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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

(Mark One)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED MAY 30, 2004

Commission File Number 0-12611

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

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

Common Stock, No Par Value
(Title of Class)

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $14,037,000 based upon the closing price of the Company’s common stock on the NASDAQ National Market on August 2, 2004, multiplied by the number of outstanding shares of the Company held by persons other than officers, directors and 10% or more shareholders referred to in the "Security Ownership of Principal Shareholders and Management" table referred to under Item 12 herein.

On August 2, 2004, there were outstanding 4,765,291 shares of the Registrant’s common stock.

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

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

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AULT INCORPORATED

FORM 10-K
FOR THE FISCAL YEAR ENDED MAY 30, 2004

PART I

ITEM 1.   BUSINESS

(a)   General Development of Business

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

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

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

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

(b)   Financial Information About Industry Segments

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

(c)   Narrative Description of the Business

Ault’s power conversion products are used to adapt alternating current (AC) to provide a source of power at various levels up to more than one kilowatt of continuous power for a wide variety of electronic equipment. A significant amount of the Company’s products are located outside the equipment they power as a wall plug-in or as in-line components. Both of these styles are generally referred to as external power conversion products. A smaller percentage of the Company’s products are located inside the equipment they power and are generally known as internal power conversion devices. Each product configuration, external and internal, offers distinct advantages to the OEM buyer. Internal power

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products are more generally accepted among design engineers across all segments of the electronic original equipment market (EOEM). Internal power has traditionally been the norm in product design and, in terms of range, it provides greater latitude especially in applications beyond 100 watts. External power still ranks as a high growth area in the power supply industry due to the increasing emphasis on smaller and portable products that perform increasingly sophisticated functions. Ault’s business strategy is to offer OEMs in these markets an expanding line of high-quality power conversion products, diverse design engineering expertise and customized customer services.

Sale of Products by Category
as a Percentage of Total Sales

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Export sales in fiscal year 2004 represented 12.6% of the Company’s gross sales, most of which were to OEMs in Europe and Canada. For other financial information about foreign and domestic operations and export sales including the amount of export sales for the last 3 years, refer to “Note 13 — Segment Information and Foreign Operations” under notes to consolidated financial statements.

ITEM 2.   PROPERTIES

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

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

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

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

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

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

ITEM 3.   LEGAL PROCEEDINGS

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

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

Not applicable.

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PART II.

ITEM 5.   MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)   Market Information

Ault common shares are traded on the NASDAQ market under the symbol AULT. The following table presents the range of closing bid prices for the Company’s common stock on the NASDAQ Market for fiscal 2004 and 2003.

(b)   Holders

As of August 2, 2004 there were 281 shareholders of record for the Company’s common stock. This number of record stockholders does not include beneficial owners of common stock whose shares are held of record by Depository Trust under the name CEDE & Co.

(c)   Dividends

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

(d) Other Information Regarding Equity Compensation Plans

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ITEM 6.   SELECTED FINANCIAL SUMMARY

(Amounts in Thousands, Except Per Share Data)

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

Critical Accounting Policies

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

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

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

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

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

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

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

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LIQUIDITY AND CAPITAL RESOURCES

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

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

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

Current Working Capital Position

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

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

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

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

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

CASH FLOWS FOR FISCAL 2004

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

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

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

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

RESULTS OF OPERATIONS

Fiscal Year Ended May 30, 2004

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

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

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

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

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

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

CASH FLOWS FOR FISCAL 2003

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

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

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

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

Fiscal Year Ended June 1, 2003

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

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

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

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

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

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

Information About Revenue by Geography

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

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.

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Impact of Foreign Operations and Currency Changes

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

Forward Looking Statements

From time to time, in reports filed with the Securities and Exchange Commission (SEC), in press releases, and in other communications to shareholders or the investing public, the Company may make forward-looking statements concerning possible or anticipated future results of operations or business developments that are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Shareholders and the investing public should understand that such forward-looking statements are subject to risks and uncertainties which could cause results or developments to differ significantly from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the overall level of sales by original equipment manufacturers (OEMs) in the telecommunications, data communications, medical and other markets; buying patterns of the Company’s existing and prospective customers; the impact of new products introduced by competitors; delays in new product introductions; higher than expected expense related to sales and new marketing initiatives; availability of adequate supplies of raw materials and components; dependence on outside contractors; reliance on third-party distribution; unanticipated expenses related to integration of manufacturing and personnel from acquisitions, such as the acquisition of the Power General assets; dependence on foreign manufacturing and other operations; and other risks affecting the Company’s target markets generally.

CONTRACTUAL OBLIGATIONS

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

Accounting Pronouncements

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

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ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company experiences foreign currency gains and losses, which are reflected in the financial statements, due to the strengthening and weakening of the U.S. Dollar against currencies of the Company’s foreign subsidiaries. The Company anticipates that it will continue to have exchange gains or losses in the future. The Company realized an exchange loss of $30,000 for fiscal 2004, and an exchange loss $23,000 for fiscal 2003, and a $100,000 gain for fiscal 2002.

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

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ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

(a)    Financial Statements

(b)    Supplemental Financial Information

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
Ault Incorporated and Subsidiaries

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

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

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ault Incorporated and subsidiaries as of May 30, 2004, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

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

Grant Thornton LLP

Minneapolis, Minnesota

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of
Ault Korea Corporation

We have audited the balance sheet of Ault Korea Corporation (the “Company”) as of April 30, 2004, and the related statements of income, stockholder’s equity and cash flows for the year then ended (all expressed in Korean won, none of which are presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

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

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

Deloitte & Touche LLC (Hana)

Seoul, Republic of Korea
June 1, 2004

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheet of Ault Incorporated and Subsidiaries (the “Company”) as of June 1, 2003 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the fiscal years ended June 1, 2003 and June 2, 2002. Our audits also included the information for the fiscal years ended June 1, 2003 and June 2, 2002 in the financial statement schedule listed in the index as Item 15.(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Ault Incorporated and Subsidiaries as of June 1, 2003 and the results of their operations and their cash flows for the fiscal years ended June 1, 2003 and June 2, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein for the fiscal years ended June 1, 2003 and June 2, 2002.

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

Deloitte & Touche LLP

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

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

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

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

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

26

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

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

27

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

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

28

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

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

29

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

30

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