**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

| **(Mark  One)**                                                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                            | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934, AS AMENDED** |
|                                                                                                                                                  |
| **For  the quarterly period ended March 29, 2003**                                                                                                    |
|                                                                                                                                                  |
| **OR**                                                                                                                                                |
|                                                                                                                                                  |
| **o**                                                                                                                                                 | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                  |
| **For  the transition period from             to         ** |
|                                                                                                                                                  |
| **Commission file number 1-333-55797**                                                                                                                |

 

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**ELGAR HOLDINGS, INC.**

(Exactname of Registrant as specified in its charter)

 

| **Delaware**                                                                 |   | **51-0373329**                        |
|------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)             |   | (I.R.S. Employer  Identification No.) |
|                                                                         |   |                                  |
| **9250 Brown Deer Road  San Diego, California**                              |   | **92121-2294**                        |
| (Address of Principal  Executive  Offices)                                   |   | (Zip Code)                            |
|                                                                         |   |                                  |
| Registrant’s telephone number, including area code: **(858)  450-0085** |

 

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Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934, as amended, during the preceding 12 months (or for suchshorter 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 ý    No o

 

Indicate by check mark whether the Registrant is anaccelerated filer (as defined in Rule 12b-2 of the Act).  Yes o    No ý

 

As of May 13, 2003, the number of shares outstandingof the Registrant’s Common Stock was 4,602,433.

 

 

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**ELGAR HOLDINGS, INC.**

 

**QUARTERLY REPORT ON FORM 10-Q**

 

**INDEX**

 
| **Part I**   | **Financial Information**                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                         |
| Item 1       | Consolidated Financial  Statements                                                                                           |
|         |                                                                                                                         |
|         | Consolidated  Statements of Operations for the three months ended March 30, 2002  (unaudited) and March 29, 2003 (unaudited) |
|         |                                                                                                                         |
|         | Consolidated Balance Sheets  as of December 28, 2002 and March 29, 2003 (unaudited)                                          |
|         |                                                                                                                         |
|         | Consolidated  Statements of Cash Flows for the three months ended March 30, 2002  (unaudited) and March 29, 2003 (unaudited) |
|         |                                                                                                                         |
|         | Notes to  Consolidated Financial Statements (unaudited)                                                                      |
|         |                                                                                                                         |
| Item  2      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                  |
|         |                                                                                                                         |
| Item  3      | Quantitative  and Qualitative Disclosures About Market Risk                                                                  |
|         |                                                                                                                         |
| Item 4       | Controls and  Procedures                                                                                                     |
|         |                                                                                                                         |
| **Part  II** | **Other  Information**                                                                                                       |
|         |                                                                                                                         |
| Item 6       | Exhibits and  Reports on Form 8-K                                                                                            |
|         |                                                                                                                         |
|         | Signature  and Rule 13a-14 Certifications                                                                                    |

 

2

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**PARTI.  FINANCIAL INFORMATION**

 

**Item1.    Financial Statements**

 

**ELGAR HOLDINGS, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(unaudited) (dollars in thousands)**

 
|                                           |   | **For the Three Months Ended** |   |
|------------------------------------------------|--------|--------------------------------|--------|
|                                           |   | **March 30,  2002**            |   | **March 29,  2003** |   |
| Net sales                                      |   | $                              | 10,030 |   | $ | 8,259 |   |
| Cost of sales                                  |   | 6,228                          |   | 5,058 |   |
| Gross profit                                   |   | 3,802                          |   | 3,201 |   |
| Selling, general and administrative expenses   |   | 2,519                          |   | 2,688 |   |
| Research, development and engineering expenses |   | 1,246                          |   | 1,099 |   |
| Amortization of non-compete agreements         |   | 12                             |   | 12 |   |
| Operating income (loss)                        |   | 25                             |   | (598 | ) |
| Interest expense                               |   | 2,871                          |   | 3,066 |   |
| Net loss                                       |   | $                              | (2,846 | ) | $ | (3,664 | ) |

 

*Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese Financial Statements*

 

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**ELGAR HOLDINGS, INC. AND SUBSIDIARY**

**CONSOLIDATEDBALANCE SHEETS**

**(dollars in thousands)**

 
|                                                                                                                              |   | **Dec. 28,  2002** |   | **March 29,  2003** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|---------------------|--------|
|                                                                                                                              |   |               |   | **(unaudited)**     |   |
| **ASSETS**                                                                                                                        |   |               |   |                |   |
| CURRENT ASSETS:                                                                                                                   |   |               |   |                |   |
| Cash and cash equivalents                                                                                                         |   | $                  | 1,697  |                | $      | 40 |   |
| Accounts receivable, net of allowance for doubtful accounts of $163  and $160, respectively                                       |   | 7,330              |   | 3,917               |   |
| Inventories                                                                                                                       |   | 6,627              |   | 7,570               |   |
| Prepaids and other                                                                                                                |   | 269                |   | 219                 |   |
| Total current assets                                                                                                              |   | 15,923             |   | 11,746              |   |
|                                                                                                                              |   |               |   |                |   |
| PROPERTY, PLANT AND EQUIPMENT, net                                                                                                |   | 2,300              |   | 2,123               |   |
| GOODWILL                                                                                                                          |   | 24,381             |   | 24,381              |   |
| OTHER ASSETS, net of accumulated amortization of $2,955 and $3,254,  respectively                                                 |   | 4,810              |   | 4,511               |   |
|                                                                                                                              |   | $                  | 47,414 |                | $      | 42,761 |   |
|                                                                                                                              |   |               |   |                |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIT**                                                                                    |   |               |   |                |   |
|                                                                                                                              |   |               |   |                |   |
| CURRENT LIABILITIES:                                                                                                              |   |               |   |                |   |
| Accounts payable                                                                                                                  |   | $                  | 1,432  |                | $      | 2,563 |   |
| Accrued liabilities                                                                                                               |   | 6,663              |   | 4,118               |   |
| Dividends payable                                                                                                                 |   | 5,654              |   | 6,325               |   |
| Total current liabilities                                                                                                         |   | 13,749             |   | 13,006              |   |
|                                                                                                                              |   |               |   |                |   |
| LONG-TERM DEBT                                                                                                                    |   | 110,000            |   | 110,300             |   |
| Total liabilities                                                                                                                 |   | 123,749            |   | 123,306             |   |
| SERIES A 10% CUMULATIVE REDEEMABLE PREFERRED STOCK, no par value,  20,000 shares authorized; 13,449 shares issued and outstanding |   | 12,572             |   | 12,625              |   |
|                                                                                                                              |   |               |   |                |   |
| STOCKHOLDERS’ DEFICIT:                                                                                                       |   |               |   |                |   |
| Series B 6% cumulative convertible preferred stock, no par value,  5,000 shares authorized, issued and outstanding                |   | 5,000              |   | 5,000               |   |
| Series C 6% cumulative convertible preferred stock, no par value,  4,000 shares authorized, issued and outstanding                |   | 4,000              |   | 4,000               |   |
| Common stock, $.01 par value, 15,000,000 shares authorized, 4,602,433  shares issued and outstanding                              |   | 46                 |   | 46                  |   |
| Additional paid-in capital                                                                                                        |   | (68,067            | )      | (67,942             | )      |
| Accumulated deficit                                                                                                               |   | (29,886            | )      | (34,274             | )      |
| Total stockholders’ deficit                                                                                                  |   | (88,907            | )      | (93,170             | )      |
|                                                                                                                              |   | $                  | 47,414 |                | $      | 42,761 |   |

 

*Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese Financial Statements*

 

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**ELGAR HOLDINGS, INC. AND SUBSIDIARY**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(unaudited) (dollars in thousands)**

 
|                                                                         |   | **For the Three Months Ended** |   |
|------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                         |   | **March 30, 2002**             |   | **March 29, 2003** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                        |   |                           |   |   |   |
| Net loss                                                                     |   | $                              | (2,846 | ) | $ | (3,664 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |   |                           |   |   |   |
| Amortization of deferred financing costs and non-compete agreements          |   | 411                            |   | 299 |   |
| Depreciation and amortization of property, plant and equipment               |   | 206                            |   | 193 |   |
| (Gain) loss on sale of property, plant and equipment                         |   | (4                             | )      | 1 |   |
| Contributed management services                                              |   | 125                            |   | 125 |   |
| Changes in operating assets and liabilities:                                 |   |                           |   |   |   |
| Accounts receivable                                                          |   | 1,813                          |   | 3,413 |   |
| Inventories                                                                  |   | 750                            |   | (943 | ) |
| Prepaids and other assets                                                    |   | 9                              |   | 50 |   |
| Accounts payable                                                             |   | (224                           | )      | 1,131 |   |
| Accrued liabilities                                                          |   | (3,040                         | )      | (2,545 | ) |
| Net cash used in operating activities                                        |   | (2,800                         | )      | (1,940 | ) |
|                                                                         |   |                           |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                        |   |                           |   |   |   |
| Purchases of property, plant and equipment                                   |   | (39                            | )      | (17 | ) |
| Proceeds from sales of property, plant and equipment                         |   | 4                              |   | — |   |
| Net cash used in investing activities                                        |   | (35                            | )      | (17 | ) |
|                                                                         |   |                           |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                        |   |                           |   |   |   |
| Proceeds from borrowings                                                     |   | 800                            |   | 1,000 |   |
| Repayments of borrowings                                                     |   | —                         |   | (700 | ) |
| Net cash provided by financing activities                                    |   | 800                            |   | 300 |   |
|                                                                         |   |                           |   |   |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                    |   | (2,035                         | )      | (1,657 | ) |
| CASH AND CASH EQUIVALENTS, beginning of period                               |   | 2,063                          |   | 1,697 |   |
| CASH AND CASH EQUIVALENTS, end of period                                     |   | $                              | 28     |   | $ | 40 |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                            |   |                           |   |   |   |
| Cash paid for interest                                                       |   | $                              | 4,752  |   | $ | 4,928 |   |
|                                                                         |   |                           |   |   |   |
| NON-CASH INVESTING AND FINANCING ACTIVITIES:                                 |   |                           |   |   |   |
| Series A, B and C preferred stock dividend accrual                           |   | $                              | 582    |   | $ | 671 |   |
| Accretion of discount on Series A preferred stock                            |   | 42                             |   | 53 |   |

 

*Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese Financial Statements*

 

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**ELGAR HOLDINGS, INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**(unaudited)**

 

**1. Company Operations**

 

Elgar Holdings, Inc., a Delaware corporation (the“Company”), manufactures and sells programmable power supply units through itswholly owned subsidiary, Elgar Electronics Corporation (“Elgar”), forcommercial and military applications. The Company’s primary sales are within the United States andEurope.  The Company operates in onebusiness segment.

 

**2. Summary of Significant AccountingPolicies**

 

*Principlesof Consolidation/Basis of Presentation*

 

The accompanying consolidated financial statementsinclude the accounts of the Company and its wholly owned subsidiary,Elgar.  All significant intercompanyaccounts and transactions have been eliminated in consolidation.  These financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States and with the instructions to Form 10-Q.  These financial statements should be read in conjunction with thefinancial statements and notes thereto included in the Company’s Form 10-K forthe fiscal year ended December 28, 2002. These financial statements include all adjustments (consisting of normalrecurring adjustments) that are, in the opinion of management, necessary for afair presentation of financial condition, results of operations and cash flowsfor such periods.

 

*Interim Accounting Periods*

 

The Company operates and reports financial results on a fiscal year of52 or 53 weeks ending the Saturday closest to December 31.  Interim periods include 13 or 14 weeksending the last Saturday closest to the end of the quarter.  Results of operations for the three monthsended March 29, 2003 are not necessarily indicative of the results to beexpected for the Company’s fiscal year ending January 3, 2004 (“Fiscal 2003”).

 

*Use of Estimates*

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of sales andexpenses during the reporting period. Actual results could differ from those estimates.

 

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*Inventories*

 

Inventories, which include materials, direct labor andmanufacturing overhead, are stated at the lower of cost (first-in, first-out)or market and are comprised of the following (in thousands):

 
|            |   | **December 28, 2002** |   | **March 29, 2003** |   |
|-----------------|--------|-----------------------|--------|--------------------|--------|
| Raw materials   |   | $                     | 5,078  |               | $      | 5,613 |   |
| Work-in-process |   | 767                   |   | 1,113              |   |
| Finished goods  |   | 782                   |   | 844                |   |
| Total           |   | $                     | 6,627  |               | $      | 7,570 |   |

 

*Warranty*

 

In the normal course of business, the Company issuesproduct warranties of one to five years for specific product lines and providesfor the estimated future warranty cost in the period in which the sale isrecorded.  The Company provides for theestimate of warranty cost based on contract terms and historical warranty lossexperience that is periodically adjusted for recent and actual experience.  Because warranty estimates are forecaststhat are based on the best available information, claims costs may differ fromamounts provided.  Adjustments toinitial obligations for warranties are made as changes in the obligations becomereasonably estimable.  The following isan analysis of the product warranty accrual for the three months ended March30, 2002 and March 29, 2003 (in thousands):

 
|                            |   | **March 30, 2002** |   | **March 29, 2003** |   |
|---------------------------------|--------|--------------------|--------|--------------------|--------|
| Balance at beginning of  period |   | $                  | 490    |               | $      | 473 |   |
| Provisions                      |   | 161                |   | 248                |   |
| Usage                           |   | (222               | )      | (197               | )      |
| Balance at end of period        |   | $                  | 429    |               | $      | 524 |   |

 

*Goodwilland Other Assets*

 

Goodwill represents the excess of purchase price overnet fair value of assets acquired in connection with acquisitions and wasamortized on a straight-line basis over its estimated useful life of 15 yearsthrough December 29, 2001.  EffectiveDecember 30, 2001, under the provisions of Statement of Financial AccountingStandards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, goodwill isno longer amortized.  Other assets, as reflectedon the Company’s balance sheet, consist of deferred financing costs incurred inconnection with the Company’s 1998 recapitalization and the June 2002refinancing of Elgar’s prior credit facility with a new credit facility and thenon-compete agreements relating to the Power Ten acquisition.  The components of other assets are beingamortized on a straight-line basis over their estimated useful lives,ranging from 4 to 10 years.

 

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Other assets, net of accumulated amortization of$2,995 and $3,254 as of December 28, 2002 and March 29, 2003, respectively, arecomprised of the following (in thousands):

 
|                     |   | **December 28, 2002** |   | **March 29, 2003** |   |
|--------------------------|--------|-----------------------|--------|--------------------|--------|
| Deferred financing costs |   | $                     | 4,791  |               | $      | 4,504 |   |
| Non-compete agreements   |   | 19                    |   | 7                  |   |
| Total                    |   | $                     | 4,810  |               | $      | 4,511 |   |

 

*Recent Accounting Pronouncements*

 

In November 2002, the FinancialAccounting Standards Board issued Financial Interpretation No. 45 (“FIN 45”),“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others.”  FIN 45 requires that a guarantor must recognize, at the inceptionof a guarantee, a liability for the fair value of the obligation that it hasundertaken in issuing a guarantee.  FIN45 also addresses the disclosure requirements that a guarantor must include inits financial statements for guarantees issued, including matters such asproduct warranties.  The Company adoptedthe additional disclosure requirements in this interpretation effective forFiscal 2002.  The initial recognitionand measurement provisions of this interpretation are applicable on aprospective basis to guarantees issued or modified after December 31, 2002, ofwhich there have been none.

 

**3. Liquidity and Capital Resources**

 

*ExchangeAgreement*

 

On April 16, 2003, the Company entered into anExchange Agreement (the “Exchange Agreement”) with J.F. Lehman EquityInvestors I, L.P. (“JFL”), Jackson National Life Insurance Company, Old HickoryFund I, L.L.C., Indosuez Electronics Partners (collectively, the “ConsentingStockholders”) and OCM/GFI Power Opportunities Fund, L.P. and OCM PrincipalOpportunities Fund II, L.P. (collectively, the “Oaktree Entities”), in theircapacity as holders, directly or indirectly, of 73% of the Company’soutstanding Senior Notes.  The ExchangeAgreement requires the Company to make an exchange offer and consentsolicitation to the holders of its $90,000,000 of 9-7/8% Senior Notes, askingsuch holders to exchange their Senior Notes for an aggregate of (i) $60,000,000of 9% senior notes due February 1, 2008 (the “New Notes”),(ii) $30,000,000 in stated liquidation value of Series D 10.5% seniorcumulative redeemable preferred stock due February 1, 2008 (the “New PreferredStock”) and (iii) 750,000 shares of new common stock, representing,without giving effect to the transaction described in the immediatelysucceeding paragraph, 75% of the Company’s common stock to be outstanding uponcompletion of the restructuring transactions. The Exchange Agreement contemplates that the exchange offer may offerthe holders of Senior Notes (other than the Oaktree Entities, JFL or any oftheir affiliates) the option to have their Senior Notes repurchased by theCompany, for an amount of cash to be determined, rather than exchanged for thebasket of securities described above. The Company currently contemplates that the exchange offer will commenceon or about May 15, 2003, although that is subject to change.

 

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In addition, the Exchange Agreement requires JFL tomake an additional investment in the Company of not less than $4,800,000 inexchange for which it would receive, upon completion of the restructuring,$6,400,000 of New Notes, $3,200,000 in stated liquidation value of additionalNew Preferred Stock and 80,000 shares of new common stock (to the extent JFLincreases its investment in the Company, which it is permitted to do up to$6,000,000, the amount of securities it would obtain upon completion of therestructuring would increase proportionately). Until the restructuring occurs, JFL’s $4,800,000 investment will be usedas collateral for the Bridge Notes discussed below.

 

As provided in the Exchange Agreement, in connectionwith the exchange offer, the Company will solicit consents from tenderingnoteholders to approve (i) certain modifications to the existing indenturefor the Senior Notes that will remove from the indenture many of theprotections for holders of the Senior Notes and (ii) a prepackaged bankruptcyof the Company in the event the exchange offer is not consummated, whichprepackaged bankruptcy would seek to replicate the successful completion of therestructuring as described in the Exchange Agreement to the greatest degreepossible, except with respect to the possible cash repurchase of Senior Notesby the Company, which is not contemplated as part of the prepackaged bankruptcyplan, and subject to such changes as may be required under applicablebankruptcy laws in order to make the plan of reorganization thereunderconfirmable.

 

Upon issuance of the New Notes, New Preferred Stockand common stock as described above, through an amendment to the Company’scharter to be effected immediately prior to the completion of therestructuring, (a) the Company’s currently outstanding shares of Series Apreferred stock would be converted into (i) an aggregate of $3,500,000 instated liquidation value of New Preferred Stock and (ii) 125,000 shares ofnew common stock, and (b) the Company’s currently outstanding shares ofcommon stock and Series B and Series C convertible preferred stock would beconverted into an aggregate of 125,000 shares of new common stock, with theallocation of those shares of new common stock to be made pro rata on anas-converted basis, assuming the shares of Series B and Series C preferredstock had been converted into common stock immediately prior to therestructuring.  The Series A, B and Cpreferred stock dividends payable will be canceled upon consummation of thetransactions contemplated by the Exchange Agreement.

 

The Exchange Agreement also contemplates the extensionof a bridge loan and the repayment of the Company’s credit facility with AblecoFinance, LLC (“Ableco”), as described immediately below.

 

*BridgeLoan*

 

On April 16, 2003, in connection with entering intothe Exchange Agreement, the Company and Elgar entered into a loan agreement(the “Bridge Notes”) with the Oaktree Entities in the amount of $25,000,000,bearing interest at 10% per annum, payable monthly in arrears, and secured bysubstantially all assets of the Company. The Bridge Notes mature on the earlier of (i) completion ofthe restructuring transactions contemplated by the Exchange Agreement and(ii) August 1, 2003.

 

On the same date, Elgar used approximately$20.6 million of the proceeds from the Bridge Notes to repay in full itscredit facility with Ableco, which facility was thereafter terminated.  After the payment of fees and expensesrelated to the Exchange Agreement and Bridge Notes, Elgar retained about$3.2 million of proceeds from the Bridge Notes for cash reserve andworking capital purposes.

 

Upon completion of the transactions contemplated bythe Exchange Agreement, unless the Bridge Notes are repaid with the proceeds ofa new third-party credit facility, any amounts that remain outstanding underthe Bridge Notes would be exchanged for a term note of like amount bearinginterest at the greater of

 

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12% or a rate of interest equal to a reference rate plus 8% (the “TermNote”).  The Term Note would have astated maturity of August 1, 2007, would be secured by substantially all of theassets of the Company and would have the benefit of quarterly sinking fundpayments of $1,000,000, with the first such payment by Elgar due on November 1,2003.  To the extent the Companyrefinances a portion of the Term Note subsequent to the closing of the exchangedescribed above, the Oaktree Entities have agreed under certain circumstances toexchange their interests in the Term Notes for participations in suchreplacement financing.

 

Upon completion of the transactions contemplated bythe Exchange Agreement and based upon current and anticipated levels ofoperations, the Company believes that its cash resources will be adequate to meetits anticipated cash requirements for the next 12 months.

 

**4. Concentrations of Credit Risk**

 

No customer individually represented more than 10% ofnet sales in the three months ended March 29, 2003 or March 30, 2002.  The Company performs ongoing creditevaluation of its customers’ financial condition, and maintains reserves forpotential credit losses.

 

**5. Senior Notes and Credit Facilities**

 

*SeniorNotes*

 

In February 1998, the Company issued $90.0million aggregate principal amount of Senior Notes due 2008 (the “SeniorNotes”).  The Senior Notes bear interestat a rate of 9.875% per annum, payable semi-annually on February 1st and August1st, and have a maturity date of February 1, 2008.

 

The Senior Notes are general unsecured obligations ofthe Company and rank senior to all existing and future subordinatedindebtedness of the Company. The obligations of the Company as a guarantor ofElgar’s obligations under the Bridge Notes are secured by substantially all ofthe assets of the Company. Accordingly, such secured indebtedness effectivelyranks senior to the Senior Notes to the extent of such assets.

 

The Senior Notes restrict, among other things, theCompany’s ability to incur additional indebtedness, pay dividends or makecertain other restricted payments, incur liens, sell preferred stock ofsubsidiaries, apply net proceeds from certain asset sales, merge or consolidatewith any other person, sell, assign, transfer, lease, convey or otherwisedispose of substantially all of the assets of the Company or enter into certaintransactions with affiliates. The Senior Notes are fully and unconditionallyguaranteed by the Company’s wholly owned subsidiary, Elgar. Separate financialstatements of the guarantor have not been presented as they would not, in management’sopinion, be meaningful to investors.

 

*Old Deutsche Bank Credit Facility*

 

The Company and Elgar were party to a credit agreementwith Deutsche Bank Trust Company Americas, successor in interest to BankersTrust Company (“Deutsche Bank”), as agent and sole lender, which was enteredinto in connection with the Company’s February 1998 recapitalization.  On June 26, 2002, in connection withentering into the Ableco credit facility described below, the Deutsche Bankcredit facility was repaid in full and terminated.

 

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*Old Ableco Facility*

 

On June 26, 2002, the Company, Elgar, asborrower, and Ableco Finance, LLC, as agent (“Ableco”), entered into afinancing agreement (the “Ableco Facility”) that provided Elgar with (a) a$15,000,000 term loan (the “Term Loan”) that bore interest at a reference rateplus 5.50 percentage points, but in no event at a rate less than 10.25%, and(b) a revolving credit facility (the “Revolver”) not to exceed $10,000,000outstanding at any time that bore interest at a reference rate plus 3.00percentage points, but in no event at a rate less than 7.75%.  The reference rate means the rate ofinterest publicly announced by JPMorgan Chase Bank from time to time as itsreference rate, base rate or prime rate. Interest was payable monthly on both the Term Loan and theRevolver.  Borrowings outstanding underthe Ableco Facility had a stated maturity date of June 25, 2006.  On April 16, 2003, the Ableco Facilitywas repaid in full with proceeds from the Bridge Notes and thereafterterminated.

 

*Deferred Financing Costs*

 

In connection with the issuance of the Senior Notesand entering into the Ableco Facility, the Company incurred debt issuance costsof $4.9 million and $2.7 million, respectively, that are being amortized tointerest expense over the term of the related debt.  The accumulated amortization associated with the Senior Notes wasapproximately $2.4 million at December 28, 2002 and $2.5 million atMarch 29, 2003.  The accumulated amortizationassociated with the Ableco Facility was approximately $504,000 at March 29,2003.

 

**6. Convertible Preferred Stock**

 

In connection with Elgar’s acquisition of Power Ten,the Company issued 5,000 shares of Series B 6% cumulative convertible preferredstock (the “Series B Preferred Stock”) for cash proceeds of$5.0 million.  This offering, whichwas made in compliance with the subscription rights contained in the Company’sshareholders agreement, was completed on May 29, 1998.

 

In connection with entering into an amendment to theold credit facility with Deutsche Bank, the Company’s majority stockholder madea $4.0 million capital contribution to the Company.  In order to effectuate the contribution, the Company issued 4,000shares of Series C 6% cumulative convertible preferred stock (the “Series CPreferred Stock”) for cash proceeds of $4.0 million.  This offering, which was made in compliancewith the subscription rights contained in the Company’s shareholders agreement,was completed on March 30, 1999.

 

Dividends are payable to the holders of the Series BPreferred Stock and Series C Preferred Stock at the annual rate per share of 6%times the sum of (x) $1,000 and (y) accrued but unpaid dividends.  For the Series B Preferred Stock, dividendsare payable semi-annually on April 30 and October 31.  For the Series C Preferred Stock, dividends are payablesemi-annually on March 31 and September 30. These dividends are payable when and if declared by the board ofdirectors out of funds legally available for such payment.  During the three months ended March 29, 2003and March 30, 2002, the Company accrued $97,620 and $92,016, respectively, fordividends on the Series B Preferred Stock, and $73,878 and $69,639, respectively,for dividends on the Series C Preferred Stock.

 

**7. Series A Redeemable PreferredStock**

 

Dividends are payable quarterly to the holders ofSeries A cumulative redeemable preferred stock

 

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at 10% per year unless the dividends are not paid for four consecutivequarters, in which case the dividends are payable at 12% per year.  The dividends became payable at 12% per yearin February 2002.  The dividends were payablein-kind through January 31, 2001 and in cash thereafter.  Under the terms of the indenture governingthe Company’s $90.0 million of Senior Notes, the Company is prohibited frompaying cash dividends unless its consolidated fixed charge coverage ratio is atleast 2.0 to 1.0.  The Company does notanticipate that this ratio will equal or exceed 2.0 to 1.0 during 2003.  As a result, the Company has accrueddividends of $501,300 and $420,591 during the three months ended March 29, 2003and March 30, 2002, respectively.  TheCompany anticipates that it will continue to accrue dividends, rather than paycash dividends, on the Series A preferred stock during the remainder ofFiscal 2003.

 

**8. Related Party Transactions**

 

*Contributed Management Services*

 

In February 1998, the Company entered into amanagement agreement with J.F. Lehman & Company (“Lehman”), anaffiliate of the Company’s principal stockholder (the “ManagementAgreement”).  Under the terms of theManagement Agreement, the Company was obligated to pay Lehman a $500,000 annualmanagement fee in advance on a semi-annual basis.  In September 1998, the Company and Lehman amended the ManagementAgreement and concurrently entered into a management services agreement withLehman, the combined effect of which was to further delineate the managementservices to be provided by Lehman and to reduce the term of the ManagementAgreement from ten years to five years. Under the Company’s old credit facility with Deutsche Bank, the Companywas precluded from paying management fees to Lehman during recent periods whenDeutsche Bank had waived events of default, although Lehman continued toprovide management services to the Company during such times.  Under both the old Ableco Facility and theBridge Notes, the Company was and is, respectively, prohibited from payingmanagement fees to Lehman, although Lehman continues to provide thesemanagement services to the Company. Beginning December 30, 2001, the Company recorded the contributedmanagement services as an expense and a corresponding capital contribution.  The total amount of expense and additionalpaid-in capital recorded for these services during each of the three monthsended March 29, 2003 and March 30, 2002 was $125,000.

 

*RacalInstruments*

 

Racal Instruments (“Racal”), a customer of theCompany, was acquired on November 2, 2001 by a group of investors thatincludes affiliates of the Company’s largest stockholder.  In addition, certain members of theCompany’s board of directors are also members of Racal’s board of directors.  As a result, Racal is considered a relatedparty.  During the three months endedMarch 29, 2003 and March 30, 2002, sales by the Company to Racal wereapproximately $41,000 and $107,000, respectively.

 

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**Item 2.****                                   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

The following discussion should be read in conjunctionwith the unaudited consolidated financial statements and notes thereto of theCompany included elsewhere herein.

 

This report contains certain forward-looking statementsand information relating to the Company that are based on the beliefs ofmanagement as well as assumptions made by, and information currently availableto, management.  The words“anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends” and similarexpressions, as they relate to the Company or its management, are intended toidentify forward-looking statements. Such statements reflect the current views of the Company, with respectto future events and are subject to certain risks, uncertainties andassumptions, that could cause actual results to differ materially from thoseexpressed in any forward-looking statement, including, without limitation:competition from other manufacturers in the Company’s industry, loss of keyemployees and/or general economic conditions. Should one or more of these risks or uncertainties materialize, orshould underlying assumptions prove incorrect, actual results may varymaterially from those described herein as anticipated, believed, estimated orexpected.  The Company does not intendto update these forward-looking statements.

 

**Recent Developments**

 

*ExchangeAgreement*

 

On April 16, 2003, we entered into an ExchangeAgreement (the “Exchange Agreement”) with J.F. Lehman Equity Investors I,L.P. (“JFL”), Jackson National Life Insurance Company, Old Hickory Fund I,L.L.C., Indosuez Electronics Partners (collectively, the “ConsentingStockholders”) and OCM/GFI Power Opportunities Fund, L.P. and OCM PrincipalOpportunities Fund II, L.P. (collectively, the “Oaktree Entities”), in theircapacity as holders, directly or indirectly, of 73% of the Company’soutstanding Senior Notes.  The ExchangeAgreement requires the Company to make an exchange offer and consentsolicitation to the holders of its $90,000,000 of 9-7/8% Senior Notes, askingsuch holders to exchange their Senior Notes for an aggregate of(i) $60,000,000 of 9% senior notes due February 1, 2008 (the “New Notes”),(ii) $30,000,000 in stated liquidation value of Series D 10.5% seniorcumulative redeemable preferred stock due February 1, 2008 (the “New PreferredStock”) and (iii) 750,000 shares of new common stock, representing,without giving effect to the transactions described in the immediatelysucceeding paragraph, 75% of the Company’s common stock to be outstanding uponcompletion of the restructuring transactions. The Exchange Agreement contemplates that the exchange offer may offerthe holders of Senior Notes (other than the Oaktree Entities, JFL or any oftheir affiliates) the option to have their Senior Notes repurchased by theCompany, for an amount of cash to be determined, rather than exchanged for thebasket of securities described above. We currently contemplate that the exchange offer will commence on orabout May 15, 2003, although that is subject to change.

 

In addition, the Exchange Agreement requires JFL tomake an additional investment in the Company of not less than $4,800,000 inexchange for which it would receive, upon completion of the restructuring,$6,400,000 of New Notes, $3,200,000 in stated liquidation value of additionalNew Preferred Stock and 80,000 shares of new common stock (to the extent JFLincreases its investment in the Company, which it is permitted to do up to$6,000,000, the amount of securities it would obtain upon completion of therestructuring would increase proportionately). Until the restructuring occurs, JFL’s $4,800,000 investment will be usedas collateral for the Bridge Notes discussed below.

 

As provided in the Exchange Agreement, in connectionwith the exchange offer, the Company will solicit consents from tenderingnoteholders to approve (i) certain modifications to the existing indenturefor the Senior Notes that will remove from the indenture many of theprotections for holders of the Senior Notes and (ii) a prepackagedbankruptcy of the Company in the event the exchange offer is not consummated,which prepackaged bankruptcy would seek to replicate the successful completionof the

 

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restructuring as described in the Exchange Agreement to the greatestdegree possible, except with respect to the possible cash repurchase of SeniorNotes by the Company, which is not contemplated as part of the prepackagedbankruptcy plan, and subject to such changes as may be required underapplicable bankruptcy laws in order to make the plan of reorganizationthereunder confirmable.

 

Upon issuance of the New Notes, New Preferred Stockand common stock as described above, through an amendment to the Company’scharter to be effected immediately prior to the completion of therestructuring, (a) the Company’s currently outstanding shares of Series Apreferred stock would be converted into (i) an aggregate of $3,500,000 instated liquidation value of New Preferred Stock and (ii) 125,000 shares ofnew common stock, and (b) the Company’s currently outstanding shares ofcommon stock and Series B and Series C convertible preferred stock would beconverted into an aggregate of 125,000 shares of new common stock, with theallocation of those shares of new common stock to be made pro rata on anas-converted basis, assuming the shares of Series B and Series C preferredstock had been converted into common stock immediately prior to therestructuring.

 

The Exchange Agreement also contemplates the extensionof a bridge loan and the repayment of the Company’s credit facility with AblecoFinance, LLC (“Ableco”), as described immediately below.

 

*BridgeLoan*

 

On April 16, 2003, in connection with entering intothe Exchange Agreement, the Company and Elgar entered into a loan agreement(the “Bridge Notes”) with the Oaktree Entities in the amount of $25,000,000,bearing interest at 10% per annum, payable monthly in arrears, and secured bysubstantially all assets of the Company. The Bridge Notes mature on the earlier of (i) completion ofthe restructuring transactions contemplated by the Exchange Agreement and(ii) August 1, 2003.

 

On the same date, Elgar used approximately$20.6 million of the proceeds from the Bridge Notes to repay in full itscredit facility with Ableco, which facility was thereafter terminated.  After the payment of fees and expensesrelated to the Exchange Agreement and Bridge Notes, Elgar retained about$3.2 million of proceeds from the Bridge Notes for cash reserve andworking capital purposes.

 

Upon completion of the transactions contemplated bythe Exchange Agreement, unless the Bridge Notes are repaid with the proceeds ofa new third-party credit facility, any amounts that remain outstanding underthe Bridge Notes would be exchanged for a term note of like amount bearinginterest at the greater of 12% or a rate of interest equal to a reference rateplus 8% (the “Term Note”).  The TermNote would have a stated maturity of August 1, 2007, would be secured bysubstantially all of the assets of the Company and would have the benefit ofquarterly sinking fund payments of $1,000,000, with the first such payment byElgar due on November 1, 2003.  To theextent the Company refinances a portion of the Term Note subsequent to theclosing of the exchange described above, the Oaktree Entities have agreed undercertain circumstances to exchange their interests in the Term Notes forparticipations in such replacement financing.

 

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**Results of Operations**

 

The following table sets forth certain statement ofoperations data for the Company as a percentage of net sales for the threemonths ended March 30, 2002 and March 29, 2003:

 
|                                            |   | **Three  Months Ended** |   |
|-------------------------------------------------|--------|-------------------------|--------|
|                                            |   | **March 30,  2002**     |   | **March 29,  2003** |   |
|                                            |   | **(unaudited)**         |   |
| **Statement  of Operations Data:**              |   |                    |   |   |   |
| Net sales                                       |   | 100.0                   | %      | 100.0 | % |
| Cost of sales                                   |   | 62.1                    |   | 61.2 |   |
| Gross profit                                    |   | 37.9                    |   | 38.8 |   |
| Selling, general  and administrative expenses   |   | 25.1                    |   | 32.6 |   |
| Research,  development and engineering expenses |   | 12.5                    |   | 13.3 |   |
| Amortization of  non-compete agreements         |   | 0.1                     |   | 0.2 |   |
| Operating income  (loss)                        |   | 0.2                     | %      | (7.3 | )% |

 

*Comparison of the Three Months EndedMarch 29, 2003 to the Three Months Ended March 30, 2002*

 

*Netsales. *Net sales forthe quarter ended March 29, 2003 were $8.3 million, a decrease of$1.7 million, or 17.0%, from net sales of $10.0 million for the quarterended March 30, 2002.  This decrease wasprimarily attributable to continued sluggishness in the economy.  The product lines affected most wereSorensen products, Space Systems and Customer Service.  In the quarter ended March 29, 2003, salesof Sorensen products, which are part of the programmable DC power products,were $4.0 million, a decrease of $0.6 million from the quarter endedMarch 30, 2002.  In the quarter ended March29, 2003, Space System sales were $17,000, a decrease of $0.6 million, andCustomer Service sales were $0.6 million, a decrease of $0.5 million, from thequarter ended March 30, 2002.  TheCustomer Service decrease is mainly due to lower in-house billable repairs andslightly lower nuclear spares sales.

 

*Grossprofit.*  Gross profitfor the quarter ended March 29, 2003 was $3.2 million, a decrease of$0.6 million, or 15.8%, from gross profit of $3.8 million for thequarter ended March 30, 2002.  The decreasein gross profit was due to the decrease in net sales when compared to thequarter ended March 30, 2002.  The grossprofit percent for the quarter ended March 29, 2003 was 38.8%, an increase of0.9% from a gross profit percent of 37.9% for the quarter ended March 30, 2002.This percentage increase was the result of increased manufacturingefficiencies.

 

*Selling,general & administrative expenses.*  Selling, general and administrative(“SG&A”) expenses were $2.7 million for the quarter ended March 29, 2003,an increase of $0.2 million, or 8.0%, from SG&A expenses of$2.5 million for the quarter ended March 30, 2002.  SG&A expenses increased as a percentageof net sales from 25.1% in the quarter ended March 30, 2002 to 32.6% in thequarter ended March 29, 2003.  Thedollar increase was primarily due to higher non-recurring costs, mainly legaland other costs incurred in connection with the proposed restructuring with theholders of Senior Notes, partially offset by decreased commissions expenseresulting from the lower sales volume.

 

*Research, development andengineering expenses.* Research, development and engineering (“RD&E”) expenses were $1.1million for the quarter ended March 29, 2003, a decrease of $0.1 million, or8.3%, from RD&E expenses of $1.2 million for the quarter ended March30, 2002.  RD&E expenses increasedas a percentage of net sales from 12.5% in the quarter ended March 30, 2002 to13.3% in the comparable 2003 period. The decrease in dollars was primarily due to lower headcount and compensationexpenses in research and development as compared to the quarter ended March 30,2002.  The percentage

 

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increase in the quarter ended March 29, 2003 versus the comparable 2002period was mainly due to the $1.7 million decrease in sales.

 

*Amortization of non-competeagreements.* Amortization expense was $12,000 for each of the quarters ended March29, 2003 and March 30, 2002. Amortization expense is related to non-compete agreements entered intowith the former owners of Power Ten.

 

*Operatingincome (loss).* Operating income (loss) was a loss of $0.6 million for the quarter endedMarch 29, 2003, a decrease of $0.6 million from operating income of$25,000 for the quarter ended March 30, 2002. Operating income (loss) decreased as a percentage of net sales from 0.2%for the quarter ended March 30, 2002 to (7.3%) for the quarter ended March 29,2003, due to the factors discussed above.

 

*Interestexpense. *Interestexpense was $3.1 million in the quarter ended March 29, 2003, an increase of$0.2 million, or 6.9%, from interest expense of $2.9 million in the quarterended March 30, 2002.  Interest expenseincreased as a percentage of net sales from 28.6% in the quarter ended March30, 2002 to 37.1% in the comparable 2003 period.  The increase in dollars was a result of higher outstandingborrowings and higher interest rates on our term debt and revolving line ofcredit, partially offset by the amortization of deferred loan costs due to theacceleration of the loan maturity date and the amendment fees payable toBankers Trust that were recorded in the quarter ended March 30, 2002.

 

*Incometaxes. *Income taxesfor both the quarters ended March 29, 2003 and March 30, 2002 were zero.  Losses generated in these quarters do nothave a carryback benefit and thus have not been recognized because futurerealization is uncertain.

 

*Netloss.*Net loss was $3.7 million in the quarter ended March29, 2003, an increased loss of $0.9 million, or 32.1%, from a net loss of $2.8million for the quarter ended March 30, 2002. In order to improve operating results, we have undertaken a number ofinitiatives to increase sales across our multiple product lines.  These include (1) a consolidation ofour sales representatives and distributors to market all three of our namebrands:  Elgar, Sorensen and Power Ten, (2) an increased emphasis onEuropean and other international sales; (3) the introduction of variousnew products and product line extensions and (4) continued cost reductionefforts through the reduction of indirect headcount and increasing efficienciesin the manufacturing and procurement processes.

 

**Liquidity and Capital Resources**

 

*Uses ofCash*

 

Our principal uses of cash are for debt servicerequirements, working capital requirements and capital expenditures.  As a holding company with no operations orassets other than our ownership of Elgar’s capital stock, we rely on dividendsand other payments from Elgar to generate the funds necessary to meet ourobligations, including the semi-annual interest payments of approximately$4.5 million on the Senior Notes. In turn, Elgar relies on cash flow from operations together with fundsavailable to it under its credit facility, to dividend funds to us.

 

On February 1, 2003, the Company made an interestpayment of approximately $4.5 million to the holders of the Senior Notes.

 

*Sources of Cash*

 

Elgar’s principal sources of capital are cash flowfrom operations together with funds available to it under its creditfacility.  In turn, Elgar dividendsfunds to enable us to meet our debt service requirements.

 

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On June 26, 2002, the Company, Elgar, asborrower, and Ableco, as agent, entered into a financing agreement (the “AblecoFacility”) that provided Elgar with (a) a $15,000,000 term loan (the “TermLoan”) that bore interest at a reference rate plus 5.50 percentage points, butin no event at a rate less than 10.25%, and (b) a revolving creditfacility not to exceed $10,000,000 outstanding at any time (the “Revolver”)that bore interest at a reference rate plus 3.00 percentage points, but in noevent at a rate less than 7.75%.  Thereference rate means the rate of interest publicly announced by JPMorgan ChaseBank from time to time as its reference rate, base rate or prime rate.  Interest was payable monthly on both theTerm Loan and the Revolver.  Borrowingsoutstanding under the Ableco Facility had a stated maturity date ofJune 25, 2006.

 

At March 29, 2003, theoutstanding balance on the Revolver was $5.3 million, with$0.8 million of additional borrowing capacity under the Revolver as ofthat date.

 

As discussed under “—Recent Developments” above, theAbleco Facility was terminated on April 16, 2003 after it was repaid infull with the proceeds of the Bridge Notes. After repayment of the Ableco Facility and the payment of fees andexpenses related to the Exchange Agreement and the Bridge Notes, Elgar retainedapproximately $3.2 million of proceeds from the Bridge Notes for cashreserve and working capital purposes.

 

Upon completion of the transactions contemplated bythe Exchange Agreement and based upon current and anticipated levels ofoperations, as well as additional funds available under the Bridge Notes, webelieve that our cash resources will be adequate to meet our anticipated cashrequirements for the next 12 months.  Noassurance can be given, however, that this will be the case.

 

*Capital Expenditures*

 

The Company’s capital expenditures were $17,000 in thethree months ended March 29, 2003, down from $39,000 in the three months endedMarch 30, 2002.  The Company anticipatesthat capital expenditures through the end of the fiscal year will be $600,000.

 

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk**

 

We have had only limited involvement in derivativefinancial instruments in the past.  Wedo not hold or issue derivative financial instruments for trading purposes.

 

At March 29, 2003, $20,300,000 of outstandingborrowings under the Ableco Facility, including letters of credit, was atvariable interest rates.  We are subjectto market risk resulting from interest rate fluctuations with respect to ourvariable-rate borrowings.  Based on ouroutstanding variable-rate borrowings at March 29, 2003, a one percentagepoint increase in interest rates would be expected to have an estimated impacton net loss and cash flows for the next year of approximately $203,000 for thevariable-rate debt.

 

**Item 4.  Controls and Procedures**

 

Within the 90 days prior to the date of this report,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s chiefexecutive officer and chief financial officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedurespursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the chief executive officer and the chieffinancial officer concluded that the Company’s disclosure controls andprocedures are effective in timely alerting them to material informationrelating to the Company (including its consolidated subsidiary) required to beincluded in the Company’s periodic SEC filings, and that there were nosignificant changes in internal controls or in other factors that could

 

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significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

**PART II    OTHERINFORMATION**

 

**Item 6 .  Exhibits and Reports on Form 8-K**

 

(a)                    Exhibits.

 

10.1                                                   ExchangeAgreement, dated as of April 16, 2003, by and among Elgar Holdings, Inc.,J.F. Lehman Equity Investors I, L.P., Jackson National Life InsuranceCompany, Old Hickory Fund I, L.L.C., Indosuez Electronics Partners, OCM/GFIPower Opportunities Fund, L.P. and OCM Principal Opportunities Fund II, L.P.

 

10.2                                                   LoanAgreement, dated as of April 16, 2003, by and among Elgar ElectronicsCorporation, Elgar Holdings, Inc., OCM/GFI Power Opportunities Fund, L.P., OCM Principal Opportunities Fund II, L.P.,****and****U.S. Bank National Association

 

10.3                                                   AmendmentNo. 1, dated as of April 15, 2003, to Employment Agreement, dated as ofJuly 17, 2002, among Elgar Holdings, Inc., Elgar Electronics Corporationand Joseph Budano

 

10.4                                                   AmendmentNo. 1, dated as of April 15, 2003, to Employment Agreement, dated as ofDecember 30, 2002 but effective as of September 16, 2002, among ElgarHoldings, Inc., Elgar Electronics Corporation and John P. Mei

 

10.5                                                   RestructuringBonus Agreement, dated as of March 31, 2003, by and between ElgarHoldings, Inc. and Joseph Budano

 

10.6                                                   RestructuringBonus Agreement, dated as of March 31, 2003, by and between ElgarHoldings, Inc. and John Mei

 

(b)                   The Company didnot file any Current Reports on Form 8-K during the quarter endedMarch 29, 2003.

 

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**SIGNATURE**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                |   | **ELGAR  HOLDINGS, INC.** |
|---------------------|--------|---------------------------|
|                |   |                      |
|                |   |                      |
| Dated: May 13, 2003 |   | By:                       |   /s/ John P.  Mei |   |
|                |   |                      | John P. Mei |
|                |   |                      | Chief Financial Officer |

 

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**RULE13a-14 CERTIFICATIONS**

 

I, Joseph Budano, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Elgar Holdings, Inc. (the“Company”);

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this quarterly report;

 

4.                                       TheCompany’s other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and we have:

 

(a)                                  designedsuch disclosure controls and procedures to ensure that material informationrelating to the Company, including its consolidated subsidiary, is made knownto us by others within those entities, particularly during the period in whichthis quarterly report is being prepared;

 

(b)                                 evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)                                  presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       TheCompany’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the Company’s auditors and the audit committee of theCompany’s board of directors:

 

(a)                                  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the Company’s ability to record, process, summarize andreport financial data and have identified for the Company’s auditors anymaterial weaknesses in internal controls; and

 

(b)                                 anyfraud, whether or not material, that involves management or other employees whohave a significant role in the Company’s internal controls; and

 

6.                                       TheCompany’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date: May 13, 2003

 
|   |   |   | /s/ Joseph Budano       |   |   |   |
|--------|--------|--------|-------------------------|--------|--------|--------|
|   |   |   | Joseph Budano           |   |   |   |
|   |   |   | Chief Executive Officer |   |   |   |

 

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I, John P. Mei, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Elgar Holdings, Inc. (the“Company”);

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this quarterly report;

 

4.                                       TheCompany’s other certifying officer and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Company and we have:

 

(a)                                  designedsuch disclosure controls and procedures to ensure that material informationrelating to the Company, including its consolidated subsidiary, is made knownto us by others within those entities, particularly during the period in whichthis quarterly report is being prepared;

 

(b)                                 evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)                                  presentedin this quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       TheCompany’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the Company’s auditors and the audit committee of theCompany’s board of directors:

 

(a)                                  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the Company’s ability to record, process, summarize andreport financial data and have identified for the Company’s auditors anymaterial weaknesses in internal controls; and

 

(b)                                 anyfraud, whether or not material, that involves management or other employees whohave a significant role in the Company’s internal controls; and

 

6.                                       TheCompany’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date: May 13, 2003

 
|   |   |   | /s/ John P. Mei         |   |   |   |
|--------|--------|--------|-------------------------|--------|--------|--------|
|   |   |   | John P. Mei             |   |   |   |
|   |   |   | Chief Financial Officer |   |   |   |

 

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