SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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 3, 2001

Commission File Number 0-12611

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

|MINNESOTA                       | 41-0842932                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (IRS Employer Identification Number)
|incorporation or organization)  |                                     
|                                |                                     
|7105 NORTHLAND TERRACE          | 55428-1028                          

Registrants telephone number, including area code: (763) 592-1900
Securities registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:

Common Stock, No Par Value(Title of Class)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X]   NO [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 8-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to this Form
10-K.   [X]

The aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $26,298,000 based upon the
closing price of the Companys common stock on the NASDAQ National Market
on July 31, 2001, 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 July 31, 2001, there were outstanding 4,537,522 shares of the
Registrants common stock.

The Form 10-K consists of 49 pages. The Exhibit Index is located on page
47.

1

AULT INCORPORATED

FORM 10-KFOR THE FISCAL YEAR ENDED JUNE 3, 2001

PART I

|ITEM 1. | BUSINESS
|------- | --------

|(a) | General
Development of Business
|--- | -------------------------------

Ault Incorporated (herein Ault or Company) was incorporated
under the laws of the State of Minnesota in 1961. The Company designs,
manufactures, and markets external power conversion products and is a leading
domestic supplier of such products to original equipment manufacturers (OEMs) of
data communications equipment, telecommunications equipment, portable medical
equipment, and microcomputers and related peripherals.

|(b) | Financial
Information About Industry Segments
|--- | ---------------------------------------------

The Company operates in only one industry segment  the
manufacture and sale of power conversion devices.

|(c) | Narrative
Description of the Business
|--- | -------------------------------------

Aults power conversion products are used to adapt
alternating current (AC) to provide a source of power at various levels up to
120 watts for a wide variety of electronic equipment. Most of the Companys
products are located outside the equipment they power as wall plug-in or as
in-line components and are generally referred to as external power conversion
products. A small portion of the Companys products are located inside the
equipment they power, when this feature is required by OEM customers, and are
generally known as internal power conversion devices. External power conversion
products, in contrast to more widely used internal power conversion devices,
enable designers of electronic equipment to remove heat and hazardous voltages
from the end product thereby allowing the end product to function more safely
and effectively. Also, by removing the power conversion feature from inside the
end product, the OEM is afforded greater flexibility in designing and styling.
These advantages have particular application in the Companys target
markets where advances in semiconductor technology have reduced power
requirements of many items of equipment to levels supplied by the Companys
products, where rapid growth and strong competition have resulted in competitive
pressure to bring new products to market quickly, and where there is increasing
emphasis on smaller and portable products that perform increasingly
sophisticated functions. Aults business strategy is to offer OEMs in these
markets an expanding line of high quality power conversion products and devices,
related design engineering and flexible customer services.

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

| | Aults
product line includes the four major types of external power conversion
products: switching power supplies, linear power supplies, battery chargers and
transformers. The Companys power conversion products are capable of
providing power at most output levels which OEMs expect from an external device.
The Companys design and application engineers work closely with customers
to assure that these products are appropriately customized to meet each OEM
customers precise power conversion product requirements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes the proportion of sales of each of the Companys
four major product categories for its last three fiscal years ended June 3,
2001:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

2

Sale of Products by Categoryas a Percentage of Total Sales

|                         | Years Ended
|------------------------ | -----------
|
|                         |            
|Switching Power Supplies |            
|Linear Power Supplies    |            
|Transformers             |            
|Battery Chargers         |            
|Total                    |            

| | Power Supplies. The Companys power supplies provide all power
conversion elements for electronic equipment in power outputs ranging from 1 to
120 watts. These products contain a component level transformer, which reduces
the voltage level, as well as other circuitry and components which convert
alternating current (AC) to direct current (DC) and, in most cases, maintain
voltage within specific limits.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Switching
Power Supplies. The Company believes the market for switching power supplies is generally
the fastest growing segment of the overall external power conversion product market.
Switching power supplies use switching transistors to convert power from AC to DC and are
more energy efficient and considerably smaller and lighter in weight than linear units
with comparable power outputs. For power requirements exceeding 12 watts, switching power
supplies are generally more cost effective. The Company currently manufactures these
products up to 120 watts of power. The applications in which these products are currently
used include telecommunications products, data communications products, modems, computers
and computer peripherals, medical equipment, microprocessor controlled systems, security
systems, automatic teller terminals, test equipment, multiplexers, digital cameras and
point of sales equipment.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Companys switching power supply products include a family of universal
input power supplies which provide output power from input power sources ranging
from 90 to 265 volts AC. This family of power supplies can be used in virtually
any country for applications such as local area networks (LANs), printer and
fiber optic links. The Company also designs universal input switching power
supplies specifically for medical markets. The Company believes it offers the
widest range of external switching power supply products currently available for
medical applications.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company designs and manufactures switching power supplies principally for
external applications, but also designs and manufactures these products for
internal power when such action enhances customer relations.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Linear
Power Supplies. Linear power supplies are larger and generally less expensive than
switching power supplies because their design is based on technology employing steel
laminations with windings of copper wire rather than switching transistors. Linear power
supplies tend to be used when the wattage output required is relatively low. Ault
manufactures linear power supplies that provide up to 11 watts of regulated power and 35
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,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

| |  | electromagnetic
interference and weight from electronic equipment, while incorporating the rest of the
power conversion system within the product. These products reduce AC voltage from
approximately 110 volts (230 volts in some countries) down to lower voltage that range
from 5 to 60 volts AC. The Companys product line also includes highly customized
transformers that operate within stringent power output tolerances, features that are not
offered by most of the Companys competitors. The Companys transformers are
utilized in a broad spectrum of applications, including modems, telephone sets,
multimedia products and scanners.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Battery
Chargers. Ault has been an innovator in battery charging technology since the early
1980s. Ault specializes in providing custom designed, advanced solutions for
manufacturers of portable and battery powered equipment. Applications for the Companys
battery chargers include medical devices, mobile telecom devices, notebook computers,
global positioning equipment and radio frequency communications products.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Companys products serve the entire range of widely used battery
chemistries such as nickel cadmium, sealed lead acid, gel cell and nickel-metal
hydride. In addition, the Company has developed battery chargers for the
particular requirements of emerging battery chemistries such as zinc air,
lithium ion and lithium polymer. The Company is committed to supporting these
new emerging chemistries and to developing battery charger products to be
introduced as this new battery chemistries become commercially accepted.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company sells primarily smart battery chargers as distinguished from
trickle chargers. Smart charger products use integrated circuits to control
various charging characteristics while allowing for fast charge time and
extended battery life. Trickle charging is typically used for slow (8 to 10
hours) charging and/or standby battery maintenance.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company believes that the demand for high quality battery chargers will continue
to increase to accommodate the growing sophistication of portable electronic
equipment.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Companys marketing efforts are directed primarily toward OEMs producing
non-consumer electronic equipment for 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), and in fiscal 2001 sales in this market represented approximately
64% of net sales. The Companys products power cable and ADSL modems,
network termination equipment (devices which interface between telephone network
and the customers PBX or other telephone system), line conditioning
equipment (devices which prepare telephone lines for the transmission of
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).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Over
the past several years the telecommunications/data communications market has
grown at a rapid rate and the Company is devoting significant portions of its
product development effort toward introduction of new product families for
applications in this combined market.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

| | In
fiscal 2001 approximately 20% 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Approximately
10% of net sales in fiscal 2001 were to OEMs of portable medical equipment such
as infusion pumps, patient monitoring systems, apnea monitors, and portable
terminals for patient history input diagnostics.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
balance of approximately 6% of the Companys net sales in fiscal 2001 was
to OEMs of various industrial equipment, including digital cameras, flat panel
displays and mine safety devices.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Design
engineering teams at the Companys facilities in the United States, Peoples
Republic of China and South Korea are responsible for developing new power
conversion products and customizing existing products to meet customer needs.
The Company also utilizes the significant engineering resources of its Asian
subcontractors for the development of products targeted for subcontract
manufacturing. The Companys product development activities are divided
equally between developing products to satisfy customer needs and new products
based upon anticipated customer needs and market trends. New product development
opportunities are evaluated based upon criteria such as global market potential,
return on investment and technological advantages. The Company believes that its
collaborative efforts with customers, combined with its forward-looking concern
for power technology and market trends, have enabled it to gain a reputation as
a leading innovator in the development of new external power conversion
products.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company markets its products primarily in the U.S. and Canada through a network
of 20 manufacturer representatives employing approximately 115 salespersons,
each of whom represents, in addition to Aults products, several different
but complementary product lines of other manufacturers. The Company also sells
through four national distributor organizations, which employ over 1,000
salespersons, and twelve regional distributors, which employ over 100
salespersons. The Company selects representatives based upon their industry
knowledge as well as account expertise with products that are synergistic with
the Companys products. Individual salespersons are trained, mentored and
technically assisted by the Companys application engineers and other sales
administration staff. Any reduction in the efforts of these manufacturer
representatives or distributors could adversely affect the Companys
business and operating results.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company begins the sales process by identifying a potential customer or market;
researching the target or potential customers total business, product and
strategic needs; and then preparing a total solution proposal that includes
engineering, product development, safety agency approvals, logistics and project
development processes, coordinating pilot runs and assisting OEMs with their
product introductions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company focuses its selling efforts primarily on OEMs in the U.S. and Canada.
However, many of the larger OEM customers of the Company manufacture and sell
their products globally. As a result, the Company has extended its presence to
markets throughout the world. The Companys sales in the Pacific Rim are
primarily to customers in South Korea, China and Australia.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company markets its products in Europe through a network of distributors who are
managed through the Companys European sales office.
| | -----------------------------------------------------------------------------------------------------------------------------------------

5

|(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 plant in Minneapolis. This procedure reduces the time
required to obtain safety certifications.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Innovative
Team Approach
|--- | ------------------------

| | The
Company uses a team-based organizational structure consisting of seven teams.
The Companys customer base is divided into six geographical regions with a
specific Ault team assigned to manage the needs of customers in each region. A
seventh team, Ault Express, manages the requirements of customers who have
orders below minimum annual levels. Each team is headed by a coordinator
selected by Aults President and an assistant coordinator who is elected
annually by the team. The teams consist of people from all areas of the
business, including salespersons from manufacturer representative organizations
and national distributors as well as the Companys own production
personnel, engineers, technicians, administrative personnel and others. Guided
by a written 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. In 1996, Ault received recognition for its innovative
approach from the trade publication of the American Manufacturing Association.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Competition
|--- | -----------

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

| | No single
company dominates the overall external power conversion product market, and the Companys
competitors vary depending upon the particular power conversion product category. The
companies with which Ault competes most directly in each of its major product categories
are: Leader Electronics, Inc. and Golden Pacific Electronics, Inc. for transformers; Dee
Van Enterprise Co., Ltd and Sino American Electronics Company, Ltd. for linear power
supplies; Potrans Electrical Corp., Ltd. and Phihong Enterprise Co., Ltd. for switching
power supplies; and Engineering Design Sales, Inc. and Xenotronics Company for battery
chargers.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company competes on the basis of the quality and performance of its products,
the breadth of its product line, customer service, dependability in meeting
delivery schedules, design engineering services, and price. The Company believes
it is currently one of a small number of companies that design, manufacture and
obtain certifying agency approvals for the full range of external power
conversion devices which OEMs consider in designing their electronic product.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

| | The
Company provides a total solution approach to the OEMs entire external
power conversion product needs through its commitment to reliable partnerships
and its delivery of high quality products supported by solution-oriented design
engineering. The presence of Ault Korea and 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 stresses the several advantages of external
power conversion products, which generally can be obtained with only a
relatively small increase in unit cost and produces internal products.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Manufacturing
and Sources of Supply
|--- | -----------------------------------

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

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

| | The
Company has subcontract manufacturing arrangements with two business partners in
Thailand and two in China. The Company does not have long-term commitments with
its 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 and to avoid, where
practicable, dependence upon a single customer. In fiscal 2001, no customers
accounted for more than 10% of sales.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys order backlog at June 3, 2001 totaled $10,792,000 compared to
$17,877,000 at May 28, 2000. The order backlog represents sales for
approximately eight weeks and reflects the posture of many OEMs to limit their
contractual commitments to the best lead-times of their suppliers. This requires
the Company to place greater reliability on its ability to forecast customer
needs and requirements for on-time shipment of products.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

| | The
Company enters into buying commitments and other scheduling agreements with certain
customers. For its larger customers, these agreements allow for order increases and
decreases within scheduled limits and include cancellation charges for completed and
in-process products and procured materials. Most products are shipped within 4 to 10
weeks of an order.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Warranties
|---- | ----------

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

|(11) | Patents
|---- | -------

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

|(12) | Seasonality
|---- | -----------

| | As
indicated in ITEM 8(b) SUPPLEMENTAL FINANCIAL INFORMATION, net sales of the
Company have reflected a certain degree of seasonality. The Companys first
quarter falls during the summer months and during the first quarter of fiscal
1999 and fiscal 2000, the Company recorded levels of sales which were generally
lower than sales that were recorded for the succeeding periods, although this
pattern was not repeated in fiscal 2001. Fiscal 2001 did not have the typical
lower sales in the first quarter due to the economic slowdown of the fourth
quarter. The Company attributes this seasonality to the buying patterns of its
customers, the timing of industry trade shows where new products are introduced
and to other factors. The Company believes that similar seasonality trends will
be experienced in the future.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Employees
|---- | ---------

| | As
of July 31, 2001, the Company employed approximately 471 full-time employees at its
facilities as follows:
| | -------------------------------------------------------------------------------------------------------------

|                           | SouthKorea | China | Shanghai | US  | Total
|-------------------------- | ---------- | ----- | -------- | --- | -----
|                          
|Manufacturing              |            | 112   |          | 150 |      
|Engineering                |            | 13    |          | 22  |      
|Marketing                  |            | 7     |          | 6   |      
|General and Administrative |            | 20    |          | 9   |      
|                           |            |       |          |     |      
|                          
|Total                      |            | 152   |          | 187 |      

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

8

|(14) | Executive
Officers of the Registrant
|---- | ------------------------------------

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

| | Name | Age | Position | Officer Since
| | ---- | --- | -------- | -------------

| | Frederick M. Green | 58 | President and Chief Executive Officer and Director | 1980
| | ------------------ | -- | -------------------------------------------------- | ----

| | Donald L. Henry | 45 | Vice President, Treasurer, Chief Financial Officer and
Assistant Secretary (Previously 11 years with Abbott
Laboratories most recently: Controller Fermentation
Operations, Controller Corporate Plant engineer,
Financial Planning and Analysis Manager) | 1999
| | --------------- | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----

| | Xiaodong Wang | 43 | Vice President  Asia Pacific (Previously 2 years with
XD Company as CEO and President and 7 years with
Simplot Company most recently: General Manager of
China Operations, International Project Manager) | 2000
| | ------------- | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----

| | Gregory L. Harris | 48 | Vice President  Business Development | 1988
| | ----------------- | -- | ------------------------------------- | ----

|(15) | Risk
Factors
|---- | ------------

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

| |  | Technological
Change and New Product Development. The electronic equipment market is characterized by
rapidly changing technology and shorter product life cycles. The Companys future
success will continue to depend upon its ability to enhance its current products and to
develop new products that keep pace with technological developments and respond to
changes in customer requirements. Any failure by the Company to respond adequately to
technological changes and customer requirements or any significant delay in new product
introductions could have a material adverse effect on the Companys business and
results of operations. In addition, there can be no assurance that new products to be
developed by the Company will achieve market acceptance. See Business-Design
Engineering and Product Development.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fluctuation
in Financial Results. The Companys financial results are subject to fluctuation due
to various factors, including general business cycles in the Companys markets, the
mix of products sold, the stage of each product in its life cycle and the rate and cost
of development of new products. In addition, component and material costs, the timing of
orders from and shipments of products to customers and deferral or cancellation of orders
from major customers could adversely affect financial results. Price competition in the
markets in which the Company competes is intense, and could result in a decline in gross
margin, which in turn could adversely impact the Companys profitability.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Dependence
on Outside Contractors. The Company currently depends on third parties located in foreign
countries for a significant portion of the manufacture and assembly of certain of its
products. Some of these countries are economically troubled areas. The Companys
reliance on such outside contractors reduces its control over quality and delivery
schedules. While the Company takes an active role in overseeing quality control with its
third party manufacturers, the failure by one or more of these subcontractors to deliver
quality products or to deliver products in a timely manner could have a material adverse
effect on the Companys operations. In addition, the Companys third-party
manufacturing arrangements are short-term in nature and could be terminated with little
or no notice. If this happened, the Company would be compelled to seek alternative
sources to manufacture certain of its products. There can be no assurance that any such
attempts by the Company would result in suitable arrangements with new third-party
manufacturers. See Manufacturing and Sources of Supply.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

| |  | Dependence
on Key Personnel; Management of Growth. The Companys success depends in part upon
the continued services of many of its highly skilled personnel involved in management,
engineering and sales, and upon its ability to attract and retain additional highly
qualified employees. The loss of service of any of these key personnel could have a
material adverse effect on the Company. The Company does not have key-person life
insurance on any its employees. In addition, the Companys future success will
depend on the ability of its officers and key employees to manage growth successfully and
to attract, retain, motivate and effectively utilize the team approach to manage its
employees. If the Companys management is unable to manage growth effectively, the
Companys business and results of operations could be adversely affected.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Export Sales by Aults U.S. operations in fiscal year 2001
represented 29.0% 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s headquarters and US manufacturing facility is
located in Brooklyn Park, a suburb of Minneapolis, Minnesota and is
approximately 65,000 square feet in size.

Ault Korea Corporation operated in a 36,000 square foot facility
in Suwon City in the province of Kyungki-Do, Korea. The Company has relocated to
a new facility, also located in Suwon City, during fiscal 2002.

Ault China Corporation occupies a 40,000 square foot facility in
The Province of Xianghe in China. The land use rights expires in the year 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.

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 2001 and 2000.

10

|    | Fiscal 2001 | Fiscal 2000
|--- | ----------- | -----------
|
|   
|1st | 7.375       | 4.938      
|2nd | 9.250       | 6.125      
|3rd | 7.906       | 5.688      
|4th | 6.500       | 4.000      

|(b) | Holders
|--- | -------

As of July 31, 2001 there were 291 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 to retain any earnings for use in the
business, does not anticipate paying cash dividends on its common shares in the
foreseeable future.

11

|ITEM 6. | SELECTED
FINANCIAL SUMMARY
|------- | --------------------------

|                                        | (Amounts in Thousands, Except Per Share Data)
|--------------------------------------- | ---------------------------------------------
|                                        |                                              
|
|
|                                        |                                              
|Net Sales                               |                                              
|Gross Profit                            |                                              
|Operating Expenses                      |                                              
|                                        |                                              
|Operating Income                        |                                              
|                                        |                                              
|Non Operating Income (Expense)          |                                              
|                                        |                                              
|Income Before Income Taxes              |                                              
|                                        |                                              
|Income Taxes (Benefit)                  |                                              
|Cumulative Effect of Accounting         |                                              
|Change, Net of Tax                      |                                              
|Net Income                              |                                              
|Net Income Per Share:                   |                                              
|Basic                                   |                                              
|Diluted                                 |                                              
|                                        |                                              
|Total Assets                            |                                              
|Property Equipment and Leasehold        |                                              
|Improvements, Net                       |                                              
|Working Capital                         |                                              
|Long-term Debt, less current maturities |                                              
|Stockholders Equity                    |                                              

All financial information is restated to reflect the adoption of
a new accounting standard related to shipping and handling fees and costs. This
restatement did not change net income or shareholders equity.

The 2001 results include a non-cash, pre-tax cumulative effect of
accounting change of $77,000 expense ($50,000 after tax, or $0.01 per share).

12

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

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the Companys working
capital position at June 3, 2001, and at May 28, 2000:

|                                      | June 3,2001 | May 28,2000
|------------------------------------- | ----------- | -----------
|                                      |             |            
|
|Working capital                       |             | 17,840     
|Cash and cash equivalents             |             | 3,723      
|Available-for-sale investments        |             |            
|                                      |            
|Unutilized bank credit facilities     |             | 4,767      
|Cash provided by (used in) operations |             | 1,953      

Current Working Capital Position

At June 3, 2001, the Company had current assets of $29,618,000
and current liabilities of $11,778,000 representing working capital of
$17,840,000 and a current ratio of 2.5. This represents an increase in working
capital from $17,708,000 at May 28, 2000. The Company relies on its credit
facilities and cash flows from operations as sources of working capital to
support normal growth in revenue, capital expenditures and attainment of profit
goals. The Company has committed to $505,000 of capital expenditures as of June
3, 2001. These expenditures are to complete the new facility in Korea and will
be funded through operations.

Cash and Investments: At June 3, 2001, the Company had
cash and securities totaling $3,723,000, up from $2,916,000 at May 28, 2000.
This increase in cash was principally due to cash flows generated from
operations.

Credit Facilities: The Company maintains credit facilities with US Bank
and with Korea Exchange Bank. See Note 3, under NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.

The credit arrangement with US Bank includes:

| | (a) | A
revolving credit facility of $4.0 million, secured by Company assets. At June 3, 2001,
there were no borrowings against this facility.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

| | (b) | One
or more term loans, each up to $400,000. At June 3, 2001, borrowings totaling $273,000
were outstanding on two term loans.
| | --- | ------------------------------------------------------------------------------------------------------------------------------

The South Korean credit facility is approximately $4.77 million
of which borrowings at June 3, 2001 totaled $4,003,087

CASH FLOWS FOR FISCAL 2001

Operations: Operations provided $1,953,000 of cash during fiscal 2001 due
principally to the following activities:

| | (a) | Net
income, depreciation, and amortization increased cash by $3,287,000.
| | --- | ------------------------------------------------------------------------

| | (b) | Decreases
in trade receivables mainly due to the decreased net sales in the fourth quarter of
fiscal 2001 provided $3,523,000 of cash. It is anticipated that trade receivables will
increase in fiscal 2002 as revenues increase.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Decreases
in inventories provided $818,000 of cash. The decreases are due to the decreased net
sales in the fourth quarter of fiscal 2001.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------

13

| | (d) | Decreases
in accrued expenses and accounts payable used $5,866,000 of cash from liabilities
associated with purchases of material to support customer orders.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Investing Activities: Investing activities used net cash of $2,607,000
relating to the construction of the new manufacturing/office facility in Korea.

Financing Activities: Financing activities provided net cash of
$2,033,000, comprised principally of borrowings in connection with the construction of
the new manufacturing/office facility in Korea.

Effect of Foreign Currency Exchange Rate Fluctuations:
The effect of translating the Korean financial statements, which were prepared
in Won, to US dollars, adversely affected cash by approximately $74,000 during
the year. The effect of translating the Chinese financial statements, which were
prepared in Yuan to US dollars, had minimal effect on cash for the year.

Summary: The Companys cash and working capital
positions are sound and, together with its credit facilities, are adequate to
support the Companys strategies for fiscal 2002.

CASH FLOWS FOR FISCAL 2000

Operations: Operations used $2,426,000 of cash during fiscal 2000 due
principally to the following activities:

| | (a) | Net
income, depreciation, and amortization increased cash by $2,753,000.
| | --- | ------------------------------------------------------------------------

| | (b) | Increases
in trade receivables mainly due to the increased net sales in fiscal 2000 used $5,432,000
of cash.
| | --- | ------------------------------------------------------------------------------------------------------------

| | (c) | Increases
in inventories used $5,210,000 of cash. The increases were due principally to customer
requirements that the Company carry additional finished products to support short-term
needs. This is a normal business practice in the power supply market.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Increases
in accrued expenses and accounts payable provided $6,570,000 of cash from liabilities
associated with purchases of material to support customer orders.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Investing Activities:Investing activities used net cash
of $2,435,000 relating principally to the construction of the new
manufacturing/office facility in Minneapolis offset by the sale of Korean real
estate.

Financing Activities: Financing activities provided net cash of
$3,925,000, comprised principally of borrowings in connection with the construction of
the new manufacturing/office facility in Minneapolis.

Effect of Foreign Currency Exchange Rate Fluctuations:
The effect of translating the Korean financial statements, which were prepared
in Won, to US dollars, resulted in a net asset value increase of $51,000 during
the year, which related principally to long-term inter-company receivables.

RESULTS OF OPERATIONSFiscal Year Ended June 3, 2001

|$000             | Fiscal | Fiscal | Increase / (Decrease)
|---------------- | ------ | ------ | ---------------------
|
|                 |       
|Net Sales        |        |        | $                    
|Operating Income |        |        |                      

Net sales were $85,692,000 for fiscal 2001 up 26% from
$67,913,000 for fiscal 2000. The growth was primarily due to significantly
higher power supply shipments to major OEMs of high-speed ADSL modems of
$9,817,000. The Company is also benefiting from growing business volumes with
OEMs serving the medical equipment of $3,714,000 and OEMs of PDAs of $4,651,000.
The Company experienced lower sales in the fourth quarter of fiscal 2001 related
to the economic slowdown. The Company believes the slowdown is temporary and
will turn around in fiscal 2002.

14

The gross margin for fiscal 2001 was 21.8%, compared to 23.9%
for fiscal 2000. The significant growth of Asian sales had an impact on gross
margins. As an aggressive new undertaking, the Asian sales effort entails the
normal array of pricing initiatives of $1,269,000. The Company is continuing to
forecast strong Asian sales in fiscal 2002, and believes that margins on this
business should improve as the year progresses. Margins were also affected by a
growth in sales of lower-margin linear power supplies to ASDL customers of
$490,000.

Operating income totaled $3,429,000 for fiscal 2001 and
$3,235,000 for the same period in fiscal 2000 or 4.0% and 4.8% of net sales,
respectively. Operating expense increased principally due to (1) fiscal 2000
expenses were reduced by the sale of the Korean facility by $1,500,000 (2)
increased costs of Asian Group to manage the increased sales in the region of
$500,000 and (3) increased commissions paid to sales representatives on the
increased sales of $560,000 (4) an increase in bad debt expense of $500,000
related to a customer-filing chapter 11 and (5) decrease in engineering expenses
from the consolidation of the Maryland design center at the end of fiscal 2000
of $510,000. As a percent of sales, operating expenses decreased to 17.8% in
fiscal 2001 from 19.1% in fiscal 2000. The decrease is due to the increase in
sales while maintaining the operating expenses at the same level as fiscal 2000.

The Companys order backlog at June 3, 2001 totaled
$10,792,000 compared to $17,877,000 at May 28, 2000. The order backlog
represents sales for approximately eight weeks and reflects the posture of many
OEMs to limit their contractual commitments to the best lead-times of their
suppliers. This requires the Company to place greater reliability on its ability
to forecast customer needs and requirements for on-time shipment of products.

Other income is $709,000 for fiscal 2001 and $95,000 for the
same period in fiscal 2000. The increase is from (1) the sale of securities
available for sale in fiscal 2001 of $56,000 and (2) currency exchange rate
gains by the Korean subsidiary of $500,000 in fiscal 2001. The Company incurred
interest expenses of $537,000 in fiscal 2001 and $406,000 in fiscal 2000. The
increase is due to the mortgage on the new facility in Minneapolis for the whole
year in 2001 adding $65,000 and the increase in bank debt in Korea added $60,000
of interest expense.

The effective tax rate was 37.6% for fiscal year 2001, 36.3% for
fiscal year 2000, and 30.2% for fiscal year 1999. The effective income tax rate
has changed in fiscal 2001 compared to fiscal 2000 due to (1) the subsidiaries
overseas lower tax rate and (2) the subsidiaries loss overseas creating a
deferred asset with a full valuation offset due to the determination that the
realization of the deferred tax asset is not more likely than not.

Fiscal Year Ended May 28, 2000

|$000             | Fiscal | Fiscal | Increase / (Decrease)
|---------------- | ------ | ------ | ---------------------
|
|                 |       
|Net Sales        |        |        | $                    
|Operating Income |        |        |                      

Net sales were $67,913,000 for fiscal 2000 up 31% from
$52,012,000 for fiscal 1999. The growth was primarily due to significantly
higher power supply shipments to major OEMs of high-speed ADSL modems. The
Company is also benefiting from growing business volumes with OEMs serving the
wireless communications, medical equipment and cable modems markets. The Company
is a supplier for several major cable modem manufacturers.

The gross margin for fiscal 2000 was 23.9%, compared to 27.0%
for fiscal 1999. Several factors partially offset the positive impact of
Aults strong fiscal 2000 sales growth. During the second half, gross
margins were affected by a shift in sales mix toward lower-margin linear power
supplies of $1,350,000. In response, the Company is re-engineering the entire
line of power supplies to reduce manufacturing costs. The significant growth of
Asian sales also had an impact on gross margins of $300,000. As an aggressive
new undertaking, the Asian sales effort entails the normal array of start-up
costs and pricing initiatives of $260,000. Finally, significantly higher air and
maritime freight costs as well as high capacity utilization in shipping from
Asia, resulting from the dramatic increase in fuel prices, also affected margins
by $155,000. The Company has started passing through increased fuel costs. To
further strengthen margins, the Company in fiscal 2000 implemented a global
procurement system that will leverage purchasing power for key electronic
components.

15

Operating income totaled $3,235,000 for fiscal 2000 and
$2,592,000 for the same period in fiscal 1999 equaling, 4.8% and 5.0% of net
sales, respectively. The operating expense change was incurred principally due
to (1) facility sales and relocations favorable of $1,250,000 (2) Asian start-up
costs $300,000 (3) increased commissions paid to sales representatives of
$600,000 and (4) continued support of strategic initiatives of $800,000,
including new product and sales development:

Facility Sale and Relocation:The Company realized a gain
on the sale of Korean real estate of $1,500,000, which was partially offset by
the relocation of the Gaithersburg, Maryland site to Minneapolis, as well as the
moves of both the Shanghai sales office and the Beijing factory.

New Product Development: Service to customers continues
as a strong strategic focus of the Company. The Companys engineering
activities are directed to developing products for various customer
applications. In addition to data convergence and portable medical products,
these applications include uninterruptible power supplies, hubs, routers and
switchers for the networking market.

Sales Development: During the latter half of fiscal 1999, the Company
opened sales offices in Shanghai and in Europe and strengthened the Korean sales office.

The Companys order backlog at May 28, 2000 totaled
$17,877,000 compared to $12,963,000 at May 30, 1999. The order backlog
represents sales for approximately 12 weeks and reflects the posture of many
OEMs to limit their contractual commitments to the best lead-times of their
suppliers. This requires the Company to place greater reliability on its ability
to forecast customer needs and requirements for on-time shipment of products.

Other income (loss) of $101,000 for fiscal 2000 and of ($6,000)
for the same period in fiscal 1999 represented principally currency exchange
rate gains (losses) by the Korean subsidiary and income derived from rented
portions of the Korean manufacturing facility. The Company had interest income
of $101,000 for fiscal 2000 and $292,000 for the same period in fiscal 1999. The
Company incurred interest expenses of $406,000 in fiscal 2000 and $146,000 in
fiscal 1999. The increase is primarily due to the mortgage on the new facility
in Minneapolis.

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

Information About Revenue by Geography

Distribution of revenue from the US, from each foreign country
that is the source of significant revenue and from all other foreign countries
as a group are as follows:

16

|              | FISCAL YEAR ENDED
|------------- | -----------------
|
|              |                  
|US            | $54,170          
|Canada        | 2,690            
|Ireland       | 4,351            
|Korea         | 7,461            
|Belgium       | 2,820            
|China         | 5,971            
|Other Foreign | 8,229            
|              |                  
|Total         | $85,692          
|              |                  

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 currency fluctuates. The effect of translating the Korean
and Chinese financial statements resulted in a net asset value decrease of
$387,000 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, computer peripherals and
the medical markets; buying patterns of the Companys existing and
prospective customers; the impact of new products introduced by competitors;
delays in new product introductions; higher than expected expense related to
sales and new marketing initiatives; availability of adequate supplies of raw
materials and components; fuel prices; and other risks affecting the
Companys target markets generally.

Accounting Pronouncements

On June 4, 2001 the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that all derivatives,
including those embedded in other contracts, be recognized as either assets or
liabilities and that those financial instruments be measured at fair value. The
accounting for changes in the fair value of derivatives depends on their intended use and
designation. Management has reviewed the requirements of SFAS No. 133 and has determined
that the Company has no free-standing or embedded derivatives. All agreements that
contain provisions meeting the definition of a derivative also meet the requirements of,
and have been designated as, normal purchases or sales. The Companys policy is to
not use free-standing derivatives and to not enter into contracts with terms that cannot
be designated as normal purchases or sales.

17

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 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 upon delivery of products to these
customers. 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. The pro forma amounts presented in the consolidated statements of income
were calculated assuming the accounting change was made retroactively to prior
periods.

For the three months ended August 27, 2000, the Company
recognized $234,000 in revenue that was included in the cumulative effect
adjustment as of May 29, 2000. The effect of the revenue in the first quarter
was to increase income by $50,000 (after reduction for income taxes of $27,000).

In June 2001, the Financial Accounting Standards Board has
approved for issuance Statement of Financial Accounting Standards (SFAS) No.
141, Business Combinations and No. 142 Goodwill and Other Intangible
Assets. SFAS No. 141 will require 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. 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. Identifiable intangible assets will continue to be amortized over their
useful lives and reviewed for impairment in accordance with SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. SFAS No. 142 is effective for the Companys fiscal
year beginning June 3, 2002, however, the Company may elect early adoption of
this statement on June 4, 2001, the beginning of its 2002 fiscal year. The
Company is evaluating the impact of the adoption of these standards and has not
yet determined the effect of adoption on its financial position and results of
operations.

|ITEM 7A. | QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

The Company experiences foreign currency gains and losses, which
are reflected in the financial statements, due to the strengthening and
weakening of the U.S. dollar against currencies of the Companys foreign
subsidiaries. The Company anticipates that it will continue to have exchange
gains or losses in the future. The Company realized an exchange gain of $500,000
for fiscal 2001 and $21,000 for fiscal 2000.

As of June 3, 2001, 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.

18

|ITEM 8. | FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA
|------- | ------------------------------------------

|(a) | Financial
StatementsIndex to Consolidated Financial Statements | Page
|--- | -------------------------------------------------------------- | ----

| |  | Independent Auditors Reports | 20
| | - | ----------------------------- | --

| |  | Consolidated Balance Sheets, June 3, 2001 and May 28, 2000. | 22
| | - | ----------------------------------------------------------- | --

| |  | Consolidated Statements of Income for the Years Ended June 3, 2001, May 28,
2000, and May 30, 1999. | 24
| | - | --------------------------------------------------------------------------------------------------- | --

| |  | Consolidated Statements of Stockholders Equity for the Years Ended June
3, 2001, May 28, 2000, and May 30, 1999. | 25
| | - | ----------------------------------------------------------------------------------------------------------------- | --

| |  | Consolidated Statements of Cash Flows for the Years Ended June 3, 2001, May
28, 2000, and May 30, 1999. | 26
| | - | ------------------------------------------------------------------------------------------------------- | --

| |  | Notes to Consolidated Financial Statements | 27
| | - | ------------------------------------------ | --

|(b) | Supplemental
Financial Information | 
|--- | ---------------------------------- | 

| |  | Quarterly Financial Data | 39
| | - | ------------------------ | --

19

INDEPENDENT AUDITORS REPORT

Stockholders and Board of Directors
Ault Incorporated and SubsidiariesMinneapolis, Minnesota

We have audited the accompanying consolidated balance sheets of Ault
Incorporated and Subsidiaries (the Company) as of June 3, 2001 and May 28, 2000 and the
related consolidated statements of income, stockholders equity, and cash flows for
the years then ended. Our audits also included the financial statement schedule listed in
the index as Item 14.(2). These consolidated financial statements and the financial
statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these 2001 and 2000 consolidated financial
statements 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 2001 and 2000 consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 2001 and 2000 consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall 2001
and 2000 consolidated financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.

In our opinion, such 2001 and 2000 consolidated financial
statements present fairly, in all material respects, the financial position of
Ault Incorporated and Subsidiaries as of June 3, 2001 and May 28, 2000 and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

Deloitte &Touche LLP

Minneapolis, Minnesota
July 6, 2001

20

INDEPENDENT AUDITORS REPORT

Stockholders and Board of Directors
Ault Incorporated and SubsidiariesMinneapolis, Minnesota

We have audited the accompanying consolidated balance sheet of
Ault Incorporated and Subsidiaries (the Company) as of May 30, 1999, and the
related consolidated statements of income, stockholders equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Ault Incorporated and Subsidiary as of May 30, 1999, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.

McGLADREY &PULLEN, LLP

Minneapolis, Minnesota
July 9, 1999

21

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 3, 2001 AND MAY 28, 2000

---

|ASSETS                                                          | June 3,2001 | May 28,2000
|--------------------------------------------------------------- | ----------- | -----------
|                                                                |             |            
|CURRENT ASSETS:                                                 |             |            
|Cash and cash equivalents                                       |             |            
|Available-for-sale investments                                  |             |            
|Trade receivables, less allowance for doubtful accounts of      |             |            
|$621,000 in 2001; $94,000 in 2000 (Note 10)                     |             |            
|Inventories (Note 2)                                            |             |            
|Prepaid and other expenses                                      |             |            
|Deferred taxes (Note 4)                                         |             |            
|                                                                |             |            
|Total current assets                                            |             |            
|                                                                |             |            
|OTHER ASSETS:                                                   |             |            
|Intangibles, less accumulated amortization of $251,000 in 2001; |             |            
|$150,000 in 2000                                                |             |            
|Deferred taxes (Note 4)                                         |             |            
|Other                                                           |             |            
|                                                                |             |            
|                                                                |             |            
|                                                                |             |            
|PROPERTY, PLANT & EQUIPMENT:                                    |             |            
|Land                                                            |             |            
|Building                                                        |             |            
|Machinery and equipment                                         |             |            
|Office furniture and equipment                                  |             |            
|Data processing equipment                                       |             |            
|Construction in progress                                        |             |            
|                                                                |             |            
|                                                                |             |            
|                                                                |             |            
|Less accumulated depreciation                                   |             |            
|                                                                |             |            
|                                                                |             |            
|                                                                |             |            
|                                                                |             |            
|                                                                |             |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

22

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 3, 2001 AND MAY 28, 2000

---

|LIABILITIES AND STOCKHOLDERS EQUITY                        | June 3,2001 | May 28,2000
|----------------------------------------------------------- | ----------- | -----------
|                                                            |             |            
|CURRENT LIABILITIES:                                        |             |            
|Note payable to bank (Note 3)                               |             |            
|Current maturities of long-term debt                        |             |            
|Accounts payable                                            |             |            
|Accrued compensation                                        |             |            
|Accrued commissions                                         |             |            
|Other                                                       |             |            
|Income Tax Payable                                          |             |            
|                                                            |             |            
|Total current liabilities                                   |             |            
|                                                            |             |            
|LONG-TERM DEBT, less current maturities (Note 3)            |             |            
|DEFERRED TAX LIABILITY (Note 4)                             |             |            
|RETIREMENT AND SEVERANCE BENEFITS (Note 1)                  |             |            
|                                                            |             |            
|                                                            |             |            
|COMMITMENTS AND CONTINGENCIES (Note 8)                      |             |            
|                                                            |             |            
|                                                            |             |            
|STOCKHOLDERS EQUITY (Notes 5, 6, and 7):                   |             |            
|Preferred stock, no par value; authorized 1,000,000 shares; |             |            
|none issued                                                 |             |            
|Common stock, no par value; authorized 10,000,000 shares;   |             |            
|issued and outstanding 4,528,522 shares in 2001;            |             |            
|4,445,432 shares in 2000                                    |             |            
|Notes receivable arising from the sale of common stock      |             |            
|Accumulated other comprehensive loss                        |             |            
|Retained Earnings                                           |             |            
|                                                            |             |            
|                                                            |             |            
|                                                            |             |            
|                                                            |             |            
|                                                            |             |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

23

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 3, 2001, MAY 28, 2000, AND MAY 30, 1999

---

|                                                            | June 3,2001 | May 28,2000 | May 30,1999
|----------------------------------------------------------- | ----------- | ----------- | -----------
|                                                            |             |            
|NET SALES                                                   |             |             | $          
|                                                            |             |            
|COST OF GOODS SOLD                                          |             |             |            
|                                                            |             |             |            
|Gross profit                                                |             |             |            
|                                                            |             |            
|OPERATING EXPENSES (INCOME):                                |             |            
|Marketing                                                   |             |             |            
|Design engineering                                          |             |             |            
|General and administrative                                  |             |             |            
|Gain on sale of facility                                    |             |             |            
|                                                            |             |             |            
|                                                            |             |             |            
|                                                            |             |             |            
|                                                            |             |            
|OPERATING INCOME                                            |             |             |            
|                                                            |             |            
|NONOPERATING INCOME (EXPENSE):                              |             |            
|Interest expense                                            |             |             |            
|Interest income                                             |             |             |            
|Other                                                       |             |             |            
|                                                            |             |             |            
|                                                            |             |             |            
|                                                            |             |             |            
|                                                            |             |            
|INCOME BEFORE INCOME TAXES                                  |             |             |            
|                                                            |             |            
|INCOME TAXES (Note 4)                                       |             |             |            
|                                                            |             |             |            
|NET INCOME BEFORE ACCOUNTING CHANGE                         |             |             |            
|                                                            |             |            
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE,                     |             |            
|NET OF TAX                                                  |             |             |            
|                                                            |             |             |            
|                                                            |             |            
|NET INCOME                                                  |             |             | $          
|                                                            |             |             |            
|                                                            |             |            
|EARNINGS PER SHARE (Note 1):                                |             |            
|Basic:                                                      |             |            
|Net Income before accounting change                         |             |             | $          
|Cumulative effect of accounting change                      |             |             |            
|                                                            |             |             |            
|Basic earnings per share                                    |             |             | $          
|                                                            |             |             |            
|Diluted:                                                    |             |            
|Net income before accounting change                         |             |             | $          
|Cumulative effect of accounting change                      |             |             |            
|                                                            |             |             |            
|Diluted earnings per share                                  |             |             | $          
|                                                            |             |             |            
|                                                            |             |            
|Pro forma amounts assuming the accounting change is applied |             |            
|retroactively (In thousands except per-share amounts)       |             |            
|Income available to common shareholders                     |             |             | $          
|Net income per common share:                                |             |            
|Basic                                                       |             |             |            
|Diluted                                                     |             |             |            
|Weighted average common shares outstanding:                 |             |            
|Basic                                                       |             |             |            
|Diluted                                                     |             |             |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

24

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED JUNE 3, 2001, MAY 28, 2000, AND MAY 30, 1999

---

|                                           | Common Stock | NotesReceivableFrom Saleof Common | Retained | AccumulatedOtherComprehensiveIncome | TotalStockholders
|------------------------------------------ | ------------ | --------------------------------- | -------- | ----------------------------------- | ------------------
|
|                                           |              |                                  
|BALANCE AT MAY 31, 1998                    |              |                                   |          | 4,161,758                           |                   
|                                           |              |                                  
|Comprehensive income:                      |              |                                  
|Net income                                 |              |                                   |          |                                     |                   
|Net change in foreign currency             |              |                                  
|translation adjustment                     |              |                                   |          |                                     |                   
|                                           |              |                                  
|Total comprehensive income                 |              |                                   |          |                                     |                   
|                                           |              |                                  
|Issuance of 132,166 shares of common       |              |                                  
|stock in accordance with stock purchase    |              |                                  
|plan and stock option plan (Notes 5 and 6) |              |                                   |          | 132,166                             |                   
|Issuance of 78,895 shares of common        |              |                                  
|stock in connection with acquisition       |              |                                  
|of LZR Electronics, Inc. (Note 1)          |              |                                   |          | 78,865                              |                   
|Repayment of note receivable from sale     |              |                                  
|of common stock                            |              |                                   |          |                                     |                   
|Income tax benefit from stock options      |              |                                  
|exercised                                  |              |                                   |          |                                     |                   
|                                           |              |                                   |          |                                     |                   
|                                           |              |                                  
|BALANCE AT MAY 30, 1999                    |              |                                   |          | 4,372,789                           |                   
|                                           |              |                                  
|Comprehensive income:                      |              |                                  
|Net income                                 |              |                                   |          |                                     |                   
|Net change in foreign currency             |              |                                  
|translation adjustment                     |              |                                   |          |                                     |                   
|                                           |              |                                  
|Total comprehensive income                 |              |                                   |          |                                     |                   
|Issuance of 66,143 shares of common        |              |                                  
|stock in accordance with stock purchase    |              |                                  
|plan and stock option plan (Notes 5 and 6) |              |                                   |          | 66,143                              |                   
|Income tax benefit from stock options      |              |                                  
|exercised                                  |              |                                   |          |                                     |                   
|Stock Grants                               |              |                                   |          | 6,500                               |                   
|                                           |              |                                   |          |                                     |                   
|                                           |              |                                  
|BALANCE AT MAY 28, 2000                    |              |                                   |          | 4,445,432                           |                   
|                                           |              |                                  
|Comprehensive income:                      |              |                                  
|Net income                                 |              |                                   |          |                                     |                   
|Net change in foreign currency             |              |                                  
|translation adjustment                     |              |                                   |          |                                     |                   
|                                           |              |                                  
|Total comprehensive income                 |              |                                   |          |                                     |                   
|Issuance of 90,945 shares of common        |              |                                  
|stock in accordance with stock purchase    |              |                                  
|plan and stock option plan (Notes 5 and 6) |              |                                   |          | 90,945                              |                   
|Adjust retained earnings for the change in |              |                                  
|subsidiary fiscal year end                 |              |                                   |          |                                     |                   
|7,855 shares of common stock acquired and  |              |                                  
|retired for payment of receivables         |              |                                   |          | (7,855                              | )                 
|Income tax benefit from stock options      |              |                                  
|exercised                                  |              |                                   |          |                                     |                   
|Stock Compensation                         |              |                                   |          |                                     |                   
|                                           |              |                                   |          |                                     |                   
|                                           |              |                                  
|BALANCE AT JUNE 3, 2001                    |              |                                   |          | 4,528,522                           |                   
|                                           |              |                                   |          |                                     |                   

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

25

AULT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 3, 2001, MAY 28, 2000, AND MAY 30, 1999

---

|                                                                             | June 3,2001 | May 28,2000 | May 30,1999
|---------------------------------------------------------------------------- | ----------- | ----------- | -----------
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |             |             |            
|Net income                                                                   |             |             | $          
|Adjustments to reconcile net income to net cash                              |             |            
|(used in) provided by operating activities:                                  |             |            
|Depreciation                                                                 |             |             |            
|Amortization                                                                 |             |             |            
|Adjustment related to change in subsidiary year-end                          |             |             |            
|Stock compensation                                                           |             |             |            
|(Gain)/loss on disposal of property and equipment                            |             |             |            
|Realized gain from the sale of securities available for sale                 |             |             |            
|Deferred taxes                                                               |             |             |            
|Change in assets and liabilities, net of effect of acquisition:              |             |            
|(Increase) decrease in:                                                      |             |            
|Trade receivables                                                            |             |             |            
|Inventories                                                                  |             |             |            
|Prepaid and other expenses                                                   |             |             |            
|Increase (decrease) in:                                                      |             |            
|Accounts payable                                                             |             |             |            
|Accrued expenses                                                             |             |             |            
|Income tax payable                                                           |             |             |            
|                                                                             |             |             |            
|Net cash provided by (used in) operating activities                          |             |             |            
|                                                                             |             |             |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |             |            
|Purchase of property and equipment                                           |             |             |            
|Proceeds from disposition of property and equipment                          |             |             |            
|Acquisition of LZR Electronics, Inc.                                         |             |             |            
|Decrease in intangibles and other assets                                     |             |             |            
|Proceeds from the sale of securities                                         |             |             |            
|                                                                             |             |             |            
|Net cash used in investing activities                                        |             |             |            
|                                                                             |             |             |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |             |            
|Net borrowings on revolving credit agreement                                 |             |             |            
|Proceeds from long-term borrowings                                           |             |             |            
|Proceeds from issuance of common stock                                       |             |             |            
|Payments received from notes receivable arising from sale of                 |             |            
|common stock                                                                 |             |             |            
|Principal payments on long-term borrowings                                   |             |             |            
|                                                                             |             |             |            
|Net cash provided by financing activities                                    |             |             |            
|EFFECT OF FOREIGN CURRENCY EXCHANGE RATE                                     |             |            
|CHANGES ON CASH                                                              |             |             |            
|                                                                             |             |             |            
|                                                                             |             |            
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             |             |             |            
|                                                                             |             |            
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                               |             |             |            
|                                                                             |             |             |            
|                                                                             |             |            
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                     |             |             | $          
|                                                                             |             |             |            
|                                                                             |             |            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                           |             |            
|Cash payments for:                                                           |             |            
|Interest (Net of Capitalized interest of  $55,010 in 2001, $144,930 in 2000, |             |            
|and $0 in 1999)                                                              |             |             | $          
|Taxes                                                                        |             |             |            
|Supplemental Schedule of Noncash Investing and Financing Activities:         |             |            
|Construction payable for new facility                                        |             |             |            

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

26

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

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

| | Nature
of Business  The Company and its subsidiaries operate in one business segment which
includes the design, manufacturing, and marketing of power conversion products,
principally to original equipment manufacturers of data communications equipment,
microcomputers and related peripherals, telecommunications equipment, and portable
medical equipment. Sales are to customers worldwide, and credit is granted based upon the
credit policies of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Principles of Consolidation  The consolidated financial statements include the
accounts of Ault Incorporated, its wholly owned subsidiaries, Ault Shanghai and
Ault Korea Corporation, and its wholly owned subsidiary, Ault Xianghe Co. Ltd.
(located in China), which commenced operations in May 1997. All significant
intercompany transactions have been eliminated. The foreign currency translation
adjustment represents the translation into United States dollars of the
Companys investment in the net assets of its foreign subsidiary in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 52.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Change in Fiscal Year  Effective May 29, 2000 the company changed its fiscal
year end for its Korean subsidiary from May 31 to April 30 and will consolidate
the subsidiary for financial reporting purposes on a one-month lag basis. This
change was done to facilitate timely and accurate consolidation and in order to
meet financial reporting deadlines of the Company. The results of operations for
the subsidiary for May 2000 ($61,000 net loss) was included in the consolidated
results of operations for the first quarter of fiscal 2001. Retained earnings
was adjusted during the first quarter of fiscal 2001 to eliminate the subsidiary
net loss for May 2000, which was included in operations for the year-ended May
28, 2000. The effect of the change in year-end for future periods is expected to
be insignificant.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fiscal Year  The Company operates on a 52- to 53-week fiscal
year. The fiscal years for the financial statements presented end on June 3,
2001, May 28, 2000, and May 30, 1999. The year ending June 3, 2001 contains 53
weeks while the years ending May 28, 2000 and May 30, 1999 contain 52 weeks.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash and Cash Equivalents  The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Available-for-Sale Investments  Investments were classified as available-for-sale
securities and consisted primarily of preferred stock, including securities that
may be sold in response to changes in market interest, needs for liquidity, or
changes in the availability or yield of alternative investments. These
securities were carried at fair market value prior to their sale in fiscal 2001.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Intangibles  Intangibles consist primarily of goodwill, which is being amortized
using the straight-line method over its economic useful life, which has been
estimated to be 15 years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Depreciation  Depreciation is based on the estimated useful lives of the individual
assets. The methods and estimated useful lives are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

27

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

|                               | Method                                     | Years
|------------------------------ | ------------------------------------------ | -----
|                              
|Building                       | Straight-line                              | 36   
|Machinery and equipment        | Straight-line                              | 3-10 
|Office furniture and equipment | Straight-line                              | 5-15 
|Data processing equipment      | Double declining balance and straight-line | 3-5  

| | 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 FOB
point. Substantially all of the Companys product held by distributors are
stocked for OEMs and are non-cancelable, non-returnable. Payment from
distributors are no different that 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 No. 00-10, Accounting for Shipping and Handling Fees
and Costs (EITF 00-10). Previously the billings and costs were
netted in sales and cost of goods sold. Prior period billings have been
reclassified to sales, which had no effect on previously reported net income.
This resulted in an increase to sales and cost of sales of $1,790,000 and
$1,074,000 in the 2000 and 1999 statements of income, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Advertising Expense  The Company expenses advertising costs as incurred.
Advertising expenses of approximately $106,000, $171,000, and $229,000 were
charged to operations during the periods ended June 3, 2001, May 28, 2000, and
May 30, 1999, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sale of Korean Facility  The Companys facility in Korea was
expropriated by the government for the construction of a provincial road. In the
fourth quarter of the year ended May 28, 2000, the company
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

| | received
expropriation proceeds and recognized a gain on the disposition of $1,524,879.
At June 3, 2001 the company was still operating in the facility and has moved
into the new facility subsequent to fiscal year end.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income Taxes  Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Research
and development credits and job credits are accounted for by the flow-through
method whereby they reduce income taxes currently payable and the provision for
income taxes in the period the assets giving rise to such credits are placed in
service. To the extent such credits are not currently utilized on the
Companys tax return, deferred tax assets, subject to considerations about
the need for a valuation allowance, are recognized for the carryforward amount.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Long-Lived Assets  In accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
reviews its long-lived assets and intangibles related to those assets
periodically to determine potential impairment by comparing the carrying value
of the long-lived assets outstanding with estimated future cash flows expected
to result from the use of the assets, including cash flows from disposition.
Should the sum of the expected future cash flows be less than the carrying
value, the Company would recognize an impairment loss. An impairment loss would
be measured by comparing the amount by which the carrying value exceeds the fair
value of the long-lived assets and intangibles. To date, management has
determined that no impairment of long-lived assets exists.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Earnings per Share  Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period adjusted by common share
equivalents related to stock options (when dilutive), warrants, and the employee
stock purchase plan. Options to purchase 299,527, 196,812, and 227,413 shares of
common stock were outstanding during the fiscal years ended June 3, 2001, May
28, 2000, and May 30, 1999, respectively, but were excluded from the computation
of common stock equivalents because they were anti-dilutive.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

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

|                                                      | June 3,2001 | May 28,2000 | May 30,1999
|----------------------------------------------------- | ----------- | ----------- | -----------
|                                                      |             |            
|Numerator                                            |             |             |            
|Income available to common shareholders               |             |             | $          
|                                                      |             |             |            
|Denominator:                                          |             |            
|Basic  weighted-average shares outstanding           |             |             |            
|Effect of dilutive shares:                            |             |            
|Stock options outstanding and employee stock purchase |             |            
|plan                                                  |             |             |            
|Warrants outstanding                                  |             |             |            
|                                                      |             |             |            
|Diluted  weighted-average shares outstanding         |             |             |            
|                                                      |             |             |            
|                                                      |             |            
|Basic earnings per share                              |             |             | $          
|                                                      |             |             |            
|                                                      |             |            
|Diluted earnings per share                            |             |             | $          
|                                                      |             |             |            

| | Use of Estimates in the Preparation of Financial Statements  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive Income  The Companys fiscal 2001 comprehensive income consists
of net income and foreign currency translation adjustments.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | Reclassifications  Certain fiscal year 2000 and 1999 amounts have been
reclassified to be consistent with the 2001 presentation. These
reclassifications had no impact on net income or stockholders equity as
previously reported.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounting Pronouncements  On June 4, 2001 the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that all
derivatives, including those embedded in other contracts, be recognized as
either assets or liabilities and that those financial instruments be measured at
fair value. The accounting for changes in the fair value of derivatives depends
on their intended use and designation. Management has reviewed the requirements
of SFAS No. 133 and has determined that the Company has no free-standing or
embedded derivatives. All agreements that contain provisions meeting the
definition of a derivative also meet the requirements of, and have been
designated as normal purchases or sales. The Companys policy is to not use
free-standing derivatives and to not enter into contracts with terms that cannot
be designated as normal purchases or sales.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

| | for certain sales transactions.
Historically, the Company recognized revenue upon shipment of products to
certain 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 upon delivery of products to these
customers. The cumulative effect of the change on prior years resulted in a
minor non-cash charge to income of $50,000 (net of taxes of $27,000) for the
year ended June 3, 2001. The pro forma amounts presented in the consolidated
statements of income were calculated assuming the accounting change was made
retroactively to prior periods.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
the three months ended August 27, 2000, the Company recognized $234,000 in
revenue that was included in the cumulative effect adjustment as of May 29,
2000. The effect of the revenue in the first quarter was to increase income by
$50,000 (after reduction for income taxes of $27,000).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2001, the Financial Accounting Standards Board has approved for issuance
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and No. 142 Goodwill and Other Intangible Assets. SFAS
No. 141 will require 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. 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. Identifiable
intangible assets will continue to be amortized over their useful lives and
reviewed for impairment in accordance with SFAS No. 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS No. 142 is effective for the Companys fiscal year beginning
June 3, 2002, however, the Company may elect early adoption of this statement on
June 4, 2001, the beginning of its 2002 fiscal year. The Company is evaluating
the impact of the adoption of these standards and has not yet determined the
effect of adoption on its financial position and results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
components of inventory at June 3, 2001 and May 28, 2000 are as follows:
| | ----------------------------------------------------------------------------

|                | June 3,2001 | May 28,2000
|--------------- | ----------- | -----------
|                |             |            
|Raw materials   |             |            
|Work-in-process |             |            
|Finished Goods  |             |            
|                |             |            
|                |             |            
|                |             |            

|3. | FINANCING
ARRANGEMENT AND LONG-TERM DEBT
|-- | ----------------------------------------

| | Financing Arrangement  The Company has a financing
agreement, which includes a $4,000,000 revolving line-of-credit agreement
through December 1, 2001. Interest on advances is at the banks reference
rate less one-half percent, 6.5 percent and 9.0 percent at June 3, 2001 and May
28, 2000. All advances are due on demand and are secured by substantially all
assets of the Company. There were no advances outstanding on the revolving line
of credit at June 3, 2001 or May 28, 2000. Also, the Companys Korean
subsidiary maintains an unsecured $4,770,000 credit facility agreement to cover
bank overdrafts, short-term financing, and export financing at a rate of 6.25%
on June 3, 2001. Advances outstanding relating to the Korean facility were
$4,003,087 and $2,158,377 at June 3, 2001 and May 28, 2000, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

31

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

Long-Term Debt 

|                                                                   | June 3,2001 | May 28,2000
|------------------------------------------------------------------ | ----------- | -----------
|                                                                   |             |            
|7.97% term loan, due in monthly installments of $7,320,            |             |            
|including interest to November 2001, secured by equipment          |             |            
|7.2% term loan, due in monthly installments of $7,978, including   |             |            
|interest to December 2003, secured by equipment                    |             |            
|6.75% note payable, quarterly interest payments until August       |             |            
|1999, thereafter due in quarterly principal installments of        |             |            
|$46,588, plus interest, through November 2001, unsecured           |             |            
|guaranteed by Korean government                                    |             |            
|6.75% note payable, quarterly interest payments until April 2000,  |             |            
|thereafter due in quarterly principal installments of $52,464      |             |            
|plus interest, through April 2002, unsecured guaranteed by Korean  |             |            
|government                                                         |             |            
|7.94% term loan, due in monthly installments of $6,144, including  |             |            
|interest to September 2004, secured by furniture                   |             |            
|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                                            |             |            
|Other, paid in 2001                                                |             |            
|                                                                   |             |            
|Total                                                              |             |            
|                                                                   |             |            
|Less current maturities                                            |             |            
|                                                                   |             |            
|                                                                   |             |            
|                                                                   |             |            

| | Maturities
of long-term debt for years subsequent to June 3, 2001 are as follows:
| | ---------------------------------------------------------------------------------

|2002       |  |  | $ | 617,101   | 
|---------- |  |  | - | --------- | 
|2003       |  |  |   | 281,507   | 
|2004       |  |  |   | 270,413   | 
|2005       |  |  |   | 170,442   | 
|2006       |  |  |   | 164,881   | 
|Thereafter |  |  |   | 2,148,010 | 
|           |  | 
|           |  |  |  
|           |  |  | $ | 3,652,354 | 
|           |  | 

|4. | INCOME
TAXES
|-- | ------------

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

|         | June 3,2001 | May 28,2000 | May 30,1999
|-------- | ----------- | ----------- | -----------
|         |             |             |            
|Domestic |             |             | $          
|Foreign  |             |             |            
|         |             |             |            
|Total    |             |             | $          
|         |             |             |            

32

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

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

|         | June 3,2001 | May 28,2000 | May 30,1999
|-------- | ----------- | ----------- | -----------
|Current: |             |             |            
|Domestic |             |             | $          
|Foreign  |             |             |            
|State    |             |             |            
|Deferred |             |             |            
|         |             |             |            
|         |             |             | $          
|         |             |             |            

| | 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 3, 2001, May 28, 2000, and May 30, 1999, due to the following:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | June 3,2001 | May 28,2000 | May1999
|--------------------------------------------------- | ----------- | ----------- | -------
|                                                    |             |            
|Computed expected tax provision                     |             |             | $      
|Increase (decrease) in income taxes resulting from: |             |            
|Nondeductible expenses                              |             |             |        
|State income taxes, net of federal benefit          |             |             |        
|Foreign taxes                                       |             |             |        
|Current year R&D tax credits:                       |             |            
|Domestic                                            |             |             |        
|State                                               |             |             |        
|Change in valuation allowance                       |             |             |        
|Other                                               |             |             |        
|                                                    |             |             |        
|                                                    |             |             | $      
|                                                    |             |             |        

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

|                                                       | June 3,2001 | May 28,2000
|------------------------------------------------------ | ----------- | -----------
|Deferred tax assets:                                   |             |            
|Allowance for doubtful accounts                        |             |            
|Future income tax benefit from stock options exercised |             |            
|Accrued vacation                                       |             |            
|Accrued warranty                                       |             |            
|Equipment and leasehold improvements                   |             |            
|Tax credit carryforwards and other                     |             |            
|Foreign deferred tax asset                             |             |            
|Foreign valuation allowance                            |             |            
|Unicap adjustment                                      |             |            
|                                                       |             |            
|                                                       |             |            
|                                                       |             |            

33

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

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

|                                | June 3,2001 | May 28,2000
|------------------------------- | ----------- | -----------
|                                |             |            
|Current assets                  |             |            
|Noncurrent assets (liabilities) |             |            

| | The
Company has assessed its past earnings history and trends, budgeted sales, and
expiration of dates of carryforwards and has determined that it is more likely
than not that its deferred tax assets will be realized. However $180,000 of
foreign deferred assets has a full valuation allowance against it, as it is not
more likely than not to be realized.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
June 3, 2001, the Company had research and development tax credit carryforwards
of approximately $99,000 available to reduce future income taxes in Minnesota
for income tax purposes. These credits expire in varying amounts beginning in
2009 through 2015.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | EMPLOYEE
BENEFIT PLANS
|-- | ----------------------

| | 401K 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 3, 2001, May 28, 2000, and May 30, 1999 approximated $67,000, $63,000,
and $45,000, 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 15,740, 11,359, and 11,766
shares purchased under this plan during the fiscal year ended June 3, 2001,
May 28, 2000, and May 30, 1999, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | STOCK
OPTION PLAN
|-- | -----------------

| | The
Companys 1986 and 1996 stock option plan has reserved 600,000 and
1,050,000 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. Had compensation cost for
the Companys stock option plans been determined based on the fair value at
the grant date for awards in 2001, 2000, and 1999 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:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

|                                            | June 3,2001 | May 28,2000 | May 30,1999
|------------------------------------------- | ----------- | ----------- | -----------
|                                            |             |             |            
|Net income, as reported                     |             |             | $          
|Net income, pro forma                       |             |             |            
|Net income, per share, basic, as reported   |             |             |            
|Net income, per share, diluted, as reported |             |             |            
|Net income, per share, basic, pro forma     |             |             |            
|Net income, per share, diluted, pro forma   |             |             |            

| | 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 2001, 2000, and 1999:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | June 3,2001 | May 28,2000 | May 30,1999
|------------------------------- | ----------- | ----------- | -----------
|                                |             |             |            
|Expected dividend yields        |             |             | $          
|Expected stock price volatility |             |             |            
|Risk-free interest rate         |             |             |            
|Expected life of options        |             |             |            

| | Additional
information relating to all outstanding options as of June 3, 2001, May 28,
2000, and May 30, 1999 is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------

|                                         | June 3,2001 | May 28,2000 | May 30,1999
|---------------------------------------- | ----------- | ----------- | -----------
|
|                                         |             |            
|Options outstanding at beginning of year |             |             |            
|Options exercised                        |             |             |            
|Options expired                          |             |             |            
|Options granted                          |             |             |            
|                                         |             |             |            
|Options outstanding at end of year       |             |             |            
|                                         |             |             |            
|                                         |             |            
|Options exercisable at end of year       |             |             |            
|                                         |             |             |            
|                                         |             |            
|Weighted-average fair value of           |             |            
|options granted during the year          |             |             |            

35

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

| | The
following table summarizes information about stock options outstanding at June 3, 2001:
| | -------------------------------------------------------------------------------------------

|              |  | Options Outstanding | Options Exercisable
|------------- |  | ------------------- | -------------------
|
|              |  |                     |                    
|$1.19  $1.63 |  |                     |                    
|1.64    2.75 |  |                     |                    
|2.76    3.88 |  |                     |                    
|3.89    6.53 |  |                     |                    
|6.54    8.63 |  |                     |                    
|              |  |                     |                    
|$1.19  $8.63 |  |                     |                    
|              |  |                     |                    

|7. | STOCKHOLDERS EQUITY
|-- | --------------------

| | The
Board of Directors is empowered to establish and to designate classes and series
of preferred shares and to set the terms of such shares, including terms with
respect to redemption, dividends, liquidation, conversion, and voting rights.
The Restated Articles of Incorporation provide that the preferred shares are
senior to the common shares with respect to dividends and liquidation. No
preferred shares have been issued.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has a shareholders rights plan. Under this plan, a Class A, Junior
Participating Preferred Stock with no par value was created. In addition, a
dividend of one right was declared for each share of common stock at an exercise
price of $36 per right and a redemption price of $0.001 per right. Each right is
equal to a right to purchase one one-hundredth of a share of the Class A, Junior
Participating Preferred Stock. 100,000 shares of preferred stock are reserved
for the exercise of the rights. No rights were exercised during the years ended
June 3, 2001, May 28, 2000, and May 30, 1999.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has notes receivable from certain officers of the Company arising from
the sale of common stock recorded as an offset to stockholders equity. The
notes are due in September 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 1996, the Company completed a secondary stock offering of 1,840,000
shares of common stock. In connection with this offering, warrants to purchase
112,000 shares of common stock were issued and are outstanding. These warrants
are exercisable at $7.80 per share through December 2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | COMMITMENT
AND CONTINGENCIES
|-- | ----------------------------

| | Operating Leases  The Company leased its United States plant under an operating
lease through August 1999 before moving into its newly constructed facility. In
addition, certain equipment and motor vehicles are leased under operating leases
with terms of approximately 36 months.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

| | Approximate
minimum annual rental commitments at June 3, 2001 are as follows:
| | -----------------------------------------------------------------------------

|2002 |  |  |   | 101,760 | 
|---- |  |  | - | ------- | 
|2003 |  |  |   | 47,478  | 
|2004 |  |  |   | 23,813  | 
|     |  | 
|     |  |  | $ | 173,051 | 
|     |  | 

| | Total
rental expense for the fiscal years ended June 3, 2001, May 28, 2000, and May
30, 1999 was approximately $66,000, $304,000, and $511,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company conducts its business within one reportable segment: the power
conversion product industry. Foreign manufacturing is done by the Korean
subsidiary, including its wholly owned subsidiary located in China, and certain
nonaffiliated companies in China and Thailand. All United States manufacturing
is done by Ault Incorporated. A summary of the Companys revenues, net
income, and identifiable assets by geographic area is presented below:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | June 3,2001 | May 28,2000 | May 30,1999
|----------------------------------------- | ----------- | ----------- | -----------
|Revenues:                                 |             |             |            
|Domestic operations                       |             |             | $          
|Korean and Chinese operations  customers |             |             |            
|Korean and Chinese operations  parent    |             |             |            
|Eliminations                              |             |             |            
|                                          |             |             |            
|Consolidated                              |             |             | $          
|                                          |             |             |            
|Net income (loss):                        |             |            
|Domestic operations                       |             |             | $          
|Korean and Chinese operations             |             |             |            
|Eliminations                              |             |             |            
|                                          |             |             |            
|Consolidated                              |             |             | $          
|                                          |             |             |            

37

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

|Identifiable assets:          |  |  |   |            |   |   |            |   |   |            |  
|----------------------------- |  |  | - | ---------- | - | - | ---------- | - | - | ---------- | -
|Domestic operations           |  |  | $ | 37,517,703 |   | $ | 40,242,985 |   | $ | 31,287,114 |  
|Korean and Chinese operations |  |  |   | 15,683,510 |   |   | 14,965,140 |   |   | 8,770,190  |  
|Eliminations                  |  |  |   | (9,744,534 | ) |   | (8,951,737 | ) |   | (6,754,021 | )
|                              |  |  |   |            |   |  
|Consolidated                  |  |  | $ | 43,456,679 |   | $ | 46,256,388 |   | $ | 33,303,283 |  
|                              |  |  |   |            |   |  

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

|Long-Lived Assets             | June 3,2001 | May 28,2000 | May 30,1999
|----------------------------- | ----------- | ----------- | -----------
|                              |             |             |            
|Domestic Operations           |             |             | $          
|Korean and Chinese Operations |             |             |            
|                              |             |             |            
|Consolidated                  |             |             | $          
|                              |             |             |            

| | Export Sales  The Company also had foreign export sales amounting to 25.9,
14.8, and 14.0 percent of total sales for the fiscal years ended June 3, 2001,
May 28, 2000, and May 30, 1999, 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 $35,710,000, $29,944,000,
and $20,525,000 for the fiscal years ended June 3, 2001, May 28, 2000, and
May 30, 1999, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | MAJOR
CUSTOMER
|--- | --------------

| | 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. The Company had no
customers with revenues or accounts receivable of more than 10% of the total
during the fiscal year ended May 28, 2000. During the fiscal year ended May 30,
1999, the Company had a major customer with 13.3% of total sales and 9.2% of
total accounts receivable.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38

AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 2001 AND MAY 28, 2000

---

|11. | Selected
Quarterly Financial Data (Unaudited)
|--- | ---------------------------------------------

|                    
|--------------------
|
|                    
|Net Sales           
|Gross Profit        
|Operating Income    
|Net Income Before   
|Accounting change   
|Cumulative effect of
|accounting change,  
|net of tax          
|Net Income          
|                    
|Earnings per common 
|share:              
|Basic               
|Cumulative effect of
|accounting change   
|Basic earnings per  
|common share        
|Diluted             
|Cumulative effect of
|accounting change   
|Diluted earnings per
|common share        

|2000 (In thousands except   per-share data) | FirstQuarter asPreviouslyReported | Proforma | SecondQuarter asPreviouslyReported | Proforma | ThirdQuarter asPreviouslyReported | Proforma | FourthQuarter asPreviouslyReported | Proforma | TotalYear asPreviouslyReported | Proforma
|------------------------------------------- | --------------------------------- | -------- | ---------------------------------- | -------- | --------------------------------- | -------- | ---------------------------------- | -------- | ------------------------------ | --------
|                                           
|Net Sales                                   |                                   |          |                                    | 13,751   |                                   |          | 13,794                             |          |                                | 14,751  
|Gross Profit                                |                                   |          |                                    | 3,576    |                                   |          | 3,590                              |          |                                | 3,703   
|Operating Income                            |                                   |          |                                    | 314      |                                   |          | 328                                |          |                                | 485     
|Net Income                                  |                                   |          |                                    | 212      |                                   |          | 222                                |          |                                | 311     
|                                            |                                   |         
|Earnings per common                         |                                   |         
|share:                                      |                                   |         
|Basic                                       |                                   |          |                                    | 0.05     |                                   |          | 0.05                               |          |                                | 0.07    
|Diluted                                     |                                   |          |                                    | 0.05     |                                   |          | 0.05                               |          |                                | 0.07    
|                                           

The above quarterly financial information does not agree to previously
filed quarterly reports on Form 10-Q as we have restated all financial information for
the adoption of EITF 00-10.

In addition, as restated and pro forma quarterly financial information
reflects the impact of the adoption of SAB 101 retroactive to May 29, 2000.

39

|ITEM 8(b). | SUPPLEMENTAL
FINANCIAL INFORMATION
|---------- | ----------------------------------

See note 11 in the notes to the consolidated financial statements.

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

Not Applicable.

PART III.

|ITEM 10. | DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------

Information called for by Item 405 under Registration S-K with
respect to the Companys executive officers is contained under Item 1,
Narrative Description of The Business  Executive Officers of the
Registrant. The information required by this item with respect to directors will
be presented under the caption Election of Directors in the
Companys definitive proxy statement for its Annual Meeting to be held on
September 25, 2001 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 2001 fiscal year.

Information called for by item 405 under Regulation S-K with
respect to the information relating to compliance with 16(a) of the Exchange Act
is presented under the caption Compliance with Section 16(a) of the
Securities Exchange Act 1934 in the Companys definitive proxy
statement for its Annual Meeting to be held on September 25, 2001 and is
expressly incorporated herein by reference.

|ITEM 11. | EXECUTIVE
COMPENSATION
|-------- | ----------------------

The information called for by Item 403 under Regulation S-K, to
the extent applicable, will be set forth under the caption Executive
Compensation and Other Information under General in the
Companys definitive proxy materials for its September 25, 2001 Annual
Meeting to be filed within 120 days from the end of the Companys fiscal
2001 which information is expressly incorporated herein by reference.

|ITEM 12. | SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------

The information called for by Item 403 under Regulation S-K, to
the extent applicable, will be set forth under the caption Security
Ownership of Principal Shareholders and Management in the Companys
definitive proxy statement for its September 25, 2001 Annual Meeting to be filed
within 120 days from the end of the Companys fiscal year 2001, which
information is expressly incorporated herein by reference.

|ITEM 13. | CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

Not Applicable.

40

PART IV.

|ITEM 14. | EXHIBITS,
FINANCIAL STATEMENT, SCHEDULES AND REPORTS
|-------- | ----------------------------------------------------

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

| |  | Independent Auditors Reports | 20
| |  | ----------------------------- | --

| |  | Consolidated Financial Statements | 
| |  | --------------------------------- | 

| |  |  Balance Sheets, June 3, 2001 and May 28, 2000. | 22
| |  | ------------------------------------------------ | --

| |  |  Consolidated Statements of Income for the Years     Ended June
3, 2001, May 28, 2000 and May 30, 1999. | 24
| |  | -------------------------------------------------------------------------------------------------------- | --

| |  |  Consolidated Statements of Stockholders Equity for     the Years Ended June
3, 2001, May 28, 2000 and May 30, 1999. | 25
| |  | ---------------------------------------------------------------------------------------------------------------------- | --

| |  |  Consolidated Statements of Cash Flows for the Years     Ended June 3, 2001, May
28, 2000 and May 30, 1999. | 26
| |  | ------------------------------------------------------------------------------------------------------------ | --

| |  |  Notes to Consolidated Financial Statements | 27
| |  | -------------------------------------------- | --

|(2) | The
following financial statements schedule for the years ended June 3, 2001, May 28, 2000
and May 30, 1999 are submitted herein following the signature page of this report.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  Independent Auditors Report on the Supplementary Information Schedule
     for 1999 | 44
| |  | -------------------------------------------------------------------------------------- | --

| |  |  Schedule II  Valuation and Qualifying Accounts | 45
| |  | ------------------------------------------------- | --

| | All
other Schedules are omitted because they are not applicable or the required information
is shown in the financial statements or notes thereto.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Exhibits
|--- | --------

| | (a) | The Exhibits required to be filed with this report or incorporated by reference
are listed in the Exhibit Index, which follows the Financial Statements
Schedules.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Reports
on Form 8-K during three months ended June 3, 2001  None
| | --- | -----------------------------------------------------------------

41

SIGNATURES

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

AULT INCORPORATED

|/s/ Frederick M. Green                          | August 8, 2001
|----------------------------------------------- | --------------
|Frederick M. Green                              |               
|President, Chief Executive Officer and Director |               

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

Power of Attorney

Each person whose signature appears below constitutes and
appoints FREDERICK M. GREEN and DONALD HENRY as his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.

*Principal Financial Officer and Principal Accounting Officer

|Signature              | Title                                               | Date          
|---------------------- | --------------------------------------------------- | --------------
|                       |                                                     |               
|/s/ Frederick M. Green |                                                     |               
|Frederick M. Green     | President, Chief Executive Officer and Director     | August 8, 2001
|                       |                                                     |               
|/s/ Donald Henry       |                                                     |               
|Donald Henry           | Vice President, Treasurer, Chief Financial Officer, | August 8, 2001
|                       | Assistant Secretary and Controller*                 |               
|                       |                                                     |               
|/s/ Marvonia P. Walker |                                                     |               
|Marvonia P. Walker     | Director                                            | August 8, 2001
|                       |                                                     |               
|/s/ Frank L. Sims      |                                                     |               
|Frank L. Sims          | Director                                            | August 8, 2001
|                       |                                                     |               
|/s/ Delbert W. Johnson |                                                     |               
|Delbert W. Johnson     | Director                                            | August 8, 2001
|                       |                                                     |               
|/s/ John G. Kassakian  |                                                     |               
|John G. Kassakian      | Director                                            | August 8, 2001
|                       |                                                     |               
|/s/ David L. Larkin    |                                                     |               
|David L. Larkin        | Director                                            | August 8, 2001
|                       |                                                     |               
|/s/ Carol Barnett      |                                                     |               
|Carol Barnett          | Director                                            | August 8, 2001
|                       |                                                     |               
|/s/ John Colwell, Jr   |                                                     |               
|John Colwell, Jr       | Director                                            | August 8, 2001

42

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

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 3, 2001

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

FINANCIAL STATEMENT SCHEDULES

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43

INDEPENDENT AUDITORS REPORTON THE SUPPLEMENTARY INFORMATION

To the Board of Directors
Ault Incorporated and Subsidiaries
Minneapolis, Minnesota

Our audit was made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the May 30, 1999, basic consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole.

McGLADREY & PULLEN, LLP

Minneapolis, MinnesotaJuly 9, 1999

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SCHEDULE II
AULT INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

Years Ended June 3, 2001, May 28, 2000, and May 30, 1999

|                                | Balance atBeginningof Period | Charged toCosts andExpenses | Deductions | Balance atEnd ofPeriod
|------------------------------- | ---------------------------- | --------------------------- | ---------- | ----------------------
|                               
|Year ended June 3, 2001:        |                              |                             |            |                       
|Allowance for doubtful accounts |                              |                             | $          | 94,000                
|Reserve for warranties          |                              |                             |            | 78,000                
|                                |                              |                            
|Year ended May 28, 2000:        |                              |                            
|Allowance for doubtful accounts |                              |                             |            | 30,000                
|Reserve for warranties          |                              |                             |            | 74,000                
|                                |                              |                            
|Year ended May 30, 1999:        |                              |                            
|Allowance for doubtful accounts |                              |                             |            | 31,000                
|Reserve for warranties          |                              |                             |            | 83,000                

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

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

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

OF

AULT INCORPORATED

FOR

YEAR ENDED JUNE 3, 2001

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

EXHIBITS

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46

AULT INCORPORATED

EXHIBIT INDEX TO
FORM 10-K FOR THE YEAR ENDEDJune 3, 2001

Required Registration S-KExhibit Items

SK Reference

|     | Title of Documents                     |  | Location                                              
|---- | -------------------------------------- |  | ------------------------------------------------------
|    
|3(a) | Restated Articles of Incorporation, as |  | Filed as Exhibit 3(a) to Form 10-K for fiscal 1988    
|     | amended                                |  | 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      |  | Filed as Exhibit 10(b) to Registration Statement      
|     | Plan                                   |  | 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 | Financing Agreement on Credit Facility |  | Filed as Exhibit 10(f) to Form 10-K for fiscal 1995   
|     |                                        |  | and incorporated herein by reference                  
|    
|10.4 | First and Second Amendments to         |  | Filed electronically as Exhibit 10(g) to Form 10-K for
|     | Financing Agreement on Credit Facility |  | fiscal 1996 and herein incorporated by reference      
|    
|10.5 | Employee Stock Purchase Plan           |  | Filed electronically Commission File #333-4609 and    
|     |                                        |  | herein incorporated by reference                      
|    
|10.6 | 1986 Employee Stock                    |  | Filed electronically. Commission File # 333-4609      
|     | Option Plan, Amended                   |  | and herein incorporated by reference                  
|    
|10.7 | 1996 Employee Stock                    |  | Filed electronically. Commission File # 333-4609 and  
|     | Option Plan                            |  | herein incorporated by reference                      
|    
|21   | Subsidiary of Registrant               |  | Filed as Exhibit 21 to Form 10-K for fiscal 1997 and  
|     |                                        |  | incorporated herein by reference.                     
|    
|23   | Consent of Independent Auditors        |  | Filed herewith at page 48 and 49                      

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.

47