150 may
         have on the Company's financial statements.

         In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
         GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES,
         INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN 45
         elaborates on the disclosures to be made by a guarantor about its
         obligations under certain guarantees that it has issued. It also
         clarifies that a guarantor is required to recognize, at the inception
         of a guarantee, a liability for the fair value of the obligation
         undertaken in issuing the guarantee. The recognition and measurement
         provisions of this Interpretation are effective for all guarantees
         issued or modified after December 31, 2002. The disclosure requirements
         of FIN 45 are effective for financial statements of interim or annual
         periods ending after December 15, 2002. The Company has made the
         additional required disclosures in this report; see Note 3 regarding
         product warranty liability. The Company has no guarantees of others,
         which require disclosure.

2.       INVENTORIES

         The components of inventory at June 1, 2003 and June 2, 2002 are as
         follows:

                                                JUNE 1,            JUNE 2,
                                                 2003               2002

         Raw materials                        $6,019,803         $4,608,937
         Work-in-process                       1,163,304            788,456
         Finished goods                        2,684,836          3,104,112
                                              ----------         ----------
                                              $9,867,943         $8,501,505
                                              ==========         ==========


                                       34
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

3.       WARRANTY

         The Company offers its customers a three-year warranty on products.
         Warranty expense is determined by calculating the historical
         relationship between sales and warranty costs and applying the
         calculation to the current period's sales. Based on warranty repair
         costs and the rate of return, the Company periodically reviews and
         adjusts its warranty accrual. Actual repair costs are offset against
         the reserve. The following table shows the fiscal 2003 year-to-date
         activity for the Company's warranty accrual (in thousands):

                Beginning Balance               $ 113
                Charges and Costs Accrued         193
                Less Repair Incurred             (172)
                                                -----
                Ending Balance                  $ 134
                                                =====

4.       GOODWILL

         The Company adopted SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS,
         on June 3, 2002. Under this standard, purchased goodwill is no longer
         amortized over its useful life. Rather, goodwill is subject to a
         periodic impairment test based on its fair value. The adoption of the
         standard required an initial impairment test as of June 3, 2002. The
         Company used the income approach to measure the fair value. Under the
         income approach, value is dependent on the present value of future
         economic benefits to be derived from ownership. Future net cash flows
         available for distribution are discounted at market-based rates of
         return to provide indications of value. Based upon this analysis, it
         was determined that the current goodwill balances were not impaired as
         of June 3, 2002.

         During the fourth quarter of fiscal 2003, the annual goodwill
         impairment test was performed and assessed the fair value of the
         Company to determine whether goodwill was impaired and the extent of
         such impairment. The income approach was used to measure the fair value
         of goodwill. After performing this evaluation an impairment charge for
         goodwill was recorded caused primarily because of a decline in actual
         revenues for the fourth quarter compared to forecasted revenues. In
         addition, for the last month of fiscal 2003, the Company incurred a net
         loss of $1,084,000 compared to the forecast of a profit of $158,000.
         Accordingly, an impairment charge of $1,153,153 was recorded in the
         fourth quarter of fiscal 2003.

         The following table adjusts net loss for goodwill amortization expense
         recognized for the periods included in the table.

         Amounts in thousands, except per share amounts

<TABLE>
<CAPTION>
                                                                    Year Ended
                                                           -------------------------------
                                                            June 1,   June 2,     June 3,
                                                             2003       2002        2001
                                                           -------    -------     --------
<S>                                                        <C>        <C>         <C>
          Reported net (loss) income                       $(7,692)   $(3,564)    $2,196

          Add back goodwill amortization, net of tax            --        100        100
                                                           -------    -------     ------
          Pro forma adjusted net loss                       (7,692)    (3,464)     2,296
                                                           =======    =======     ======

          Basic net (loss) income per share:
            Reported net (loss) income                     $ (1.67)   $ (0.78)    $ 0.49
            Goodwill amortization, net of tax                   --       0.02       0.02
                                                           --------   --------    -------
          Pro forma adjusted basic net (loss) income
            per share                                      $ (1.67)   $ (0.76)    $ 0.51
                                                           ========   ========    =======

          Diluted net (loss) income per share:
            Reported net (loss) income                     $ (1.67)   $ (0.78)    $ 0.47
            Goodwill amortization, net of tax                    -       0.02       0.02
                                                           --------   --------    -------
          Pro forma adjusted diluted net (loss) income
            per share                                      $ (1.67)   $ (0.76)    $ 0.49
                                                           ========   ========    =======

          Common and equivalent shares outstanding:
            Basic                                            4,597      4,541      4,493
            Diluted                                          4,597      4,541      4,691
</TABLE>


                                       35
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         The following table shows the Company's year to date activity for its
         goodwill (in thousands):

                Beginning Balance             $ 1,153

                Purchased Goodwill                 --

                Less Goodwill Impaired         (1,153)
                                              -------
                Ending Goodwill Balance       $    --
                                              =======


5.       FINANCING ARRANGEMENT AND LONG-TERM DEBT

         FINANCING ARRANGEMENT - The Company has a financing agreement, which
         includes a $1,250,000 revolving line-of-credit agreement through April
         30, 2005. Interest on advances is at the prime rate plus 2% (prime plus
         7% default rate) for fiscal year 2003 and prime plus 2.8% for fiscal
         year 2002. The rate at June 1, 2003 was 11.00% and on June 2, 2002 the
         rate was 7.55%. All advances are due on demand and are secured by all
         assets of the Company. The Company's financing agreement contains
         restrictive financial covenants. These covenants require the Company,
         among other things, to maintain a minimum capital base, and also impose
         certain limitations on additional capital expenditures and the payment
         of dividends. At the end of fiscal 2003, the Company's actual capital
         base did not meet the minimum capital base of the credit agreement. The
         Company has received a waiver and amendment for this covenant.
         Following the August 29, 2003 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. There were no
         advances outstanding on the revolving line of credit at June 1, 2003 or
         June 2, 2002. Also, the Company's Korean subsidiary maintains an
         unsecured $4,150,000 credit facility agreement to cover bank
         overdrafts, short-term financing, and export financing at a rate of
         6.25% on June 1, 2003 and June 2, 2002. Advances outstanding relating
         to the Korean facility were $3,103,594 and $2,889,636 at June 1, 2003
         and June 2, 2002, respectively.

         LONG-TERM DEBT -

<TABLE>
<CAPTION>
                                                                                     JUNE 1,         JUNE 2,
                                                                                      2003            2002
<S>                                                                                <C>             <C>
         7.2% term loan, due in monthly installments of $7,978, including
            interest to December 2003, secured by equipment                        $   60,782      $  148,676
         7.94% term loan, due in monthly installments of $6,144, including
            interest to September 2004, secured by furniture                           87,464         151,466
         8.05% term loan, due in monthly installments of $28,756, including
            interest to February 2015, secured by the Company's headquarter
            building in Minneapolis                                                 2,605,501       2,735,112
         5.3% term loan, due in January 2004                                          289,617              --
                                                                                   ----------      ----------
                 Total                                                              3,043,364       3,035,254

         Less current maturities                                                      560,110         281,507
                                                                                   ----------      ----------
                                                                                   $2,483,254      $2,753,747
                                                                                   ==========      ==========
</TABLE>


                                       36
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         Maturities of long-term debt for years subsequent to June 1, 2003 are
         as follows:

         2004                                                   $  560,110
         2005                                                      170,362
         2006                                                      164,882
         2007                                                      178,656
         2008                                                      193,581
         Thereafter                                              1,775,773
                                                                ----------
                                                                $3,043,364
                                                                ==========

6.       INCOME TAXES

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

                               JUNE 1,           JUNE 2,            JUNE 3,
                                2003              2002               2001

         Domestic            $(6,549,516)      $(2,654,385)       $3,890,363
         Foreign              (1,354,515)       (1,603,467)         (288,988)
                             -----------       -----------        ----------
         Total               $(7,904,031)      $(4,257,852)       $3,601,375
                             ===========       ===========        ==========

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

                                 JUNE 1,           JUNE 2,         JUNE 3,
                                  2003              2002            2001
         Current:
            Domestic           $(340,200)        $(952,026)       $1,031,191
            Foreign                                125,000
         State                                     (18,600)          192,000
         Deferred                                  151,500           132,000
                               ---------         ---------        ----------
                               $(340,200)        $(694,126)       $1,355,191
                               =========         =========        ==========

         The income tax provision differs from the amount of income tax
         determined by applying the U.S. federal income tax rate to pretax
         income for the fiscal years ended June 1, 2003, June 2, 2002, and June
         3, 2001, due to the following:

<TABLE>
<CAPTION>
                                                                    JUNE 1,          JUNE 2,           JUNE 3,
                                                                     2003             2002              2001
<S>                                                              <C>               <C>               <C>
         Computed expected tax provision                         $(2,687,000)      $(1,405,060)      $1,224,000
         Increase (decrease) in income taxes resulting from:
         Nondeductible expenses                                        4,888            10,087           11,000
         State income taxes, net of federal benefit                   59,000           (31,360)          85,000
         Foreign taxes                                                                 125,000         (180,000)
         Current year R&D tax credits                                                   84,000          (10,000)
         Change in valuation allowance                             2,282,912           502,207          180,000
         Other                                                                          21,000           45,191
                                                                 -----------       -----------       ----------
                                                                 $  (340,200)      $  (694,126)      $1,355,191
                                                                 ============      ============      ==========
</TABLE>



                                       37
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         Net deferred taxes consist of the following components:

                                                     JUNE 1,          JUNE 2,
                                                      2003            2002
         Deferred tax assets:
            Allowance for doubtful accounts       $   163,000       $  95,000
            Inventory reserve                         206,000         110,000
            Accrued vacation                           90,000          53,000
            Accrued warranty                           46,000          42,000
            Goodwill deductible for tax               360,000
            Equipment and leasehold improvements     (261,000)       (264,000)
            Tax credit carryforwards and other         (8,298)        (58,000)
            Federal NOL carryforwards               1,229,000
            Foreign deferred tax asset              1,140,210         682,000
            Foreign deferred liability                (23,242)
            Valuation allowance                    (2,964,912)       (682,000)
                                                  ------------      ----------
                                                  $   (23,242)      $ (22,000)
                                                  ============      ==========

         The components giving rise to the net deferred tax asset described
         above have been included in the consolidated balance sheet:

                                                       JUNE 1,        JUNE 2,
                                                        2003           2002

         Current assets                               $     0       $ 252,000
         Noncurrent liabilities                       (23,242)       (274,000)

         The Company has net operating loss carryforwards, based on its tax
         records, of approximately $6,436,000 as of June 1, 2003, 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.

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 June 1, 2003, June 2, 2002, and June 3, 2001
         approximated $58,000, $72,000, and $67,000, respectively.

         STOCK PURCHASE PLAN - On March 10, 1996, the Company established a
         stock purchase plan in which up to 100,000 shares of common stock may
         be purchased by employees. The purchase price is equal to the lesser of
         85% 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, 13,588, and 15,740
         shares purchased under this plan during the fiscal year ended June 1,
         2003, June 2, 2002, and June 3, 2001, respectively.


                                       38
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

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 2003 the Company declared
         dividends of $127,000, of which $108,000 have been paid with 51,177
         shares of common stock.

9.       STOCK OPTION PLAN

         Information relating to all outstanding options as of June 1, 2003,
         June 2, 2002, and June 3, 2001 is as follows:

<TABLE>
<CAPTION>
                                                            JUNE 1,                    JUNE 2,                    JUNE 3,
                                                             2003                        2002                      2001
                                                                  Weighted-                   Weighted-                   Weighted-
                                                                   Average                     Average                     Average
                                                                  Exercise                    Exercise                    Exercise
                                                      Shares        Price         Shares        Price        Shares        Price
<S>                                                   <C>           <C>           <C>           <C>          <C>           <C>
         Options outstanding at beginning of year     978,926       $5.70         867,676       $5.71        832,964       $5.22
         Options exercised                            (10,500)       2.32         (21,500)       3.23        (83,463)       3.20
         Options expired                              (13,000)       4.00         (26,250)       7.15        (32,825)       5.69
         Options granted                              138,000        3.11         159,000        5.57        151,000        7.02
                                                    ---------                    --------                   --------
         Options outstanding at end of year         1,093,426       $5.43         978,926       $5.70        867,676       $5.71
                                                    =========       =====        ========       =====       ========       =====

         Options exercisable at end of year           905,176       $5.58         782,926       $5.60        641,027       $5.69
                                                    =========       =====        ========       =====       ========       =====

         Weighted-average fair value of
            options granted during the year                         $1.94                       $3.81                      $5.52
</TABLE>

         The following table summarizes information about stock options
         outstanding at June 1, 2003:

<TABLE>
<CAPTION>
                                              Options Outstanding           Options Exercisable
                                          ---------------------------     ------------------------
                                            Weighted-
                              Number         Average        Weighted-       Number       Weighted-
            Range of        Outstanding     Remaining        Average      Exercisable     Average
            Exercise         at June 1,    Contractual      Exercise      at June 1,     Exercise
             Prices            2003        Life (Years)       Price          2003          Price
<S>                         <C>            <C>              <C>           <C>            <C>
         $1.19 - $1.72         24,000          1.1            $ 1.20        24,000         $1.20
          1.73 -  2.58         59,000          3.6              2.34        59,000          2.34
          2.59 -  3.45        123,000          4.1              3.17        32,250          3.18
          3.46 -  4.31        218,124          5.4              3.78       218,124          3.78
          4.32 -  5.17         10,000          5.3              5.06        10,000          5.06
          5.18 -  6.03        278,800          7.1              5.82       208,800          5.84
          6.04 -  6.90         62,918          3.9              6.52        61,668          6.52
          6.91 -  7.76        197,000          5.7              7.38       170,750          7.42
          7.77 -  8.63        120,584          4.5              8.44       120,584          8.44
         -------------      ---------                                     --------
         $1.19 - $8.63      1,093,426          5.4            $ 5.43       905,176         $5.58
         =============      =========         ====            ======      ========         =====
</TABLE>


                                       39
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

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 this plan, a Class
         A, Junior Participating Preferred Stock with no par value was created.
         In addition, a dividend of one right was declared for each share of
         common stock at an exercise price of $36 per right and a redemption
         price of $0.001 per right. Each right is equal to a right to purchase
         one one-hundredth of a share of the Class A, Junior Participating
         Preferred Stock. 100,000 shares of preferred stock are reserved for the
         exercise of the rights. No rights were exercised during the years ended
         June 1, 2003, June 2, 2002, and June 3, 2001.

         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.

11.      COMMITMENT AND CONTINGENCIES

         OPERATING LEASES - The Company leases its Massachusetts office under an
         operating lease 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 June 1, 2003 are as
         follows:

         2004                                             $161,875
         2005                                              168,000
         2006                                              168,000
         2007                                              168,000
         2008                                              172,375
                                                          --------

                                                          $838,250
                                                          ========

         Total rental expense for the fiscal years ended June 1, 2003, June 2,
         2002, and June 3, 2001 was approximately $393,000, $44,000, and
         $66,000, respectively.

12.      SEGMENT INFORMATION AND FOREIGN OPERATIONS

         The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
         ENTERPRISE AND RELATED INFORMATION. This statement requires disclosure
         of certain information for each reportable segment, including general
         information, profit and loss information, segment assets, etc.


                                       40
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         The Company conducts its business within one reportable segment: the
         power conversion product industry. The Korean subsidiary, the Chinese
         subsidiaries, and certain nonaffiliated companies in China and Thailand
         do foreign manufacturing. A summary of the Company's revenues, net
         income, and identifiable assets by geographic area is presented below:

<TABLE>
<CAPTION>
                                                            JUNE 1,        JUNE 2,         JUNE 3,
                                                             2003           2002            2001
<S>                                                      <C>             <C>             <C>
         Revenues:
            Domestic operations                          $ 31,009,020    $ 34,811,779    $ 76,323,990
            Korean and Chinese operations - customers      10,469,990       6,220,075       9,367,590
            Korean and Chinese operations - parent         10,572,884       9,711,255      13,957,754
            Eliminations                                  (10,572,884)     (9,711,255)    (13,957,754)
                                                         ------------    ------------    ------------
            Consolidated                                 $ 41,479,010    $ 41,031,854    $ 85,691,580
                                                         ============    ============    ============

         Net income (loss) applicable to common stock:
            Domestic operations                          $ (6,337,558)   $ (1,835,369)   $  2,466,909
            Korean and Chinese operations                  (1,354,515)     (1,729,515)       (288,987)
            Eliminations                                           --           1,158          18,267
                                                         ------------    ------------    ------------
            Consolidated                                 $ (7,692,073)   $ (3,563,726)   $  2,196,189
                                                         ============    ============    ============

         Identifiable assets:
            Domestic operations                          $ 27,823,792    $ 30,619,959    $ 37,517,703
            Korean and Chinese operations                  21,218,530      17,549,919      15,683,510
            Eliminations                                  (15,977,405)    (11,472,891)     (9,744,534)
                                                         ------------    ------------    ------------
            Consolidated                                 $ 33,064,917    $ 36,696,987    $ 43,456,679
                                                         ============    ============    ============

         Long-lived assets:                                 JUNE 1,         JUNE 2,         JUNE 3,
                                                             2003            2002            2001

         Domestic operations                              $ 6,493,373    $  5,904,130    $  6,444,191
         Korean and Chinese operations                      6,789,934       6,538,116       6,131,581
                                                          -----------    ------------    ------------
         Consolidated                                     $13,283,307    $ 12,442,246    $ 12,575,772
                                                          ===========    ============    ============
</TABLE>

         Sales from the subsidiary to the parent company are based upon profit
         margins, which represent competitive pricing of similar products.

         EXPORT SALES - The Company also had foreign export sales amounting to
         11.2%, 17.3%, and 25.9% of total sales for the fiscal years ended June
         1, 2003, June 2, 2002, and June 3, 2001, respectively.

         OTHER FOREIGN PRODUCTION - In addition to the manufacturing done by the
         Korean subsidiary, the Company has subcontracting agreements for the
         purchase of finished assemblies from certain manufacturers in China and
         Thailand. Total purchases under these agreements were approximately
         $5,918,000, $10,388,000, and $35,710,000 for the fiscal years ended
         June 1, 2003, June 2, 2002, and June 3, 2001, respectively.


                                       41
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

13.      MAJOR CUSTOMER

         The Company had no customers with revenues or accounts receivable of
         more than 10% of the total during the fiscal year ended 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. During the fiscal year ended June 3, 2001, the Company had
         a major customer with 5.0% of total sales and 11.1% 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 North America and Asia.

         The addition of Power General will benefit the Company in a number of
         ways. First, the additional engineering capabilities will enhance
         product development. Second, the acquisition brings greater product
         breadth to the Company through the addition of AC/DC power supplies and
         DC/DC converter products. This broader offering affords The Company new
         business opportunities.

         The Company filed a Form 8-K with the Securities and Exchange
         Commission on July 31, 2002 to announce the acquisition, filed a Form
         8-K/A on September 30, 2002 which included audited financial statement
         and pro forma financials, and filed a Form 8-K/A Amendment 2 on October
         18, 2002 which included the consent of the auditors.

         The total cost of the acquisition, which closed on July 16, 2002, was
         $2,559,278 and was accounted for under the purchase method of
         accounting. Accordingly, the acquired assets and liabilities assumed
         have been recorded at their respective fair values as of the date of
         acquisition. The results of operations of the acquired business is
         included in the financial statements since the date of the acquisition.
         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed from Nidec on the date of the
         acquisition:

         Inventories                                           $1,048,675
         Property and equipment                                 1,634,971
                                                               ----------

           Total assets acquired                                2,683,646
                                                               ----------

         Current liabilities                                      124,368
                                                               ----------

           Net assets acquired                                 $2,559,278
                                                               ==========


                                       42
<PAGE>

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001
--------------------------------------------------------------------------------

         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

<TABLE>
<CAPTION>
                                                                   Year Ended
                                                          -------------------------------
                                                           June 1,   June 2,     June 3,
                                                            2003       2002        2001
                                                          --------   -------     --------
<S>                                                       <C>        <C>         <C>
         Revenue                                          $41,848    $46,421     $107,528

         Net (Loss) Income                                 (7,899)    (6,887)       1,429

         Preferred Stock Dividends                            146        146          146
                                                          -------    -------     --------

         Net (Loss) Income Applicable to Common Stock     $(8,045)   $(7,033)    $  1,283
                                                          =======    =======     ========

         Basic (Loss) Income Per Share                    $ (1.75)   $ (1.55)    $   0.29
         Diluted (Loss) Income Per Share                  $ (1.75)   $ (1.55)    $   0.27

         Common and equivalent shares outstanding:
           Basic                                            4,597      4,541        4,493
           Diluted                                          4,597      4,541        4,691
</TABLE>



                                       43
<PAGE>

         ITEM 8 (B). SUPPLEMENTAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
         -------------------------------------------------------------------------------------
                                        QUARTERLY FINANCIAL DATA
                                               (Unaudited)
                             (Amounts in Thousands, Except Per Share Data)
         -------------------------------------------------------------------------------------
                                                              FISCAL QUARTERS
                                                   1ST        2ND         3RD          4TH
<S>                                             <C>         <C>         <C>         <C>
         Fiscal Year 2003:
          Net Sales                             $ 10,848    $ 10,523    $  9,940    $ 10,168

          Gross Profit                             2,858       2,143       1,862       1,556

         Loss Before Income Taxes                   (605)     (1,628)     (1,823)     (3,848)

          Net Loss Applicable to Common Stock       (521)     (1,495)     (1,829)     (3,847)

          Loss Per Share:
            Basic                                  (0.11)      (0.33)      (0.40)      (0.83)
            Diluted                                (0.11)      (0.33)      (0.40)      (0.83)

         Fiscal Year 2002:
          Net Sales                               10,301       9,953       9,484      11,294

          Gross Profit                             2,409       1,366       1,957       2,212

          Income (Loss) Before Income Taxes         (711)     (2,913)       (691)         57

         Net Loss Applicable to Common Stock        (646)     (2,060)       (610)       (248)

         Loss Per Share:
            Basic                                  (0.14)      (0.45)      (0.13)      (0.05)
            Diluted                                (0.14)      (0.45)      (0.13)      (0.05)
</TABLE>

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

Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

         (a)  Evaluation of Disclosure Controls and Procedures

              The Company's Chief Executive Officer, Frederick M. Green, and
              Chief Financial Officer, Donald L. Henry, have evaluated the
              Company's disclosure controls and procedures as of the end of the
              period covered by this report. Based upon that review, they have
              concluded that these controls and procedures are effective in
              ensuring that material information related to the Company is made
              known to them by others within the Company.

         (b)  Changes in Internal Control Over Financial Reporting

              There have been no significant changes in internal control over
              financial reporting that occurred during the period covered by
              this report that have materially affected, or are reasonable
              likely to materially affect, the registrant's internal control
              over financial reporting.


                                       44
<PAGE>

                                    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 October 16, 2003 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 2003
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 30, 2003 and is expressly incorporated herein by
reference.



                                       45
<PAGE>

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 30, 2003 Annual Meeting to be filed within 120 days from the
end of the Company's fiscal 2003, 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 October 16, 2003 Annual Meeting to be filed within 120 days
from the end of the Company's fiscal year 2003, which information is expressly
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not Applicable.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not Applicable.



                                       46
<PAGE>

                                    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

         Independent Auditors' Reports                                       23

         Consolidated Financial Statements

         -- Balance Sheets, June 1, 2003 and June 2, 2002.                   24

         -- Consolidated Statements of Operations for the Years              26
            Ended June 1, 2003, June 2, 2002 and June 3, 2001.

         -- Consolidated Statements of Stockholders' Equity for              27
            the Years Ended June 1, 2003, June 2, 2002 and June 3, 2001.

         -- Consolidated Statements of Cash Flows for the Years              28
            Ended June 1, 2003, June 2, 2002 and June 3, 2001.

         -- Notes to Consolidated Financial Statements                       29

(2) THE FOLLOWING FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED JUNE 1,
    2003, JUNE 2, 2002 AND JUNE 3, 2001 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 June 1, 2003 - None


                                       47
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Ault Incorporated has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

AULT INCORPORATED

/s/ Frederick M. Green

Frederick M. Green
                                                        August 29, 2003
Frederick M. Green
President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

                                POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints FREDERICK M.
GREEN and DONALD 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 29, 2003
----------------------------    Officer and Director
Frederick M. Green

/s/ Donald L. Henry             Vice President, Treasurer,     August 29, 2003
----------------------------    Chief Financial Officer,
Donald L. Henry                 Secretary and Controller*

/s/ Marvonia Pearson Walker     Director                       August 29, 2003
----------------------------
Marvonia Pearson Walker

/s/ Brian T. Chang              Director                       August 29, 2003
----------------------------
Brian T. Chang

/s/ John G. Kassakian           Director                       August 29, 2003
----------------------------
John G. Kassakian

/s/ David J. Larkin             Director                       August 29, 2003
----------------------------
David J. Larkin

/s/ Carol A. Barnett            Director                       August 29, 2003
----------------------------
Carol A. Barnett

/s/ John Colwell, Jr.           Director                       August 29, 2003
----------------------------
John Colwell, Jr.

                                       48
<PAGE>

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




                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549


                                    FORM 10-K



                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OF


                                AULT INCORPORATED

                                       FOR

                             YEAR ENDED JUNE 1, 2003





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



                          FINANCIAL STATEMENT SCHEDULES


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



                                       49
<PAGE>

SCHEDULE II
AULT INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED JUNE 1, 2003, JUNE 2, 2002, AND JUNE 3, 2001

<TABLE>
<CAPTION>
                                                                Balance at    Charged to                     Balance at
                                                                 Beginning     Costs and                         End of
                                                                 of Period      Expenses     Deductions          Period
-----------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>              <C>
Year ended June 1, 2003:
         Allowance for doubtful accounts                        $  320,000    $  230,000    $   50,000(a)    $  500,000
         Reserve for warranties                                    113,000       193,000       172,000          134,000

Year ended June 2, 2002:
         Allowance for doubtful accounts                           676,000     1,416,000     1,772,000(a)       320,000
         Reserve for warranties                                    133,000       133,000       153,000          113,000

Year ended June 3, 2001:
         Allowance for doubtful accounts                           123,000       598,000        45,000(a)       676,000
         Reserve for warranties                                     78,000       304,000       249,000          133,000
</TABLE>

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
















                                       50
<PAGE>

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




                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549


                                    FORM 10-K



                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OF


                                AULT INCORPORATED

                                       FOR

                             YEAR ENDED JUNE 1, 2003





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



                                    EXHIBITS


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



                                       51
<PAGE>

                                AULT INCORPORATED

                                EXHIBIT INDEX TO
                          FORM 10-K FOR THE YEAR ENDED
                                  JUNE 1, 2003

Required Registration S-K
Exhibit Items

<TABLE>
<CAPTION>
SK Item    Title of Documents                                Location

<S>        <C>                                               <C>
3(a)       Restated Articles of Incorporation, as amended    Filed as Exhibit 3(a) to Form 10-K for fiscal 1988 and incorporated
                                                             herein by reference

3(b)       Bylaws, as amended                                Filed as Exhibit 3(b) to Registration Statement No. 2-85224 and
                                                             incorporated herein by reference

3(c)       Amendment to Articles of 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 incorporated
                                                             by reference
           Option Plan, Amended

10.5       1996 Employee Stock                               Filed electronically. Commission File #333-4609 and herein incorporated
                                                             by reference
           Option Plan

21         Subsidiary of Registrant                          Filed as Exhibit 21 to Form 10-K for fiscal 1997 and incorporated
                                                             herein by reference

23         Consent of Independent Auditors                   Filed herewith at page 53


31         Certifications pursuant to Section 302
           of the Sarbanes-Oxley Act of 2002 (Rules          Filed herewith at page 54-55
           13a-14 and 15d-14 of the Exchange Act).

32         Certifications pursuant Section 906 of
           the Sarbanes-Oxley Act of 2002 (18 U.S.C.         Filed herewith at page 56
           ss.1350).
</TABLE>

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
<PAGE>






INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
333-100409 on Form S-3 and Registration Statements No. 333-51458, No. 333-08992,
No. 333-38455, No. 333-04609, No. 33-53988, No. 33-19662, No. 2-87376, No.
33-33566, and No. 333-91389 on Form S-8 of Ault Incorporated and Subsidiaries of
our report dated August 18, 2003 (August 29, 2003 as to Note 5), appearing in
this Annual Report on Form 10-K of Ault Incorporated and Subsidiaries for the
year ended June 1, 2003.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota
September 12, 2003























                                       53